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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 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
European-style option
Time spread/Calendar spread/Horizontal spread
American-style options
2. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Cash-settled American index options (cash index)
reaking
Automatic exercise
Bull spread (put)
3. 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.
Black-Scholes formula
Volatility
Synthetic long put
Expiration time
4. An order to buy or sell at the last price on the close.
Fill-or-kill order (FOK)
Synthetic short stock
Market on close (MOC)
Synthetic long stock
5. The month during which the expiration date occurs
Expiration month
Diagonal spread
Delta
Extrinsic value
6. The total price of an option: intrinsic value plus extrinsic value
Leg
Expiration
Pin risk
Premium
7. 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
Broker loan rate
Class of options
Ratio write
8. 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).
Reverse conversion
Strangle
Assignment
Equivalent strategy
9. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Bull (or bullish) spread
Offer price
Put-call ratio
Early exercise
10. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Calendar spread
Contract size
Collar
Backspread
11. Fill-or-kill order
Long position
Indexing
American-style options
FOK
12. A market drop in the price of a security
Class of options
Equivalent strategy
Synthetic short call
reaking
13. 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.
Ratio write
Clearinghouse
Synthetic long put
Exercise
14. Options that may be exercised on or before the expiration date.
Uncovered option/Naked option
American-style options
Combination
Ask/ask price
15. 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.
Neutral spread
Equity option
ATM
Black-Scholes formula
16. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Class of options
Butterfly spread
In-the-money option (ITM)
Hedging
17. An option on shares of an individual common stock.
Ask/ask price
Equity option
Early exercise
AON
18. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Last trading day
Break-even point(s)
Time spread/Calendar spread/Horizontal spread
Premium
19. The estimated value of an option derived from a mathematical model.
Option
Theoretical value (TV)
Future
Equity option
20. 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)
Butterfly spead (Put)
ATM
Butterfly spread
Bull spread (call)
21. The interest expense on money borrowed to finance a margined securities position.
Break-even point(s)
Bull spread (call)
Carry/Carrying charge
Options pricing curve
22. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Synthetics
Leg
Series of options
Indexing
23. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Box spread
Strangle
Ask/ask price
Clearinghouse
24. Amount by which an option is ITM.
reaking
Theoretical value (TV)
Strangle
Intrinsic value
25. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Bear spread
Debit spread
Strike price
Adjusted Option
26. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)
Carry/Carrying charge
Options pricing model
Assignment
Butterfly spread (Call)
27. Third Friday of expiration month
Fill-or-kill order (FOK)
European-style option
Last trading day
Vertical spread
28. An order that is designated to be executed on or before the expiration date. (all or none)
Edge
AON
Time decay
Synthetic long put
29. An order that is designated to be executed on or before the expiration date. (all or none)
Vega
Interest rate risk
AON
Reverse conversion
30. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Future
Short stock position
Broker loan rate
Index option
31. Calculations performed on updated prices.
Analytics
ATM
Market on close (MOC)
Theoretical value (TV)
32. The total price of an option: intrinsic value plus extrinsic value
Interest
Premium
Black-Scholes formula
Ratio write
33. Constructin a portfolio to match the performance of a broad-based index - such as the S&P 500. Individuals can do this by purchasing shares in an index mutual fund.
Break-even point(s)
Indexing
Volatility
Butterfly spread (Call)
34. 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
Gamma
DPM
Options pricing model
Historic volatility
35. 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.
Offer price
Spread
Delta
Time spread/Calendar spread/Horizontal spread
36. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.
Put-call ratio
Expiration
Bear spread (call)
European-style option
37. Another name for calendar spread.
Neutral strategy
Bear spread (call)
Historic volatility
Horizontal spread
38. 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.
Analytics
Investment
Break-even point(s)
Long position
39. Received notification of an assignment by rhw options clearing corporation.
Assigned
Synthetic long stock
Exercise
LEAPS
40. 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
Calendar spread
Leverage
Bull spread (put)
Reverse conversion
41. 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)
Bear spread (put)
Credit spread
Time spread/Calendar spread/Horizontal spread
Pin risk
42. 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
reaking
Short stock position
Options pricing curve
ATM
43. 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.
Hedging
Arbitrage
Clearinghouse
Straddle
44. Another name for calendar spread.
Butterfly spread (Call)
Strike price
Horizontal spread
Spread
45. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Assignment
Long position
Synthetic short put
Bear market
46. A long stock position and a short call position.
Rho
Synthetic short put
Uncovered option/Naked option
Option Chain
47. An order that is designated to be executed on or before the expiration date.
Butterfly spead (Put)
All-or-none order (AON)
Uncovered option/Naked option
Butterfly spread
48. 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
Synthetic short call
Option writer
Gamma
Short
49. 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)
Bull spread (put)
Bull (or bullish) spread
Offer price
American-style options
50. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.
Short stock position
LEAPS
Arbitrage
Chicago Board Options Exchange (CBOE)