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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. 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
Analytics
All-or-none order (AON)
Good til cancel (GTC) order
2. 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
Strike price
Conversion
Interest rate risk
Reverse conversion
3. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Bear market
Bull spread (put)
Straddle
Expiration month
4. 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
Options pricing model
Option Chain
Bull (or bullish) spread
5. An option that has intrinsic value
Put-call ratio
In-the-money option (ITM)
Equity option
Fences
6. 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)
At-the-money
Diagonal spread
Synthetic short call
7. 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.
Selling short
European-style option
Delta
Theta
8. A long stock position and a short call position.
Straddle
Broker/Dealer
Synthetic short put
Time value
9. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Chicago Board Options Exchange (CBOE)
Equity option
Implied volatility
Good til cancel (GTC) order
10. An option strategy that is neither bullish nor bearish.
Bull (or bullish) spread
Neutral strategy
Index option
Synthetic long stock
11. 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
Long position
Calendar spread
Index
Expiration cycle
12. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Implied volatility
Options pricing curve
Option
In-the-money option (ITM)
13. 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
Synthetic short put
Gamma
Early exercise
Diagonal spread
14. 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.
Diagonal spread
FOK
Arbitrage
Bear spread (put)
15. 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.
Market on close (MOC)
Neutral
Expiration time
Delta
16. Calculations performed on updated prices.
Assigned
Condor spread
Analytics
Horizontal spread
17. 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
Selling short
Bull
At-the-money
Butterfly spread (Call)
18. Third Friday of expiration month
Option Chain
Bid/bid price
Last trading day
Adjusted Option
19. 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.
Hedging
Bear spread (call)
Covered call/Covered call writing
Pin risk
20. A long call position and a short put position.
Time spread/Calendar spread/Horizontal spread
Calendar spread
Synthetic long stock
Gamma
21. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Automatic exercise
Cash-settled American index options (cash index)
At-the-money
LEAPS
22. 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.
Time decay
Leg
Implied volatility
Combination
23. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Horizontal spread
Pin risk
Bull
Investment
24. 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
Delta
Bear
Neutral spread
Fences
25. 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.
Call Option
Bear
LEAPS
Synthetic short call
26. 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
Iron butterfly
Time value
Covered option
Rho
27. 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.
Selling short
Neutral spread
Implied volatility
Arbitrage
28. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Option writer
Debit spread
Calendar spread
LEAPS
29. 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.
Option
Calendar spread
Bid/bid price
Index option
30. 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.
Broker loan rate
Exercise
Combination
Butterfly spead (Put)
31. The estimated value of an option derived from a mathematical model.
Out-of-the-money (OTM)
At-the-money
Theoretical value (TV)
Time value
32. 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.
Box spread
Expiration date
Straddle
Backspread
33. The interest expense on money borrowed to finance a margined securities position.
Carry/Carrying charge
European-style option
Expiration
Pin risk
34. An option on shares of an individual common stock.
Equity option
Interest
Interest rate risk
Last trading day
35. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Diagonal spread
Condor spread
Neutral
Bull spread (put)
36. The sensitivity of an options theoretical value to a change in implied volatility.
Index
Conversion
Bull
Vega
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.
Hedging
Edge
Rho
Horizontal spread
38. An order to buy or sell at the last price on the close.
Automatic exercise
Covered call/Covered call writing
Market on close (MOC)
Series of options
39. 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
Implied volatility
Options pricing curve
Spread
40. 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)
Pin risk
Expiration date
Option writer
Index option
41. 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)
Option writer
Expiration cycle
Expiration time
Covered call/Covered call writing
42. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Cash-settled American index options (cash index)
Options pricing model
Strangle
Options pricing curve
43. 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.
Exercise
Fill-or-kill order (FOK)
Broker loan rate
Expiration
44. A long stock position and a long put position.
Covered call/Covered call writing
In-the-money option (ITM)
Synthetic Long call
Expiration time
45. 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)
Pin risk
Broker loan rate
Bull spread (put)
Combination
46. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.
Horizontal spread
Diagonal spread
Good til cancel (GTC) order
LEAPS
47. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Debit spread
Synthetic long put
Early exercise
Covered call/Covered call writing
48. 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
Time decay
Collar
Reverse conversion
Hedging
49. An option on shares of an individual common stock.
Leverage
Equity option
Horizontal spread
Neutral strategy
50. 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.
American-style options
Expiration cycle
Options pricing curve
Diagonal spread