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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 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
Index
Offer price
Broker/Dealer
2. The highest price a dealer is willing to pay for a security at a particular time.
Edge
Adjusted Option
Calendar spread
Bid/bid price
3. A spread in which the difference in the long and short options premiums results in a net debit.
Option writer
Equity option
Debit spread
Exercise
4. 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
Series of options
Offer price
Fill-or-kill order (FOK)
5. 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
GTC
Rho
Investment
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.
Credit spread
Volatility
Indexing
Strangle
7. Opening sale of a security.
Neutral strategy
GTC
Covered call/Covered call writing
Selling short
8. The date an option contract becomes void.
Expiration
Straddle
Selling short
GTC
9. Good Til Cancel
Leverage
GTC
CTA
LEAPS
10. 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
Bull (or bullish) spread
Bear market
Iron butterfly
Fill-or-kill order (FOK)
11. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Underlying
Options pricing curve
Synthetic long stock
Vega
12. 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.
DPM
Arbitrage
Option writer
Pin risk
13. A market drop in the price of a security
Options pricing curve
reaking
Offer price
Neutral spread
14. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Option writer
Bear
Time value
Leg
15. Charge levied for the privilege ofborrowing money
Strangle
Combination
Uncovered option/Naked option
Interest
16. Amount by which an option is ITM.
Put-call ratio
Underlying
Vega
Intrinsic value
17. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Collar
Bear spread
Break-even point(s)
Automatic exercise
18. 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.
Theoretical value (TV)
At-the-money
Ask/ask price
Synthetic long put
19. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Ask/ask price
ATM
Covered call/Covered call writing
Investment
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.
Combination
Long position
Index
Option writer
21. A short call position and a long put position.
Strike price
Hedging
Chicago Board Options Exchange (CBOE)
Synthetic short stock
22. 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
Exercise
Analytics
Bull spread (put)
Condor spread
23. 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]
Automatic exercise
AON
Time spread/Calendar spread/Horizontal spread
Last trading day
24. 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)
Synthetic short call
LEAPS
Time decay
Bear spread (call)
25. 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.
Bull spread (put)
Long position
Hedging
At-the-money
26. An option strategy that is neither bullish nor bearish.
Call Option
Historic volatility
Short
Neutral strategy
27. An option on shares of an individual common stock.
Equity option
DPM
Leverage
Synthetic short put
28. A spread in which the difference in the long and short options premiums results in a net debit.
Bull spread (call)
Time decay
Break-even point(s)
Debit spread
29. 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.
Future
Black-Scholes formula
LEAPS
Box spread
30. The time of day by which all exercise notices must be received on the expiration date.
Condor spread
Offer price
Expiration time
Broker/Dealer
31. 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
LEAPS
Options pricing curve
Butterfly spread (Call)
Equity option
32. A position that will perform best if there is little or no net change in the price of the underlying stock.
Butterfly spread
Neutral spread
Chicago Board Options Exchange (CBOE)
Condor spread
33. An order to buy or sell at the last price on the close.
Calendar spread
Expiration
Market on close (MOC)
Equity option
34. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.
Delta
Calendar spread
Box spread
Analytics
35. 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).
Arbitrage
Black-Scholes formula
Exercise
Hedge/Hedged position
36. 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.
Black-Scholes formula
Selling short
Rho
Last trading day
37. Same as ask price
Offer price
Expiration month
Chicago Board Options Exchange (CBOE)
Gamma
38. An order that is designated to be executed on or before the expiration date.
Put-call ratio
Horizontal spread
All-or-none order (AON)
Options pricing model
39. 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
Pin risk
Automatic exercise
Hedge/Hedged position
Fences
40. A short stock position and a long call position.
Synthetic long put
Put-call ratio
Carry/Carrying charge
Edge
41. 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
Market on close (MOC)
DPM
Early exercise
Gamma
42. 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.
Future
Bear spread (put)
At-the-money
Box spread
43. 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
Bear spread (put)
Box spread
Put-call ratio
44. A long call position and a short put position.
Synthetic long stock
Historic volatility
European-style option
Box spread
45. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Credit spread
Equivalent strategy
Neutral
Synthetic short put
46. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Automatic exercise
Assignment
Options pricing model
Uncovered option/Naked option
47. An option that has no intrinsic value.
Out-of-the-money (OTM)
AON
Interest rate risk
Neutral spread
48. Opening sale of a security.
Selling short
Time decay
Credit spread
LEAPS
49. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Class of options
Time value
LEAPS
Vertical spread
50. 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)
Bull spread (put)
Series of options
Hedge/Hedged position
Put-call ratio