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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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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. The highest price a dealer is willing to pay for a security at a particular time.
Bid/bid price
Edge
Neutral spread
Equivalent strategy
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.
Leg
Butterfly spread (Call)
Broker loan rate
Long position
3. 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
Open interest
Premium
Short stock position
Covered call/Covered call writing
4. A long stock position and a short call position.
Fences
Synthetic short put
Leg
Out-of-the-money (OTM)
5. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Contract size
Synthetics
Covered call/Covered call writing
Synthetic Long call
6. 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.
Iron butterfly
Arbitrage
FOK
Edge
7. Third Friday of expiration month
Break-even point(s)
Index
Last trading day
Option Chain
8. A market drop in the price of a security
reaking
Interest
Collar
Covered call/Covered call writing
9. 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)
At-the-money
Synthetic short stock
Adjusted Option
Offer price
10. 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
Synthetic short put
Interest rate risk
Expiration time
Index
11. An option whose underlying asset is an index.
Index option
Expiration date
Fill-or-kill order (FOK)
Class of options
12. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Options pricing model
Neutral
Reverse conversion
Selling short
13. 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
Long position
Butterfly spread (Call)
Bear spread (call)
American-style options
14. A type of order that requires that the order be executed completely or not at all.
Fill-or-kill order (FOK)
Contract size
At-the-money
Bear spread
15. 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)
Historic volatility
Bull spread (call)
Out-of-the-money (OTM)
Backspread
16. The use of money to create more money through an appreciating or income-producing asset.
Box spread
Options pricing model
Investment
Premium
17. 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
Horizontal spread
Bull (or bullish) spread
Underlying
Selling short
18. The sensitivity of an option's delta at a given moment in time. It is the change in delta with respect to a 1-point change in the underlying. Examplee (let's say a call option with a 100 strike price has a 50 delta. If the underlying moves from 100 t
AON
Gamma
Assignment
Expiration
19. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Clearinghouse
Theta
Last trading day
Bull spread (put)
20. The sensitivity of an options theoretical value to a change in implied volatility.
Vega
Theoretical value (TV)
Early exercise
DPM
21. 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
Long position
Rho
Selling short
22. The month during which the expiration date occurs
Chicago Board Options Exchange (CBOE)
Combination
Expiration month
Index
23. A spread in which the difference in the long and short options premiums results in a net debit.
Bull
Debit spread
Chicago Board Options Exchange (CBOE)
Condor spread
24. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Rho
Equivalent strategy
Black-Scholes formula
Series of options
25. 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.
Uncovered option/Naked option
Bull spread (call)
Edge
Extrinsic value
26. A long stock position and a long put position.
Option
Implied volatility
Bull spread (put)
Synthetic Long call
27. 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.
Expiration time
Ratio write
Investment
Analytics
28. 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.
GTC
Cash-settled American index options (cash index)
Diagonal spread
Rho
29. 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.
AON
Combination
Offer price
Expiration date
30. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Covered call/Covered call writing
Implied volatility
Volatility
Hedge/Hedged position
31. 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.
Adjusted Option
Bull spread (call)
Conversion
Broker loan rate
32. An option that has no intrinsic value.
Implied volatility
Out-of-the-money (OTM)
Option Chain
Black-Scholes formula
33. A short stock position and a short put position.
Ask/ask price
Fences
Short
Synthetic short call
34. A long call position and a short put position.
Intrinsic value
Black-Scholes formula
Class of options
Synthetic long stock
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)
American-style options
Chicago Board Options Exchange (CBOE)
Spread
Bear spread (put)
36. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Equivalent strategy
Expiration cycle
Ask/ask price
Bear market
37. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Class of options
Broker loan rate
Bull (or bullish) spread
LEAPS
38. 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.
Condor spread
Arbitrage
Underlying
Hedge/Hedged position
39. The time of day by which all exercise notices must be received on the expiration date.
Long position
Hedge/Hedged position
Expiration time
DPM
40. 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)
Neutral strategy
Synthetic long put
Bull spread (put)
Expiration
41. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Theta
Exercise
Underlying
Bear market
42. An option on shares of an individual common stock.
Ratio write
Indexing
Equity option
Series of options
43. 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.
Broker loan rate
Diagonal spread
ATM
Edge
44. 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]
Time spread/Calendar spread/Horizontal spread
Exercise
AON
Neutral strategy
45. 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
Open interest
Short
Index option
Expiration cycle
46. The month during which the expiration date occurs
Neutral
Expiration month
Open interest
Debit spread
47. 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.
GTC
Leg
Condor spread
Options pricing curve
48. 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.
Call Option
Indexing
Spread
Option
49. An order to buy or sell at the last price on the close.
Vertical spread
AON
Last trading day
Market on close (MOC)
50. An order that is designated to be executed on or before the expiration date.
Neutral spread
All-or-none order (AON)
Leg
Synthetic short stock
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