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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. 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
DPM
Options pricing model
Condor spread
Expiration month
2. 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.
Fill-or-kill order (FOK)
Broker loan rate
Option Chain
Collar
3. 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)
Diagonal spread
Pin risk
All-or-none order (AON)
At-the-money
4. 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
LEAPS
Butterfly spead (Put)
Black-Scholes formula
Box spread
5. 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)
Bear spread (put)
Neutral spread
Bull spread (put)
LEAPS
6. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Leverage
Expiration month
Box spread
Series of options
7. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Investment
Options pricing curve
Spread
GTC
8. 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
Implied volatility
Historic volatility
Bear spread
Vertical spread
9. At the money
In-the-money option (ITM)
ATM
Synthetic short call
Bear
10. Charge levied for the privilege ofborrowing money
Leg
Interest
Option writer
Butterfly spread (Call)
11. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Theta
Time value
Options pricing model
Delta
12. The time of day by which all exercise notices must be received on the expiration date.
Carry/Carrying charge
Expiration time
Expiration month
Good til cancel (GTC) order
13. A long call position and a short put position.
Iron butterfly
Adjusted Option
Option writer
Synthetic long stock
14. 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
Investment
AON
Early exercise
Butterfly spread (Call)
15. Opening sale of a security.
Contract size
Indexing
Selling short
Debit spread
16. A long stock position and a long put position.
Synthetic Long call
Future
ATM
Vertical spread
17. The sensitivity of an options theoretical value to a change in implied volatility.
Selling short
Vega
Equivalent strategy
Neutral strategy
18. An option that has no intrinsic value.
Expiration month
Interest
Premium
Out-of-the-money (OTM)
19. Commodity trading advisor.
CTA
Expiration cycle
Exercise
Backspread
20. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Class of options
Synthetic short stock
Last trading day
Synthetic long put
21. 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.
Strike price
Extrinsic value
Ratio write
Class of options
22. Fill-or-kill order
Open interest
Investment
FOK
Equivalent strategy
23. 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.
Expiration time
Option
Combination
Hedging
24. 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
Put-call ratio
Iron butterfly
Good til cancel (GTC) order
reaking
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.
Broker/Dealer
Long position
Bull spread (put)
reaking
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
Butterfly spead (Put)
Option
Calendar spread
27. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Assignment
Butterfly spread
Vertical spread
Vertical spread
28. 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.
Leg
Backspread
ATM
Cash-settled American index options (cash index)
29. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Backspread
Hedge/Hedged position
Bear spread
Series of options
30. An option that can be exercised only at expiration. Usually expire the third Friday of every month
European-style option
Option writer
Premium
Delta
31. 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.
Short stock position
Volatility
Bear spread (call)
FOK
32. 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.
Strike price
Short stock position
Equivalent strategy
Edge
33. Fill-or-kill order
Straddle
Expiration month
Cash-settled American index options (cash index)
FOK
34. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Fill-or-kill order (FOK)
Strangle
Index
Combination
35. Designated primary market maker.
DPM
Bull (or bullish) spread
Synthetic long put
Butterfly spead (Put)
36. A list of the options available for the underlying stock symbols in which you are interested.
Series of options
Option Chain
Early exercise
Synthetic long put
37. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Synthetic short put
Strangle
At-the-money
Bull spread (call)
38. Amount by which an option is ITM.
Exercise
American-style options
Intrinsic value
Strike price
39. A position that will perform best if there is little or no net change in the price of the underlying stock.
Straddle
Bull spread (put)
Neutral spread
Butterfly spead (Put)
40. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.
Options pricing model
Intrinsic value
Theta
Arbitrage
41. 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
Bid/bid price
Conversion
Pin risk
Reverse conversion
42. 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
Covered call/Covered call writing
Condor spread
Bear spread
Good til cancel (GTC) order
43. 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.
Delta
GTC
Out-of-the-money (OTM)
Vertical spread
44. An option whose underlying asset is an index.
Butterfly spead (Put)
Call Option
Uncovered option/Naked option
Index option
45. 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.
FOK
Diagonal spread
Option Chain
Ratio write
46. 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.
Straddle
Strangle
Long position
Option
47. 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)
Covered call/Covered call writing
Covered option
Bear spread (put)
Series of options
48. An option that has no intrinsic value.
Series of options
Indexing
Volatility
Out-of-the-money (OTM)
49. 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.
Ratio write
Future
Synthetic long put
Edge
50. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Contract size
Investment
All-or-none order (AON)
Theta