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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. 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.
Put-call ratio
Synthetic short put
Market on close (MOC)
Premium
2. 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.
Credit spread
Edge
Bull (or bullish) spread
Bear
3. The use of money to create more money through an appreciating or income-producing asset.
Option Chain
Investment
Strangle
Theoretical value (TV)
4. 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.
Bid/bid price
Break-even point(s)
Index
Diagonal spread
5. Fill-or-kill order
FOK
Assigned
Rho
Conversion
6. 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)
Index option
Options pricing curve
Synthetic Long call
Covered call/Covered call writing
7. 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
Early exercise
Fences
Uncovered option/Naked option
Intrinsic value
8. 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
Butterfly spread
Horizontal spread
Iron butterfly
reaking
9. A short stock position and a long call position.
Historic volatility
Synthetic long put
Strike price
Chicago Board Options Exchange (CBOE)
10. 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.
Contract size
Strike price
Exercise
Debit spread
11. Opening sale of a security.
Selling short
Chicago Board Options Exchange (CBOE)
Synthetics
Premium
12. The total price of an option: intrinsic value plus extrinsic value
Bull spread (call)
Bear market
Premium
Credit spread
13. 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.
Equivalent strategy
FOK
Index option
Hedging
14. 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
Iron butterfly
Short stock position
Uncovered option/Naked option
Open interest
15. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).
Extrinsic value
Index
Hedge/Hedged position
Hedging
16. Another name for calendar spread.
Bear spread (call)
Bear spread (call)
Equity option
Horizontal spread
17. Good Til Cancel
Reverse conversion
Chicago Board Options Exchange (CBOE)
Calendar spread
GTC
18. 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)
Adjusted Option
Options pricing model
Implied volatility
Pin risk
19. A position resulting from the sale of a contract or instrument that you do not own.
Time decay
Butterfly spead (Put)
Ratio write
Short
20. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Pin risk
Vega
Equity option
Contract size
21. An option on shares of an individual common stock.
Equity option
Credit spread
Synthetic short call
Hedge/Hedged position
22. 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.
Theoretical value (TV)
Early exercise
Chicago Board Options Exchange (CBOE)
Edge
23. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Strike price
Automatic exercise
Combination
Synthetics
24. The time of day by which all exercise notices must be received on the expiration date.
Options pricing curve
Spread
Equity option
Expiration time
25. 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.
AON
Bull spread (put)
Diagonal spread
Volatility
26. 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
Options pricing curve
Premium
Theoretical value (TV)
27. 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
Historic volatility
Options pricing model
Iron butterfly
Bear spread (put)
28. An agent who facilitates trades between a buyer and a seller and receives a commission for services.
Broker/Dealer
In-the-money option (ITM)
AON
Implied volatility
29. 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.
DPM
Time decay
Butterfly spead (Put)
Edge
30. The interest expense on money borrowed to finance a margined securities position.
Implied volatility
Bear
Investment
Carry/Carrying charge
31. An option that has no intrinsic value.
DPM
Butterfly spead (Put)
Good til cancel (GTC) order
Out-of-the-money (OTM)
32. 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)
Bear spread (put)
Bid/bid price
Bear market
Bull
33. 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.
Equity option
Cash-settled American index options (cash index)
American-style options
Selling short
34. The date an option contract becomes void.
Delta
Cash-settled American index options (cash index)
Volatility
Expiration
35. 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.
Long position
Extrinsic value
Synthetic short put
Last trading day
36. 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
Theoretical value (TV)
Carry/Carrying charge
Collar
Intrinsic value
37. 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)
Contract size
Combination
Bull spread (put)
Covered call/Covered call writing
38. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Conversion
Clearinghouse
Theoretical value (TV)
American-style options
39. 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).
Expiration date
reaking
Hedge/Hedged position
Bear spread (call)
40. 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
Bull spread (call)
Debit spread
Neutral
41. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.
Bear
Hedge/Hedged position
European-style option
Bull
42. 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 (call)
Backspread
Edge
Bull
43. 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
Index option
Spread
Neutral
European-style option
44. 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)
Options pricing model
Vega
Vega
Bear market
45. 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).
Option Chain
GTC
Equivalent strategy
Short stock position
46. A means of increasing return or worth without increasing investment.
Bear market
Leverage
Series of options
Butterfly spread
47. 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.
Bull spread (call)
Gamma
Call Option
Expiration
48. 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.
Theta
Leg
Market on close (MOC)
Synthetic long put
49. A position that will perform best if there is little or no net change in the price of the underlying stock.
Bear market
Diagonal spread
Neutral spread
Strike price
50. 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
Expiration
Good til cancel (GTC) order
Conversion
Bull (or bullish) spread