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Options Trading
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industries
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business-skills
Instructions:
Answer 50 questions in 15 minutes.
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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 position resulting from the sale of a contract or instrument that you do not own.
Short
Gamma
Options pricing curve
American-style options
2. The sensitivity of theoretical option prices with regard to small changes in interest rates. Increases in interest rates lead to higher call values and lower put values. Lower interest rates do the opposite.
Bear spread (call)
Synthetic long put
Rho
Index
3. A short call position and a long put position.
Covered call/Covered call writing
Synthetic short stock
Strangle
DPM
4. 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
Underlying
Premium
Reverse conversion
Fill-or-kill order (FOK)
5. 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
Expiration cycle
Indexing
Fences
Theoretical value (TV)
6. The total number of outstanding option contracts in a given series
Iron butterfly
Future
Fill-or-kill order (FOK)
Open interest
7. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Horizontal spread
Put-call ratio
Contract size
Automatic exercise
8. 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.
Index option
Fill-or-kill order (FOK)
Ratio write
Carry/Carrying charge
9. A means of increasing return or worth without increasing investment.
Time decay
Condor spread
Extrinsic value
Leverage
10. 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)
Adjusted Option
Investment
Neutral spread
11. A position that will perform best if there is little or no net change in the price of the underlying stock.
Neutral spread
Rho
Short stock position
Neutral
12. An option whose underlying asset is an index.
Index option
Break-even point(s)
Strike price
European-style option
13. 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.
Bull
Broker loan rate
Butterfly spead (Put)
Leverage
14. The month during which the expiration date occurs
Synthetic long put
Expiration month
Synthetic short put
Combination
15. Fill-or-kill order
Option
CTA
FOK
Options pricing curve
16. 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.
Indexing
Hedging
Cash-settled American index options (cash index)
Edge
17. 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
Box spread
DPM
Bear spread
Covered call/Covered call writing
18. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Open interest
Good til cancel (GTC) order
Time value
ATM
19. The estimated value of an option derived from a mathematical model.
Leg
Backspread
Theoretical value (TV)
Butterfly spead (Put)
20. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Condor spread
Premium
Underlying
Straddle
21. An order that is designated to be executed on or before the expiration date.
Bull spread (put)
Fill-or-kill order (FOK)
All-or-none order (AON)
In-the-money option (ITM)
22. 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
Hedging
Covered option
Reverse conversion
Option Chain
23. 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.
LEAPS
Covered option
Class of options
Diagonal spread
24. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Underlying
Uncovered option/Naked option
Adjusted Option
Box spread
25. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Index
Butterfly spread
Straddle
Synthetic long put
26. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Iron butterfly
Leverage
Assignment
Time decay
27. Same as ask price
Box spread
Automatic exercise
Offer price
Market on close (MOC)
28. 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.
Backspread
Butterfly spread (Call)
Short
Adjusted Option
29. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Credit spread
Equity option
Neutral
Out-of-the-money (OTM)
30. The time of day by which all exercise notices must be received on the expiration date.
Series of options
Synthetic long put
Option writer
Expiration time
31. 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
Butterfly spead (Put)
Short stock position
Neutral
In-the-money option (ITM)
32. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.
Break-even point(s)
Historic volatility
Calendar spread
Leg
33. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Break-even point(s)
Bull spread (put)
Assignment
Ask/ask price
34. Amount by which an option is ITM.
Intrinsic value
Broker loan rate
Broker/Dealer
Neutral strategy
35. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Short
Early exercise
In-the-money option (ITM)
Analytics
36. 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)
Analytics
Adjusted Option
Bull (or bullish) spread
Historic volatility
37. 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
Ask/ask price
Premium
Carry/Carrying charge
38. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Short stock position
Leg
Good til cancel (GTC) order
Ask/ask price
39. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Index
Volatility
Clearinghouse
American-style options
40. 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.
Arbitrage
Credit spread
Edge
Fill-or-kill order (FOK)
41. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Good til cancel (GTC) order
Expiration
Combination
Vega
42. 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.
Long position
Hedging
Option Chain
Expiration
43. A list of the options available for the underlying stock symbols in which you are interested.
Strike price
Hedging
Bull spread (call)
Option Chain
44. Received notification of an assignment by rhw options clearing corporation.
ATM
Debit spread
Assigned
Covered option
45. 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
Conversion
Index option
Bear market
Index option
46. 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
Contract size
Collar
Time spread/Calendar spread/Horizontal spread
Covered option
47. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
CTA
Clearinghouse
Black-Scholes formula
Future
48. The highest price a dealer is willing to pay for a security at a particular time.
reaking
Bid/bid price
Vertical spread
Synthetic Long call
49. An order to buy or sell at the last price on the close.
Spread
Market on close (MOC)
Synthetics
Synthetic long put
50. A long call position and a short put position.
Synthetic long stock
Chicago Board Options Exchange (CBOE)
reaking
AON
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