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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. Another name for calendar spread.
Strangle
Broker loan rate
Strangle
Horizontal spread
2. 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.
Open interest
Condor spread
Extrinsic value
DPM
3. The month during which the expiration date occurs
Expiration month
Backspread
Leg
Butterfly spead (Put)
4. 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
Edge
Synthetic long put
Short stock position
5. The highest price a dealer is willing to pay for a security at a particular time.
Equity option
Bid/bid price
Bull (or bullish) spread
Call Option
6. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Hedge/Hedged position
Class of options
Automatic exercise
Conversion
7. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.
Equivalent strategy
Time decay
Out-of-the-money (OTM)
Hedge/Hedged position
8. 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.
Expiration
Early exercise
Backspread
Assigned
9. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Iron butterfly
Intrinsic value
Synthetic short stock
Future
10. A short stock position and a long call position.
Pin risk
Horizontal spread
Synthetic long put
Selling short
11. The estimated value of an option derived from a mathematical model.
Assigned
Bid/bid price
Investment
Theoretical value (TV)
12. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.
Covered call/Covered call writing
Credit spread
Fill-or-kill order (FOK)
Bear
13. 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.
Edge
Leg
Ratio write
Butterfly spread
14. A short stock position and a short put position.
Combination
Synthetic short call
Diagonal spread
Last trading day
15. Commodity trading advisor.
CTA
Combination
Analytics
Arbitrage
16. 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]
CTA
Contract size
European-style option
Time spread/Calendar spread/Horizontal spread
17. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)
Vertical spread
Adjusted Option
Assignment
LEAPS
18. 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).
Equivalent strategy
Bull
Cash-settled American index options (cash index)
Black-Scholes formula
19. 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
AON
Market on close (MOC)
Bear
Butterfly spread (Call)
20. Third Friday of expiration month
ATM
Last trading day
Synthetic Long call
Leg
21. Another name for calendar spread.
Interest
Contract size
Delta
Horizontal spread
22. 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.
Collar
Arbitrage
Carry/Carrying charge
Extrinsic value
23. The time of day by which all exercise notices must be received on the expiration date.
Leverage
Synthetic short stock
Selling short
Expiration time
24. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Strangle
In-the-money option (ITM)
Backspread
Neutral
25. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Synthetic short put
Bull spread (put)
Implied volatility
Put-call ratio
26. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Rho
Bear spread (put)
Bull
Broker loan rate
27. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Butterfly spread
Fences
Strangle
Intrinsic value
28. The interest expense on money borrowed to finance a margined securities position.
Carry/Carrying charge
Theoretical value (TV)
Vertical spread
Long position
29. 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
LEAPS
Carry/Carrying charge
Ratio write
30. Calculations performed on updated prices.
Analytics
Ratio write
Reverse conversion
Neutral
31. The use of money to create more money through an appreciating or income-producing asset.
Investment
Bear spread
Premium
Strike price
32. The total price of an option: intrinsic value plus extrinsic value
Premium
Neutral
Series of options
Open interest
33. 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
Condor spread
Fences
Neutral strategy
34. 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
Neutral strategy
Iron butterfly
Synthetic short put
Condor spread
35. 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)
Expiration
Bear spread (put)
Exercise
Backspread
36. A debit spread in which a rise in the price of the underlying security will theoretically increase the value of the spread. (buying 1 XYZ Jan 50 call and writing 1 XYZ Jan 55 call)
Options pricing model
Last trading day
Synthetic long put
Bull spread (call)
37. 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
Break-even point(s)
Conversion
Interest rate risk
Butterfly spread
38. Fill-or-kill order
FOK
Synthetic long put
Collar
Clearinghouse
39. 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
Theoretical value (TV)
Cash-settled American index options (cash index)
Expiration cycle
40. 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
Bear spread
Time decay
Conversion
Fences
41. Same as ask price
Offer price
Strike price
Bear market
Vega
42. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Strike price
Butterfly spread
ATM
Time decay
43. 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.
Theta
Options pricing model
Short
Intrinsic value
44. 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.
In-the-money option (ITM)
Bull
Exercise
Combination
45. A position resulting from the sale of a contract or instrument that you do not own.
Long position
Time spread/Calendar spread/Horizontal spread
Short
DPM
46. A position that will perform best if there is little or no net change in the price of the underlying stock.
Neutral spread
Equivalent strategy
Time spread/Calendar spread/Horizontal spread
Indexing
47. 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
Equity option
Synthetic short stock
Spread
Fill-or-kill order (FOK)
48. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Rho
Adjusted Option
Time value
Synthetic short call
49. 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
Collar
Edge
Index option
Reverse conversion
50. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.
Last trading day
Synthetic Long call
Covered option
Arbitrage