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Test your basic knowledge |
Options Trading
Start Test
Study First
Subjects
:
industries
,
business-skills
Instructions:
Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can
study here
.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.
This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b
Indexing
Theoretical value (TV)
Out-of-the-money (OTM)
Short stock position
2. An order to buy or sell at the last price on the close.
Assigned
Bear market
Market on close (MOC)
Selling short
3. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.
Pin risk
Ratio write
Extrinsic value
Theta
4. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u
Collar
Bear spread
Analytics
Offer price
5. The largest and oldest listed options exchange.
In-the-money option (ITM)
Chicago Board Options Exchange (CBOE)
Hedge/Hedged position
Early exercise
6. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.
Uncovered option/Naked option
Automatic exercise
Time decay
Backspread
7. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)
European-style option
Bull spread (call)
Options pricing model
Chicago Board Options Exchange (CBOE)
8. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Assignment
Put-call ratio
Good til cancel (GTC) order
Bull
9. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Early exercise
Clearinghouse
Neutral strategy
Neutral
10. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.
Edge
Equity option
Leg
Ratio write
11. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Contract size
Interest
Expiration month
Synthetic long put
12. The sensitivity of theoretical option prices with regard to small changes in interest rates. Increases in interest rates lead to higher call values and lower put values. Lower interest rates do the opposite.
Bull spread (put)
Contract size
American-style options
Rho
13. Commodity trading advisor.
Short stock position
Good til cancel (GTC) order
Market on close (MOC)
CTA
14. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.
Volatility
LEAPS
Premium
Time spread/Calendar spread/Horizontal spread
15. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Fences
Broker/Dealer
Early exercise
Good til cancel (GTC) order
16. A long stock position and a long put position.
Backspread
Early exercise
Synthetic Long call
Box spread
17. The use of money to create more money through an appreciating or income-producing asset.
Index
Option
AON
Investment
18. The date on which an option and the right to exercise it cease to exist. Listed stock options expire the Saturday following the third Friday of every month.
CTA
Put-call ratio
Expiration date
Index
19. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op
Time decay
Assignment
Collar
Bull (or bullish) spread
20. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.
Arbitrage
Option
Conversion
Intrinsic value
21. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Strike price
Iron butterfly
Indexing
Extrinsic value
22. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.
Bear spread (put)
Condor spread
Time value
Edge
23. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Bear spread (call)
Theta
Short
Straddle
24. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]
Bull spread (call)
Bull (or bullish) spread
Butterfly spread (Call)
Time spread/Calendar spread/Horizontal spread
25. An option that has no intrinsic value.
Interest
Out-of-the-money (OTM)
Theoretical value (TV)
Straddle
26. An option position that involves the purchase/sale of a call and the sale (purchase of a put on the same underlying strike with the same expiration. Can also be referred to as any set of multiple purchases and sales of options.
Indexing
Combination
Implied volatility
Backspread
27. An option strategy that involves an out-of-the-money call and an out-of-the-money put. This is normally used as a long stock protective strategy when the call is sold and the put is purchased. The opposite of this strategy - called a 'fence -' could
Fences
Index option
Time decay
Covered option
28. A long call position and a short put position.
Synthetic long stock
GTC
Bid/bid price
Implied volatility
29. A debit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (writing 1 XYZ Jan 50 put and buying 1 XYZ Jan 55 put)
Option
Options pricing model
Bear spread (put)
All-or-none order (AON)
30. An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis.More calls written than the equivalent number of shares purchased.
Debit spread
Conversion
European-style option
Ratio write
31. An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. (by purchasing 100 shares of XYZ stock at 50 - writing 1 XYZ Jan 50 call - and bu
Expiration date
Conversion
Investment
Hedging
32. A position established with the specific intent of protecting an existing position. (an owner of common stock may buy a put option to hedge against a possible stock price decline).
Equivalent strategy
Underlying
GTC
Hedge/Hedged position
33. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Intrinsic value
Underlying
Vega
Open interest
34. The time of day by which all exercise notices must be received on the expiration date.
Options pricing model
Expiration time
Pin risk
Time spread/Calendar spread/Horizontal spread
35. Constructin a portfolio to match the performance of a broad-based index - such as the S&P 500. Individuals can do this by purchasing shares in an index mutual fund.
Indexing
ATM
Condor spread
Bear spread (put)
36. A strategy involving four options and four strike prices - and that has both limited risk and limited profit potential. A long call condor spread is establish by buying one call the lowest strike - writing one call at the second strike - writing anot
Horizontal spread
Break-even point(s)
Time decay
Condor spread
37. Received notification of an assignment by rhw options clearing corporation.
Horizontal spread
Interest
Assignment
Assigned
38. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.
Exercise
Butterfly spead (Put)
Chicago Board Options Exchange (CBOE)
Theta
39. Charge levied for the privilege ofborrowing money
Fences
Interest
Diagonal spread
All-or-none order (AON)
40. These options can be exercised on any business dy prior to expiration and the settlement value will be based on the index close that day - settled in the cash equivalent of the amount in-the-money.
Horizontal spread
Cash-settled American index options (cash index)
Broker/Dealer
Bear spread (put)
41. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Rho
Options pricing curve
Strangle
Expiration time
42. Third Friday of expiration month
Edge
Covered option
Last trading day
Synthetic long stock
43. An order that is designated to be executed on or before the expiration date.
Market on close (MOC)
Arbitrage
European-style option
All-or-none order (AON)
44. The use of money to create more money through an appreciating or income-producing asset.
Investment
Expiration time
Covered option
Synthetic short put
45. An option that has no intrinsic value.
Out-of-the-money (OTM)
Assignment
Option
Options pricing curve
46. The risk to an investor that the stock price will exactly equal the strike price of a written option at expiration. (risk to be pinned with stock)
Pin risk
Ratio write
DPM
Long position
47. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Bear
Strike price
Future
DPM
48. Investment strategy that has a similar risk/reward profile as another investment strategy. (a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread).
Equivalent strategy
Selling short
Uncovered option/Naked option
Ask/ask price
49. A long call position and a short put position.
Box spread
Option writer
All-or-none order (AON)
Synthetic long stock
50. Another name for calendar spread.
Delta
Series of options
Horizontal spread
Implied volatility