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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 seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Option writer
Intrinsic value
Theoretical value (TV)
Hedge/Hedged position
2. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Synthetic Long call
Class of options
Chicago Board Options Exchange (CBOE)
Underlying
3. A means of increasing return or worth without increasing investment.
Synthetic short stock
Leverage
Horizontal spread
Analytics
4. 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.
Market on close (MOC)
In-the-money option (ITM)
Extrinsic value
Neutral strategy
5. Fill-or-kill order
Equivalent strategy
FOK
Gamma
Implied volatility
6. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Synthetics
Implied volatility
Adjusted Option
Arbitrage
7. The highest price a dealer is willing to pay for a security at a particular time.
Broker loan rate
Debit spread
Good til cancel (GTC) order
Bid/bid price
8. The largest and oldest listed options exchange.
Chicago Board Options Exchange (CBOE)
Index option
Diagonal spread
Synthetic short put
9. 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.
Extrinsic value
Fill-or-kill order (FOK)
Arbitrage
AON
10. A long stock position and a long put position.
reaking
Synthetic Long call
Offer price
Market on close (MOC)
11. 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.
Calendar spread
Series of options
Combination
Fences
12. Opening sale of a security.
Selling short
Bear spread
Expiration time
Expiration month
13. 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).
Underlying
Box spread
Class of options
Equivalent strategy
14. 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.
Time decay
Bull (or bullish) spread
Cash-settled American index options (cash index)
Short stock position
15. 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
Synthetic short put
Vertical spread
Exercise
Option
16. 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
Condor spread
Arbitrage
Synthetic short call
Expiration date
17. A position that will perform best if there is little or no net change in the price of the underlying stock.
Bid/bid price
Fill-or-kill order (FOK)
Neutral spread
Extrinsic value
18. Charge levied for the privilege ofborrowing money
In-the-money option (ITM)
Long position
Interest
Expiration
19. 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
Synthetic long put
Index
Hedge/Hedged position
20. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Vertical spread
Assignment
Backspread
ATM
21. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Delta
Equivalent strategy
Calendar spread
Automatic exercise
22. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Vertical spread
Horizontal spread
Break-even point(s)
Cash-settled American index options (cash index)
23. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op
Calendar spread
Expiration date
Calendar spread
Bull (or bullish) spread
24. A position that will perform best if there is little or no net change in the price of the underlying stock.
Rho
LEAPS
AON
Neutral spread
25. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Early exercise
Interest rate risk
Ask/ask price
Assignment
26. The month during which the expiration date occurs
Synthetic Long call
Expiration cycle
Expiration month
Gamma
27. 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.
Neutral spread
Synthetic long put
Cash-settled American index options (cash index)
All-or-none order (AON)
28. 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
Strangle
Butterfly spread (Call)
Time spread/Calendar spread/Horizontal spread
29. An order to buy or sell at the last price on the close.
Market on close (MOC)
Interest rate risk
Bid/bid price
Diagonal spread
30. At the money
Index
Diagonal spread
ATM
Neutral spread
31. An order that is designated to be executed on or before the expiration date. (all or none)
Calendar spread
Chicago Board Options Exchange (CBOE)
AON
Assigned
32. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Credit spread
Class of options
Equivalent strategy
Clearinghouse
33. 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)
Investment
Bull spread (put)
Credit spread
Time spread/Calendar spread/Horizontal spread
34. 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.
Pin risk
Leg
Broker loan rate
Time spread/Calendar spread/Horizontal spread
35. 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
AON
Box spread
Equivalent strategy
36. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).
Butterfly spread
Neutral strategy
Strangle
Index
37. A measure of actual stock price changes over a specific period of time.
Time spread/Calendar spread/Horizontal spread
Bull
Historic volatility
Ratio write
38. 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.
Conversion
Long position
Credit spread
Market on close (MOC)
39. 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
Interest rate risk
Bear spread (call)
Time value
Future
40. 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.
Arbitrage
Bull spread (put)
Equivalent strategy
Exercise
41. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Gamma
Contract size
Bull
Vega
42. A short stock position and a long call position.
Synthetic long put
Index
Selling short
Credit spread
43. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Future
Synthetic short put
Exercise
Ratio write
44. 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
Interest rate risk
Delta
Theta
Open interest
45. An option that can be exercised only at expiration. Usually expire the third Friday of every month
European-style option
CTA
Market on close (MOC)
Class of options
46. Designated primary market maker.
Gamma
DPM
Butterfly spead (Put)
Conversion
47. An order to buy or sell a security that will remain in effect until the order is executed or canceled
ATM
Long position
Gamma
Good til cancel (GTC) order
48. 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)
Conversion
Gamma
Vertical spread
Adjusted Option
49. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Butterfly spread
Underlying
Synthetic long stock
Option writer
50. Same as ask price
Offer price
Bear spread (call)
Bull (or bullish) spread
American-style options