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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 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.
Bear spread (put)
Backspread
Bull
Bull spread (put)
2. 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)
Strangle
Expiration month
Bull spread (put)
Class of options
3. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Strangle
Break-even point(s)
Intrinsic value
Cash-settled American index options (cash index)
4. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).
Automatic exercise
CTA
Synthetics
Index
5. 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)
Synthetics
Put-call ratio
Underlying
6. 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
Reverse conversion
Short stock position
Fences
Intrinsic value
7. A market drop in the price of a security
Collar
reaking
Theoretical value (TV)
FOK
8. These options can be exercised on any business dy prior to expiration and the settlement value will be based on the index close that day - settled in the cash equivalent of the amount in-the-money.
Bull
Spread
Conversion
Cash-settled American index options (cash index)
9. An option whose underlying asset is an index.
Index option
Box spread
Strike price
Combination
10. 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)
CTA
Index option
Edge
Bear spread (put)
11. Opening sale of a security.
Last trading day
Synthetic short call
Delta
Selling short
12. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Neutral
Carry/Carrying charge
Hedge/Hedged position
Interest
13. 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
Calendar spread
Synthetic long put
Synthetic short stock
14. 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
Short
Vega
Synthetic long put
15. 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.
Market on close (MOC)
Calendar spread
Expiration date
Expiration cycle
16. 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.
Reverse conversion
Combination
Carry/Carrying charge
Expiration month
17. An option that can be exercised only at expiration. Usually expire the third Friday of every month
Out-of-the-money (OTM)
Leverage
ATM
European-style option
18. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Ratio write
Future
ATM
Break-even point(s)
19. A short call position and a long put position.
Automatic exercise
Synthetic short stock
Index option
Last trading day
20. 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)
Condor spread
Conversion
Contract size
Covered call/Covered call writing
21. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Synthetic short put
Implied volatility
Market on close (MOC)
Automatic exercise
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
Early exercise
Assigned
Condor spread
Interest rate risk
23. 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
Butterfly spread (Call)
Open interest
Collar
Cash-settled American index options (cash index)
24. 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.
Bull spread (put)
Put-call ratio
American-style options
Neutral strategy
25. 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
Interest rate risk
European-style option
Horizontal spread
26. 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.
European-style option
FOK
Short
Indexing
27. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Ask/ask price
Open interest
Bid/bid price
Interest
28. The date an option contract becomes void.
reaking
Expiration
Indexing
Combination
29. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Clearinghouse
Selling short
Debit spread
Carry/Carrying charge
30. The time of day by which all exercise notices must be received on the expiration date.
Equity option
Exercise
Assigned
Expiration time
31. A type of order that requires that the order be executed completely or not at all.
Fences
Fill-or-kill order (FOK)
Vega
Contract size
32. The sensitivity of an options theoretical value to a change in implied volatility.
Underlying
Vega
Exercise
Assignment
33. 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
Leg
Vertical spread
Box spread
Covered call/Covered call writing
34. An option that has no intrinsic value.
Bear spread (put)
Put-call ratio
Out-of-the-money (OTM)
Bear spread
35. The month during which the expiration date occurs
Expiration month
Contract size
Historic volatility
Synthetic long stock
36. 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
Series of options
reaking
Expiration cycle
Conversion
37. 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.
Bear
Collar
Expiration
Edge
38. 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
Future
Bear
In-the-money option (ITM)
Bull (or bullish) spread
39. The interest expense on money borrowed to finance a margined securities position.
Adjusted Option
Carry/Carrying charge
Butterfly spead (Put)
Broker loan rate
40. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.
Bear spread (put)
Cash-settled American index options (cash index)
Box spread
Time decay
41. 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
Backspread
Condor spread
Box spread
ATM
42. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Index option
Short
Future
Adjusted Option
43. 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
Combination
Synthetic long stock
Iron butterfly
Ratio write
44. 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
Bear market
Gamma
Covered call/Covered call writing
Expiration cycle
45. 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.
Extrinsic value
CTA
Black-Scholes formula
Last trading day
46. A long stock position and a short call position.
AON
Diagonal spread
Bull
Synthetic short put
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
Put-call ratio
FOK
Short stock position
Expiration time
48. An option on shares of an individual common stock.
Exercise
Expiration
Equity option
Butterfly spread (Call)
49. A long stock position and a short call position.
Index option
Assigned
Clearinghouse
Synthetic short put
50. 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)
Black-Scholes formula
Gamma
Bear spread (call)
Expiration date