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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 consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit
Premium
Spread
Put-call ratio
Straddle
2. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Broker loan rate
Synthetics
Volatility
Options pricing curve
3. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal
European-style option
Delta
American-style options
Reverse conversion
4. Good Til Cancel
GTC
Early exercise
Synthetic long put
Cash-settled American index options (cash index)
5. An option that can be exercised only at expiration. Usually expire the third Friday of every month
ATM
Bear spread
Synthetic short stock
European-style option
6. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit
Uncovered option/Naked option
Time spread/Calendar spread/Horizontal spread
Spread
Premium
7. 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).
Extrinsic value
reaking
Equivalent strategy
Reverse conversion
8. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
American-style options
Straddle
Ratio write
All-or-none order (AON)
9. An option strategy that is neither bullish nor bearish.
Diagonal spread
Offer price
Horizontal spread
Neutral strategy
10. 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.
Expiration date
Combination
Backspread
Ratio write
11. A short stock position and a short put position.
Arbitrage
Credit spread
Synthetic short call
Cash-settled American index options (cash index)
12. 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.
Covered option
Implied volatility
Open interest
Future
13. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Time value
Theta
Bull
AON
14. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Bull spread (put)
Long position
Break-even point(s)
Underlying
15. A short stock position and a long call position.
Gamma
Fences
Synthetic long put
Class of options
16. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Strangle
Reverse conversion
Expiration cycle
Ratio write
17. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)
Implied volatility
Series of options
Long position
Covered call/Covered call writing
18. 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
Market on close (MOC)
Automatic exercise
Vertical spread
Analytics
19. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments
Interest rate risk
Equity option
Expiration date
Covered option
20. 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.
Selling short
Future
Backspread
Option Chain
21. 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)
Vertical spread
Combination
Index
Options pricing model
22. 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
Intrinsic value
Hedging
Option Chain
Bear spread
23. A long call position and a short put position.
Black-Scholes formula
In-the-money option (ITM)
Synthetic long stock
AON
24. A market drop in the price of a security
reaking
Historic volatility
AON
Expiration date
25. The use of money to create more money through an appreciating or income-producing asset.
Debit spread
Index
Good til cancel (GTC) order
Investment
26. 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.
Interest
Put-call ratio
Analytics
Rho
27. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Theoretical value (TV)
Collar
Early exercise
Bear spread (put)
28. The highest price a dealer is willing to pay for a security at a particular time.
Early exercise
Box spread
Bid/bid price
Edge
29. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)
Arbitrage
Adjusted Option
Pin risk
Leverage
30. 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.
Theta
Leg
Synthetic Long call
Synthetics
31. A long stock position and a long put position.
Long position
Synthetic Long call
Analytics
Expiration time
32. Amount by which an option is ITM.
Open interest
Intrinsic value
Time decay
Series of options
33. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.
Hedging
Leverage
Synthetic Long call
Out-of-the-money (OTM)
34. 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
FOK
Short stock position
Analytics
Box spread
35. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Automatic exercise
Time decay
Hedging
Fences
36. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Synthetics
Clearinghouse
Good til cancel (GTC) order
Put-call ratio
37. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.
Black-Scholes formula
FOK
Calendar spread
LEAPS
38. A position resulting from the sale of a contract or instrument that you do not own.
Gamma
Broker loan rate
Time spread/Calendar spread/Horizontal spread
Short
39. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Volatility
Hedging
Bear market
Out-of-the-money (OTM)
40. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Cash-settled American index options (cash index)
Good til cancel (GTC) order
ATM
Options pricing curve
41. 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
Good til cancel (GTC) order
Diagonal spread
Historic volatility
42. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Ratio write
Neutral strategy
Index option
Series of options
43. 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.
CTA
Theoretical value (TV)
Indexing
Assigned
44. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments
Short stock position
Interest rate risk
Broker/Dealer
Hedge/Hedged position
45. The total number of outstanding option contracts in a given series
Carry/Carrying charge
Collar
Adjusted Option
Open interest
46. The use of money to create more money through an appreciating or income-producing asset.
Uncovered option/Naked option
Investment
Bear spread (put)
Expiration
47. 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
Extrinsic value
Option Chain
Bear
Bear spread
48. A credit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (buying 1 XYZ Jan 55 call and writing 1 XYZ Jan 50 call)
Bear spread (call)
Class of options
Theta
Extrinsic value
49. A spread in which the difference in the long and short options premiums results in a net debit.
ATM
Options pricing model
Pin risk
Debit spread
50. An order that is designated to be executed on or before the expiration date. (all or none)
AON
Future
Equivalent strategy
Neutral spread