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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 on shares of an individual common stock.
Market on close (MOC)
Equity option
Extrinsic value
FOK
2. 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 rate risk
Bull spread (put)
Out-of-the-money (OTM)
Rho
3. 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
Options pricing curve
Hedge/Hedged position
Collar
In-the-money option (ITM)
4. 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.
Expiration date
Cash-settled American index options (cash index)
Hedge/Hedged position
Black-Scholes formula
5. A position resulting from the sale of a contract or instrument that you do not own.
Bull spread (put)
Investment
Hedging
Short
6. 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.
Calendar spread
Early exercise
Clearinghouse
Volatility
7. 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
Index option
Series of options
Bear spread (put)
8. 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.
Theta
Long position
Clearinghouse
Backspread
9. The use of money to create more money through an appreciating or income-producing asset.
Synthetics
Investment
Ask/ask price
Theoretical value (TV)
10. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Open interest
Market on close (MOC)
Automatic exercise
Indexing
11. A means of increasing return or worth without increasing investment.
Leverage
Strangle
Exercise
Implied volatility
12. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Last trading day
Selling short
Interest
Break-even point(s)
13. 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)
Adjusted Option
FOK
Short stock position
Contract size
14. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.
Last trading day
Horizontal spread
Arbitrage
Credit spread
15. 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.
Synthetics
American-style options
Bull spread (call)
Offer price
16. An option that has no intrinsic value.
Expiration month
Bid/bid price
Out-of-the-money (OTM)
Implied volatility
17. The sensitivity of an option's delta at a given moment in time. It is the change in delta with respect to a 1-point change in the underlying. Examplee (let's say a call option with a 100 strike price has a 50 delta. If the underlying moves from 100 t
Equivalent strategy
Gamma
Equity option
European-style option
18. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Last trading day
Bull
Fill-or-kill order (FOK)
Horizontal spread
19. 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.
Synthetics
Option Chain
Delta
FOK
20. 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
DPM
Combination
Short
21. A type of order that requires that the order be executed completely or not at all.
Fill-or-kill order (FOK)
Edge
Bear spread (call)
Assignment
22. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Assigned
At-the-money
Early exercise
Bear market
23. 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.
Reverse conversion
Butterfly spread
Time spread/Calendar spread/Horizontal spread
Delta
24. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Series of options
Option writer
Straddle
Reverse conversion
25. 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
Bear spread
Bull
Implied volatility
Exercise
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
Synthetic short stock
Premium
Uncovered option/Naked option
Combination
27. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.
American-style options
GTC
Vega
At-the-money
28. 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
Credit spread
Conversion
Class of options
29. Received notification of an assignment by rhw options clearing corporation.
Pin risk
American-style options
Bear spread (put)
Assigned
30. The estimated value of an option derived from a mathematical model.
Condor spread
Investment
AON
Theoretical value (TV)
31. The cycle of expiration dates used in short-term options trading. there are three cycles: (January - April - July - October; February - May - August - November; or March - June - September - December) Because options are traded in contracts for three
Neutral spread
Hedging
Expiration cycle
Option Chain
32. 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.
Straddle
Call Option
Edge
Assigned
33. 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)
Options pricing model
Underlying
Historic volatility
Condor spread
34. An option that has intrinsic value
Investment
DPM
Butterfly spread
In-the-money option (ITM)
35. 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
Black-Scholes formula
Black-Scholes formula
Spread
Interest rate risk
36. An order to buy or sell at the last price on the close.
Last trading day
Market on close (MOC)
Put-call ratio
Broker/Dealer
37. 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)
Expiration month
Class of options
Automatic exercise
Bear spread (put)
38. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Good til cancel (GTC) order
Equity option
Butterfly spread (Call)
Strike price
39. A long stock position and a long put position.
Conversion
Synthetic Long call
Neutral
Future
40. 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
Horizontal spread
Ask/ask price
DPM
Butterfly spread (Call)
41. Fill-or-kill order
FOK
Implied volatility
All-or-none order (AON)
GTC
42. An option that can be exercised only at expiration. Usually expire the third Friday of every month
European-style option
Chicago Board Options Exchange (CBOE)
Premium
American-style options
43. Options that may be exercised on or before the expiration date.
American-style options
Extrinsic value
Uncovered option/Naked option
Butterfly spead (Put)
44. Calculations performed on updated prices.
Bid/bid price
Analytics
Intrinsic value
Assigned
45. Calculations performed on updated prices.
Synthetics
Expiration cycle
Vertical spread
Analytics
46. 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
Collar
Good til cancel (GTC) order
Contract size
Reverse conversion
47. The sensitivity of an options theoretical value to a change in implied volatility.
Leg
Vega
Horizontal spread
Butterfly spread
48. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Selling short
Time value
Automatic exercise
Delta
49. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Butterfly spread
Horizontal spread
Bull spread (call)
Bull
50. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Contract size
Theta
Ratio write
Options pricing curve