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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. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Series of options
LEAPS
FOK
Diagonal spread
2. 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
Butterfly spread (Call)
Synthetic short stock
Synthetic short put
3. 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
Butterfly spread
Synthetic short put
Interest rate risk
American-style options
4. 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.
Synthetics
Volatility
Bull
Option
5. 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
Future
Expiration month
Break-even point(s)
6. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Automatic exercise
Equivalent strategy
Expiration time
Underlying
7. 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.
Underlying
Calendar spread
Neutral
Backspread
8. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Adjusted Option
Index option
Bull
Bull spread (put)
9. 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
Butterfly spread
Assignment
Conversion
DPM
10. A credit spread in which a rise in price of the underlying security will theoretically increase the profit value of the spread. (writing 1 XYZ Jan 55 put and buying 1 XYZ Jan 50 put)
Assigned
Synthetic long stock
Bull spread (put)
Break-even point(s)
11. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Ratio write
Out-of-the-money (OTM)
Synthetic short stock
Strangle
12. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Option writer
Covered option
Cash-settled American index options (cash index)
Broker/Dealer
13. A type of order that requires that the order be executed completely or not at all.
Gamma
Premium
Conversion
Fill-or-kill order (FOK)
14. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.
Put-call ratio
Combination
Theoretical value (TV)
Short stock position
15. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Theoretical value (TV)
DPM
Break-even point(s)
Condor spread
16. Fill-or-kill order
Equity option
FOK
Short stock position
In-the-money option (ITM)
17. 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
Interest rate risk
Good til cancel (GTC) order
Out-of-the-money (OTM)
18. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Ask/ask price
Option
Expiration
Options pricing curve
19. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Expiration month
Neutral
Vega
Option writer
20. A measure of actual stock price changes over a specific period of time.
Last trading day
Covered call/Covered call writing
Historic volatility
Bear spread (put)
21. A long call position and a short put position.
Ask/ask price
Synthetic long stock
Pin risk
Break-even point(s)
22. Another name for calendar spread.
Broker/Dealer
Bull
Bear spread (put)
Horizontal spread
23. 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
Butterfly spead (Put)
Ask/ask price
Future
Uncovered option/Naked option
24. 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.
Call Option
Hedging
Adjusted Option
Short stock position
25. The interest expense on money borrowed to finance a margined securities position.
Carry/Carrying charge
Equivalent strategy
Ask/ask price
Automatic exercise
26. A position that will perform best if there is little or no net change in the price of the underlying stock.
Bull spread (call)
Assignment
Neutral spread
Neutral strategy
27. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Ratio write
Out-of-the-money (OTM)
ATM
Options pricing curve
28. Fill-or-kill order
Class of options
FOK
Vega
Chicago Board Options Exchange (CBOE)
29. 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.
Expiration
Diagonal spread
Expiration cycle
Arbitrage
30. 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.
Combination
Underlying
Clearinghouse
Chicago Board Options Exchange (CBOE)
31. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Bear
Future
Indexing
CTA
32. A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. (buying 1 LMN Jan 50 call - and writing 1 LMN Jan 55 call; simultaneously buying 1 LMN Jan 55 put
Investment
Box spread
Leg
Fill-or-kill order (FOK)
33. A term describing one side of a spread position. A trader who legs into a spread establishes one side first - hoping for a favorable price movement so the other side can be executed at a better price.
Analytics
Leg
Combination
All-or-none order (AON)
34. An option strategy that is neither bullish nor bearish.
Selling short
Series of options
Black-Scholes formula
Neutral strategy
35. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Fill-or-kill order (FOK)
In-the-money option (ITM)
Gamma
Clearinghouse
36. The total number of outstanding option contracts in a given series
Open interest
LEAPS
Strangle
Strangle
37. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Expiration cycle
Good til cancel (GTC) order
Implied volatility
Strangle
38. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Automatic exercise
Equity option
Index option
Uncovered option/Naked option
39. 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.
Backspread
Expiration time
Black-Scholes formula
Long position
40. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Combination
Bear spread (call)
Extrinsic value
Implied volatility
41. 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.
reaking
Bear spread (put)
Vega
Expiration date
42. At the money
ATM
Bear
European-style option
Clearinghouse
43. Charge levied for the privilege ofborrowing money
Spread
Edge
Interest
Selling short
44. 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).
Leverage
Leg
Hedge/Hedged position
Bid/bid price
45. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Carry/Carrying charge
In-the-money option (ITM)
Assignment
Adjusted Option
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
Premium
Collar
American-style options
Implied volatility
47. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Time decay
Last trading day
Carry/Carrying charge
Strike price
48. The estimated value of an option derived from a mathematical model.
Theoretical value (TV)
Bull (or bullish) spread
Good til cancel (GTC) order
Market on close (MOC)
49. An option that has intrinsic value
In-the-money option (ITM)
Class of options
Adjusted Option
Short
50. 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
Synthetic short stock
Vega
Butterfly spread (Call)
CTA