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Options Trading
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industries
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business-skills
Instructions:
Answer 50 questions in 15 minutes.
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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. The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value. This is often referred to as the time value portion of option premiums.
Fences
Analytics
Underlying
Extrinsic value
2. 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.
Vertical spread
Horizontal spread
Black-Scholes formula
Broker loan rate
3. 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.
Exercise
Arbitrage
Delta
Bid/bid price
4. The interest expense on money borrowed to finance a margined securities position.
Synthetic long put
Covered option
Carry/Carrying charge
Clearinghouse
5. Same as ask price
Index
Index option
Edge
Offer price
6. Amount by which an option is ITM.
Time decay
Black-Scholes formula
Intrinsic value
Historic volatility
7. The interest expense on money borrowed to finance a margined securities position.
Calendar spread
Iron butterfly
Carry/Carrying charge
Iron butterfly
8. 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
Bull
Last trading day
Fill-or-kill order (FOK)
9. 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).
Arbitrage
Long position
Equivalent strategy
Extrinsic value
10. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Leverage
Synthetic short stock
Good til cancel (GTC) order
Black-Scholes formula
11. 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)
Synthetics
Ratio write
Assignment
Pin risk
12. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.
Butterfly spead (Put)
Fill-or-kill order (FOK)
Options pricing model
Time spread/Calendar spread/Horizontal spread
13. 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
Call Option
Assigned
Automatic exercise
Short stock position
14. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Expiration cycle
Options pricing curve
Neutral
Carry/Carrying charge
15. The use of money to create more money through an appreciating or income-producing asset.
Conversion
Strangle
Investment
Volatility
16. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Option Chain
Bear market
Assigned
Time decay
17. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.
Bull spread (put)
Hedging
Broker loan rate
Credit spread
18. The highest price a dealer is willing to pay for a security at a particular time.
Gamma
Bid/bid price
Synthetic Long call
Short
19. A long stock position and a long put position.
Synthetics
Expiration date
Synthetic Long call
Bear spread (put)
20. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Covered call/Covered call writing
Expiration date
Intrinsic value
Bull
21. A position that will perform best if there is little or no net change in the price of the underlying stock.
Index option
AON
Neutral spread
Bear market
22. A list of the options available for the underlying stock symbols in which you are interested.
Option Chain
Equivalent strategy
Bear spread
Cash-settled American index options (cash index)
23. A short call position and a long put position.
Extrinsic value
Bear
Class of options
Synthetic short stock
24. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Synthetic short put
Synthetic short call
Series of options
Synthetic Long call
25. An agent who facilitates trades between a buyer and a seller and receives a commission for services.
Intrinsic value
Theoretical value (TV)
Option Chain
Broker/Dealer
26. 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
Rho
Bull (or bullish) spread
Vertical spread
Exercise
27. 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)
Credit spread
Investment
Pin risk
Horizontal spread
28. The estimated value of an option derived from a mathematical model.
Neutral spread
Time value
Carry/Carrying charge
Theoretical value (TV)
29. A long call position and a short put position.
Bear spread (put)
Synthetic long stock
Contract size
Option
30. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Ask/ask price
Strangle
Edge
Strike price
31. 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.
Strike price
Broker loan rate
Option Chain
Investment
32. 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.
Leverage
Indexing
Cash-settled American index options (cash index)
At-the-money
33. 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.
Uncovered option/Naked option
European-style option
Bear spread (call)
Combination
34. Third Friday of expiration month
Iron butterfly
Expiration date
Expiration month
Last trading day
35. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Expiration time
Underlying
Bid/bid price
Covered option
36. 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)
Intrinsic value
Covered call/Covered call writing
Bear spread
Investment
37. The largest and oldest listed options exchange.
Fences
LEAPS
Chicago Board Options Exchange (CBOE)
Synthetic short stock
38. 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.
Time value
Diagonal spread
Implied volatility
Leg
39. Designated primary market maker.
DPM
Hedge/Hedged position
LEAPS
Expiration date
40. Process by which the holder of an option notifies the seller of intention to take delivery of the underlying in the case of a call - or make delivery in the case of a put - at the specified exercise price.
Exercise
Time decay
GTC
Synthetic long put
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
Box spread
Expiration cycle
LEAPS
Open interest
42. 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
Carry/Carrying charge
Spread
Bear market
Time spread/Calendar spread/Horizontal spread
43. An order to buy or sell at the last price on the close.
Box spread
Market on close (MOC)
DPM
Selling short
44. A position resulting from the sale of a contract or instrument that you do not own.
Adjusted Option
Short
Covered option
Open interest
45. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Black-Scholes formula
Option Chain
Bear
Straddle
46. 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.
Bear spread (call)
Leverage
Call Option
Out-of-the-money (OTM)
47. 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
Underlying
Contract size
Reverse conversion
Intrinsic value
48. A type of order that requires that the order be executed completely or not at all.
Calendar spread
Bull spread (call)
Synthetic long stock
Fill-or-kill order (FOK)
49. The total number of outstanding option contracts in a given series
Covered option
Open interest
Out-of-the-money (OTM)
Underlying
50. The total price of an option: intrinsic value plus extrinsic value
Early exercise
Premium
Spread
Straddle
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