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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. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin
reaking
Black-Scholes formula
Iron butterfly
Out-of-the-money (OTM)
2. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.
Butterfly spead (Put)
Vega
Bid/bid price
Carry/Carrying charge
3. Amount by which an option is ITM.
Straddle
Automatic exercise
Intrinsic value
Pin risk
4. A long call position and a short put position.
Butterfly spread (Call)
Synthetic long stock
Uncovered option/Naked option
Diagonal spread
5. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright
Vertical spread
Last trading day
Market on close (MOC)
Conversion
6. Good Til Cancel
Index
GTC
Hedging
Call Option
7. The estimated value of an option derived from a mathematical model.
Carry/Carrying charge
Class of options
Butterfly spead (Put)
Theoretical value (TV)
8. Good Til Cancel
GTC
Ratio write
Short stock position
Leverage
9. This formula can be used to calculate a theoretical value for an option using current stock prices - expected dividends - the option's strike price - expected interest rates - time to expiration - and expected stock volatility.
Black-Scholes formula
Calendar spread
Hedge/Hedged position
Synthetics
10. A short stock position and a short put position.
Synthetic short call
Open interest
Carry/Carrying charge
Diagonal spread
11. A position resulting from the sale of a contract or instrument that you do not own.
Short
Condor spread
Market on close (MOC)
Expiration time
12. The largest and oldest listed options exchange.
Last trading day
Selling short
Chicago Board Options Exchange (CBOE)
Vega
13. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.
Option
Time spread/Calendar spread/Horizontal spread
Spread
Covered option
14. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.
Broker loan rate
Expiration date
Vertical spread
ATM
15. 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).
Synthetic long put
Equivalent strategy
Bull (or bullish) spread
Neutral strategy
16. 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
Exercise
Short
In-the-money option (ITM)
17. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Bull spread (put)
Expiration date
Bear
Straddle
18. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Cash-settled American index options (cash index)
Bull
Broker loan rate
Rho
19. The month during which the expiration date occurs
Premium
Bear spread (put)
Expiration month
Uncovered option/Naked option
20. The time of day by which all exercise notices must be received on the expiration date.
Break-even point(s)
Uncovered option/Naked option
Expiration time
Intrinsic value
21. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.
Butterfly spead (Put)
Last trading day
Synthetics
Expiration cycle
22. 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
Bull (or bullish) spread
Bear
Backspread
Future
23. 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.
Index
Combination
DPM
Strangle
24. An order that is designated to be executed on or before the expiration date.
Option Chain
Backspread
All-or-none order (AON)
Implied volatility
25. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Bear
Bull
Selling short
Indexing
26. A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put is naked if the writer is not short sto
Put-call ratio
Edge
Bid/bid price
Uncovered option/Naked option
27. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Interest rate risk
Bull spread (call)
Early exercise
Selling short
28. A long call butterfly is created by buying one call at the lowest strike price - selling two calls at the middle strike price - and buying one call at the highest strike price. (buying 1 ABC Jan 40 call - writing 2 ABC Jan 45 calls - and buying 1 ABC
Arbitrage
Selling short
Butterfly spread (Call)
Fences
29. A list of the options available for the underlying stock symbols in which you are interested.
Option Chain
Class of options
Adjusted Option
Fences
30. The degree to which the price of an underlying tends to fluctuate over time. This variable - which the market implies to the underlying - may result from pricing an option through a model.
Adjusted Option
Volatility
Selling short
Out-of-the-money (OTM)
31. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Butterfly spread
Equivalent strategy
ATM
Good til cancel (GTC) order
32. Another name for calendar spread.
Horizontal spread
Bear market
Adjusted Option
Bull
33. The total number of outstanding option contracts in a given series
Box spread
Butterfly spread
Open interest
Analytics
34. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.
Assignment
ATM
Synthetics
Bull spread (put)
35. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Index
Volatility
Calendar spread
Contract size
36. The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value. This is often referred to as the time value portion of option premiums.
Extrinsic value
Spread
Bull (or bullish) spread
Ask/ask price
37. A debit spread in which a rise in the price of the underlying security will theoretically increase the value of the spread. (buying 1 XYZ Jan 50 call and writing 1 XYZ Jan 55 call)
Leg
Uncovered option/Naked option
Reverse conversion
Bull spread (call)
38. Opening sale of a security.
Intrinsic value
Selling short
Conversion
Synthetic long stock
39. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin
Synthetic long stock
Iron butterfly
Class of options
Synthetic short put
40. An option that has intrinsic value
Extrinsic value
In-the-money option (ITM)
AON
Interest
41. A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.
reaking
Expiration
Neutral spread
Backspread
42. 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
Condor spread
Assigned
Theoretical value (TV)
Time value
43. A long stock position and a long put position.
Option writer
Expiration month
Synthetics
Synthetic Long call
44. A long call butterfly is created by buying one call at the lowest strike price - selling two calls at the middle strike price - and buying one call at the highest strike price. (buying 1 ABC Jan 40 call - writing 2 ABC Jan 45 calls - and buying 1 ABC
Adjusted Option
Edge
Butterfly spread (Call)
Expiration time
45. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Synthetic long stock
Neutral strategy
Butterfly spead (Put)
Butterfly spread
46. A market drop in the price of a security
Long position
reaking
Interest
Selling short
47. 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
Bid/bid price
Adjusted Option
Extrinsic value
Short stock position
48. The sensitivity (rate of change) of an option's theoretical value (assessed value) for a one dollar change in price of the underlying instrument. Expressed as a percentage - it represents an equivalent amount of underlying at a given moment in time.
Historic volatility
Bull spread (call)
Vertical spread
Delta
49. Received notification of an assignment by rhw options clearing corporation.
Analytics
Assigned
Butterfly spread (Call)
At-the-money
50. 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.
Butterfly spead (Put)
Hedge/Hedged position
Fences
Theta