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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. At the money
Covered call/Covered call writing
Synthetic short put
Early exercise
ATM
2. 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 spead (Put)
Ratio write
Collar
Vega
3. A short call position and a long put position.
Break-even point(s)
Synthetic short stock
DPM
Edge
4. 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.
Arbitrage
Automatic exercise
Volatility
Bear
5. Term used to describe the ownership of a security - contract - or commodity that grants the owner the right to transfer ownership by sale or gift.
Bear spread (put)
Hedging
Reverse conversion
Long position
6. Good Til Cancel
European-style option
Butterfly spead (Put)
GTC
Theta
7. 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.
Edge
Bid/bid price
Pin risk
Straddle
8. 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
Synthetic short stock
Covered option
Early exercise
9. 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)
Offer price
Bid/bid price
Covered call/Covered call writing
Index
10. 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).
Hedge/Hedged position
Bear
Edge
Out-of-the-money (OTM)
11. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Interest
Synthetic long stock
Break-even point(s)
Assignment
12. 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
Selling short
Bull spread (call)
Box spread
Bull spread (put)
13. A list of the options available for the underlying stock symbols in which you are interested.
Option Chain
Bear market
Edge
Options pricing model
14. 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]
Diagonal spread
Chicago Board Options Exchange (CBOE)
Time spread/Calendar spread/Horizontal spread
Hedge/Hedged position
15. The estimated value of an option derived from a mathematical model.
Interest
Options pricing curve
Theoretical value (TV)
Historic volatility
16. 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
Interest rate risk
Selling short
GTC
17. The total price of an option: intrinsic value plus extrinsic value
American-style options
Premium
Time value
Bear spread
18. 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.
Combination
Conversion
Extrinsic value
Ask/ask price
19. A market drop in the price of a security
Synthetic Long call
Synthetic long put
Pin risk
reaking
20. 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)
Last trading day
Credit spread
Pin risk
Broker loan rate
21. 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.
Broker/Dealer
Put-call ratio
Bid/bid price
Out-of-the-money (OTM)
22. The total number of outstanding option contracts in a given series
Assignment
Early exercise
Open interest
Equity option
23. 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.
Spread
Indexing
Options pricing model
Bear spread (put)
24. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Options pricing curve
Broker loan rate
Diagonal spread
Time spread/Calendar spread/Horizontal spread
25. 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
Implied volatility
Break-even point(s)
Condor spread
Pin risk
26. 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
CTA
Implied volatility
Gamma
Contract size
27. 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.
Implied volatility
AON
Interest rate risk
Volatility
28. 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.
Expiration cycle
Indexing
Theta
Edge
29. A list of the options available for the underlying stock symbols in which you are interested.
Covered option
Investment
Option Chain
Arbitrage
30. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Early exercise
Broker/Dealer
Chicago Board Options Exchange (CBOE)
Time spread/Calendar spread/Horizontal spread
31. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Pin risk
Offer price
Black-Scholes formula
Underlying
32. An option that can be exercised only at expiration. Usually expire the third Friday of every month
Offer price
Neutral strategy
ATM
European-style option
33. 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)
Call Option
DPM
Iron butterfly
Bear spread (put)
34. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Iron butterfly
Pin risk
Gamma
Straddle
35. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Neutral strategy
Underlying
Rho
Index
36. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Backspread
Covered call/Covered call writing
Automatic exercise
Credit spread
37. 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
Expiration cycle
Strike price
Hedging
Pin risk
38. An order to buy or sell at the last price on the close.
Market on close (MOC)
Straddle
Collar
Butterfly spread (Call)
39. The highest price a dealer is willing to pay for a security at a particular time.
Option
Long position
Bid/bid price
Investment
40. 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.
Credit spread
Good til cancel (GTC) order
Call Option
In-the-money option (ITM)
41. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Butterfly spread
Neutral spread
Contract size
Good til cancel (GTC) order
42. 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.
Iron butterfly
Diagonal spread
Indexing
Carry/Carrying charge
43. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Ask/ask price
Reverse conversion
Gamma
Neutral strategy
44. 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
Clearinghouse
Iron butterfly
Synthetic short stock
Horizontal spread
45. 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
Synthetic short call
Broker loan rate
Condor spread
Bear spread (call)
46. 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)
Backspread
Open interest
Iron butterfly
Options pricing model
47. 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.
Covered option
At-the-money
Equivalent strategy
Synthetic long put
48. 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
In-the-money option (ITM)
Arbitrage
Bull (or bullish) spread
Bear spread (put)
49. A position that will perform best if there is little or no net change in the price of the underlying stock.
Neutral spread
Break-even point(s)
Neutral strategy
Butterfly spead (Put)
50. 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).
Equivalent strategy
Automatic exercise
Hedge/Hedged position
American-style options