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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. At the money
Option Chain
ATM
Theoretical value (TV)
Edge
2. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Expiration date
Edge
Bull
Bear market
3. 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.
Bear spread (put)
Time spread/Calendar spread/Horizontal spread
Option Chain
Cash-settled American index options (cash index)
4. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Index
Synthetic short call
Time value
Vertical spread
5. The date an option contract becomes void.
GTC
Expiration
AON
Ratio write
6. 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.
Bear spread
Broker/Dealer
Expiration month
Covered option
7. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Bull
Class of options
ATM
Iron butterfly
8. Amount by which an option is ITM.
Intrinsic value
Rho
Volatility
Options pricing curve
9. An option strategy that is neither bullish nor bearish.
Neutral strategy
Spread
Investment
Option writer
10. An agent who facilitates trades between a buyer and a seller and receives a commission for services.
Exercise
Broker/Dealer
Carry/Carrying charge
Reverse conversion
11. Another name for calendar spread.
Reverse conversion
Horizontal spread
Rho
Selling short
12. 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
Series of options
Butterfly spread (Call)
Adjusted Option
Market on close (MOC)
13. 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
Iron butterfly
Interest rate risk
Butterfly spead (Put)
Open interest
14. Fill-or-kill order
FOK
Series of options
Adjusted Option
Edge
15. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.
Horizontal spread
Collar
Butterfly spead (Put)
Last trading day
16. The largest and oldest listed options exchange.
Iron butterfly
Put-call ratio
Bear spread
Chicago Board Options Exchange (CBOE)
17. 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.
Break-even point(s)
Put-call ratio
Series of options
CTA
18. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Gamma
Short
Series of options
Strangle
19. 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
Open interest
Bear spread (call)
Butterfly spread
20. 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.
Adjusted Option
Strike price
Arbitrage
Bear market
21. A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put is naked if the writer is not short sto
ATM
Backspread
Uncovered option/Naked option
Interest rate risk
22. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
GTC
Butterfly spread
Synthetic short put
Horizontal spread
23. The sensitivity of an options theoretical value to a change in implied volatility.
Vega
Strike price
Butterfly spread (Call)
Collar
24. 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.
Vertical spread
Short stock position
Adjusted Option
Covered option
25. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Future
Early exercise
CTA
Synthetic Long call
26. A spread in which the difference in the long and short options premiums results in a net debit.
All-or-none order (AON)
Assigned
Debit spread
Bull
27. 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
Vertical spread
Selling short
reaking
Box spread
28. 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)
Chicago Board Options Exchange (CBOE)
Backspread
reaking
Bull spread (put)
29. 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
Options pricing model
Combination
Collar
Class of options
30. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Ask/ask price
FOK
Expiration
Bull spread (put)
31. 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.
Fill-or-kill order (FOK)
Contract size
Early exercise
Indexing
32. 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.
Expiration
Leg
Neutral
Black-Scholes formula
33. A spread in which the difference in the long and short options premiums results in a net debit.
All-or-none order (AON)
Theoretical value (TV)
Debit spread
Bull spread (put)
34. 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)
Chicago Board Options Exchange (CBOE)
Adjusted Option
In-the-money option (ITM)
Fill-or-kill order (FOK)
35. The largest and oldest listed options exchange.
European-style option
Credit spread
Chicago Board Options Exchange (CBOE)
Carry/Carrying charge
36. 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.
Edge
Call Option
Synthetics
Chicago Board Options Exchange (CBOE)
37. A credit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (buying 1 XYZ Jan 55 call and writing 1 XYZ Jan 50 call)
Bear spread (call)
Fences
Adjusted Option
Hedging
38. Opening sale of a security.
Contract size
Bear
Break-even point(s)
Selling short
39. 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)
Time decay
Intrinsic value
American-style options
40. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin
Iron butterfly
Time spread/Calendar spread/Horizontal spread
Butterfly spread (Call)
Neutral spread
41. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Break-even point(s)
Neutral
Fences
Iron butterfly
42. An order to buy or sell at the last price on the close.
Market on close (MOC)
Chicago Board Options Exchange (CBOE)
Leverage
AON
43. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Cash-settled American index options (cash index)
Implied volatility
Series of options
Extrinsic value
44. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.
Exercise
At-the-money
Synthetic short put
Uncovered option/Naked option
45. A measure of actual stock price changes over a specific period of time.
Adjusted Option
Leg
Historic volatility
Last trading day
46. A market drop in the price of a security
reaking
Short
Bear
Conversion
47. 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
Horizontal spread
Market on close (MOC)
Reverse conversion
Synthetic long put
48. Third Friday of expiration month
reaking
Last trading day
Intrinsic value
Reverse conversion
49. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.
Index option
Butterfly spead (Put)
Synthetics
Selling short
50. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)
Synthetic Long call
AON
Covered call/Covered call writing
Bear market
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