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Options Trading
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Study First
Subjects
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industries
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business-skills
Instructions:
Answer 50 questions in 15 minutes.
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study here
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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. 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
Neutral spread
Strike price
Arbitrage
Uncovered option/Naked option
2. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u
Rho
Premium
Bear spread
Class of options
3. 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)
Broker/Dealer
Analytics
Box spread
4. 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.
In-the-money option (ITM)
Long position
Butterfly spead (Put)
LEAPS
5. Opening sale of a security.
Selling short
Call Option
Neutral strategy
At-the-money
6. 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.
Broker loan rate
Index option
Bull (or bullish) spread
Collar
7. 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
Equivalent strategy
Synthetic long put
Iron butterfly
Reverse conversion
8. 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.
Series of options
Open interest
Cash-settled American index options (cash index)
Carry/Carrying charge
9. 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
Last trading day
Conversion
Bear spread (call)
Intrinsic value
10. The month during which the expiration date occurs
Carry/Carrying charge
Premium
Short stock position
Expiration month
11. 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
Underlying
Short stock position
Cash-settled American index options (cash index)
Assigned
12. The estimated value of an option derived from a mathematical model.
Investment
Expiration time
Leverage
Theoretical value (TV)
13. An option on shares of an individual common stock.
Expiration time
Equity option
Fences
Ratio write
14. 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
Credit spread
Box spread
Bull spread (call)
Collar
15. 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
Offer price
Butterfly spread (Call)
Break-even point(s)
Vega
16. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
All-or-none order (AON)
Bull
Equivalent strategy
Vertical spread
17. 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.
Black-Scholes formula
Cash-settled American index options (cash index)
Bull spread (put)
Adjusted Option
18. 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
Out-of-the-money (OTM)
Butterfly spread
Intrinsic value
Uncovered option/Naked option
19. An order that is designated to be executed on or before the expiration date. (all or none)
AON
Credit spread
Hedging
Butterfly spead (Put)
20. Another name for calendar spread.
Theoretical value (TV)
Horizontal spread
American-style options
LEAPS
21. 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.
Credit spread
Bear
Combination
Horizontal spread
22. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright
Butterfly spead (Put)
Option
Early exercise
Vertical spread
23. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Clearinghouse
Calendar spread
Time value
Market on close (MOC)
24. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Automatic exercise
Last trading day
Cash-settled American index options (cash index)
Butterfly spread
25. 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.
Contract size
Last trading day
Long position
CTA
26. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.
Short stock position
Time decay
Synthetics
Bull spread (call)
27. 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
Collar
Hedging
Spread
DPM
28. A short stock position and a long call position.
Butterfly spread
Synthetic long put
Horizontal spread
Synthetic long stock
29. 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.
Volatility
Interest rate risk
Spread
Exercise
30. An order that is designated to be executed on or before the expiration date. (all or none)
AON
Box spread
All-or-none order (AON)
Future
31. 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
Bull spread (call)
Synthetic long put
Implied volatility
Box spread
32. The month during which the expiration date occurs
Time decay
ATM
Expiration month
Strike price
33. The date an option contract becomes void.
Expiration
Early exercise
Investment
Horizontal spread
34. 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.
Butterfly spead (Put)
Exercise
LEAPS
Option Chain
35. Options that may be exercised on or before the expiration date.
Bull (or bullish) spread
American-style options
Good til cancel (GTC) order
Credit spread
36. A short call position and a long put position.
Theoretical value (TV)
Bear market
Strike price
Synthetic short stock
37. Same as ask price
Synthetic short call
Options pricing model
Straddle
Offer price
38. 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
GTC
Diagonal spread
Fences
Leverage
39. The date on which an option and the right to exercise it cease to exist. Listed stock options expire the Saturday following the third Friday of every month.
Expiration date
Put-call ratio
Contract size
Interest rate risk
40. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
At-the-money
Reverse conversion
Implied volatility
Adjusted Option
41. An order that is designated to be executed on or before the expiration date.
Black-Scholes formula
All-or-none order (AON)
reaking
Class of options
42. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Butterfly spead (Put)
Clearinghouse
Synthetic short put
CTA
43. An order to buy or sell at the last price on the close.
Black-Scholes formula
Market on close (MOC)
Time value
In-the-money option (ITM)
44. A position resulting from the sale of a contract or instrument that you do not own.
LEAPS
Break-even point(s)
Short
Bear spread (put)
45. The estimated value of an option derived from a mathematical model.
Synthetic short stock
Gamma
Implied volatility
Theoretical value (TV)
46. 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.
Spread
Vega
Put-call ratio
Strangle
47. 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
Time decay
Volatility
Iron butterfly
Options pricing curve
48. A long call position and a short put position.
Gamma
Iron butterfly
Synthetic long stock
Credit spread
49. 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
LEAPS
Bull (or bullish) spread
Bear spread (call)
50. A means of increasing return or worth without increasing investment.
Future
Future
Leverage
ATM
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