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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 market drop in the price of a security
Horizontal spread
Expiration date
reaking
Leverage
2. 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.
At-the-money
Automatic exercise
Pin risk
Ratio write
3. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Condor spread
Neutral
Iron butterfly
Gamma
4. A spread in which the difference in the long and short options premiums results in a net debit.
Debit spread
Neutral strategy
Indexing
Expiration month
5. An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis.More calls written than the equivalent number of shares purchased.
Ratio write
Gamma
Butterfly spread (Call)
Straddle
6. 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)
Expiration cycle
Volatility
Gamma
Bear spread (call)
7. 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.
Index
Leg
ATM
Strangle
8. 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.
Black-Scholes formula
Chicago Board Options Exchange (CBOE)
Strangle
CTA
9. A long stock position and a short call position.
Synthetic short put
Neutral strategy
Leverage
Spread
10. 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
Gamma
Bear spread
Uncovered option/Naked option
Rho
11. 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.
Bull
Leg
Synthetic Long call
Delta
12. 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
Option writer
Short stock position
Covered option
Contract size
13. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Early exercise
Expiration
Strike price
Butterfly spead (Put)
14. The total price of an option: intrinsic value plus extrinsic value
Assigned
Synthetics
Premium
Intrinsic value
15. 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.
Cash-settled American index options (cash index)
Rho
Out-of-the-money (OTM)
reaking
16. 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
Hedge/Hedged position
Reverse conversion
DPM
17. A short stock position and a short put position.
Synthetic short call
Time value
Contract size
Neutral
18. Fill-or-kill order
FOK
All-or-none order (AON)
Expiration date
Strangle
19. 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
Break-even point(s)
Butterfly spread (Call)
Option
Neutral
20. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.
Strike price
In-the-money option (ITM)
Options pricing model
Diagonal spread
21. 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)
Index
Diagonal spread
Bull spread (put)
Short stock position
22. 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
Vega
Fences
reaking
Expiration month
23. The date an option contract becomes void.
Bull
Expiration
Historic volatility
Straddle
24. 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
Good til cancel (GTC) order
Butterfly spread
Black-Scholes formula
Conversion
25. 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
Straddle
Reverse conversion
Historic volatility
Volatility
26. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.
Adjusted Option
Future
DPM
Call Option
27. 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 market
Time decay
In-the-money option (ITM)
Underlying
28. Opening sale of a security.
Assignment
Uncovered option/Naked option
Synthetic Long call
Selling short
29. 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]
Last trading day
Bull spread (put)
Time spread/Calendar spread/Horizontal spread
Assignment
30. The highest price a dealer is willing to pay for a security at a particular time.
Out-of-the-money (OTM)
Bid/bid price
In-the-money option (ITM)
Diagonal spread
31. Options that may be exercised on or before the expiration date.
American-style options
Broker/Dealer
Calendar spread
In-the-money option (ITM)
32. Amount by which an option is ITM.
Time decay
Intrinsic value
Selling short
Ask/ask price
33. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Expiration
Future
Chicago Board Options Exchange (CBOE)
Chicago Board Options Exchange (CBOE)
34. 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.
Synthetic short put
Automatic exercise
Debit spread
At-the-money
35. Good Til Cancel
Call Option
GTC
Assignment
Carry/Carrying charge
36. 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.
Offer price
Short stock position
Equivalent strategy
Arbitrage
37. A means of increasing return or worth without increasing investment.
CTA
Put-call ratio
Leverage
American-style options
38. At the money
FOK
ATM
Fill-or-kill order (FOK)
Butterfly spead (Put)
39. 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.
Edge
Theta
FOK
Leg
40. 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
Automatic exercise
Expiration cycle
Iron butterfly
Out-of-the-money (OTM)
41. A spread in which the difference in the long and short options premiums results in a net debit.
Vega
Strangle
Ratio write
Debit spread
42. The date an option contract becomes void.
Market on close (MOC)
Expiration
Expiration cycle
Index
43. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Strangle
Black-Scholes formula
Class of options
Series of options
44. The month during which the expiration date occurs
Interest rate risk
Adjusted Option
Theta
Expiration month
45. The use of money to create more money through an appreciating or income-producing asset.
Backspread
Box spread
Butterfly spead (Put)
Investment
46. 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.
Volatility
At-the-money
Broker loan rate
Leverage
47. Commodity trading advisor.
Option writer
Bear spread (put)
CTA
Synthetic short call
48. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.
American-style options
Last trading day
Synthetic long stock
Option
49. 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
Time value
Combination
Gamma
Exercise
50. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.
Exercise
Spread
Option
Underlying