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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. Good Til Cancel
Rho
Extrinsic value
GTC
Bear spread
2. Another name for calendar spread.
CTA
Break-even point(s)
Horizontal spread
Black-Scholes formula
3. 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.
Combination
Carry/Carrying charge
Delta
Expiration time
4. 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.
Bull spread (call)
Edge
Selling short
Bear spread (call)
5. The total price of an option: intrinsic value plus extrinsic value
Expiration
Premium
Implied volatility
Credit spread
6. The total number of outstanding option contracts in a given series
Open interest
Neutral
Bull
AON
7. 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.
Pin risk
Equivalent strategy
Rho
Premium
8. 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)
Index option
Black-Scholes formula
Bull spread (call)
Class of options
9. Options that may be exercised on or before the expiration date.
Automatic exercise
American-style options
Selling short
Debit spread
10. 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.
Time decay
Implied volatility
Backspread
Expiration time
11. Calculations performed on updated prices.
Analytics
Edge
CTA
Synthetic short stock
12. 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.
Delta
Covered option
Call Option
Historic volatility
13. A market drop in the price of a security
Interest rate risk
reaking
Bear spread (put)
DPM
14. 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.
Indexing
Gamma
Short
Vertical spread
15. 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
Fill-or-kill order (FOK)
Synthetic Long call
Break-even point(s)
16. An order that is designated to be executed on or before the expiration date. (all or none)
AON
Hedging
Break-even point(s)
Implied volatility
17. A means of increasing return or worth without increasing investment.
Short
Leverage
Bid/bid price
Historic volatility
18. 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
Synthetic long stock
Bull (or bullish) spread
Collar
Condor spread
19. 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
Neutral spread
Covered call/Covered call writing
Expiration
20. 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
Selling short
All-or-none order (AON)
Backspread
21. 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.
Ratio write
Collar
Expiration time
Combination
22. 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
Cash-settled American index options (cash index)
Calendar spread
23. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Bear spread (put)
Assigned
Bull
Bull spread (put)
24. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Expiration time
Future
Horizontal spread
Strangle
25. The time of day by which all exercise notices must be received on the expiration date.
Time spread/Calendar spread/Horizontal spread
Expiration time
Synthetic short call
Assignment
26. An option whose underlying asset is an index.
Call Option
Index option
Credit spread
Clearinghouse
27. The interest expense on money borrowed to finance a margined securities position.
Time spread/Calendar spread/Horizontal spread
Hedge/Hedged position
Carry/Carrying charge
Call Option
28. 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
Analytics
FOK
Out-of-the-money (OTM)
Reverse conversion
29. 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.
Collar
Covered option
Exercise
Broker/Dealer
30. Third Friday of expiration month
Carry/Carrying charge
CTA
Last trading day
Assignment
31. 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.
Long position
Interest
Covered call/Covered call writing
Good til cancel (GTC) order
32. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Intrinsic value
Break-even point(s)
Straddle
Hedging
33. 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
Good til cancel (GTC) order
Cash-settled American index options (cash index)
Short stock position
Condor spread
34. The use of money to create more money through an appreciating or income-producing asset.
Iron butterfly
Investment
Market on close (MOC)
Butterfly spread (Call)
35. 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)
Adjusted Option
Open interest
Open interest
Option writer
36. 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]
Market on close (MOC)
Analytics
Time spread/Calendar spread/Horizontal spread
Good til cancel (GTC) order
37. 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]
Neutral strategy
Time spread/Calendar spread/Horizontal spread
Interest
Butterfly spead (Put)
38. An option whose underlying asset is an index.
Bear spread (put)
Index option
Synthetic short call
Good til cancel (GTC) order
39. An order that is designated to be executed on or before the expiration date.
Fill-or-kill order (FOK)
AON
Short
All-or-none order (AON)
40. 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
Underlying
Exercise
Conversion
Delta
41. The stock price(s) at which an option strategy results in neither a profit nor a loss.
American-style options
Break-even point(s)
Butterfly spread (Call)
Leverage
42. 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.
Condor spread
Fill-or-kill order (FOK)
Delta
Conversion
43. Fill-or-kill order
FOK
Spread
Black-Scholes formula
Synthetic short put
44. The estimated value of an option derived from a mathematical model.
Theoretical value (TV)
reaking
Short stock position
Analytics
45. A measure of actual stock price changes over a specific period of time.
CTA
Historic volatility
Expiration
Diagonal spread
46. 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
FOK
Investment
Put-call ratio
47. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Synthetic short put
Options pricing curve
Broker loan rate
Market on close (MOC)
48. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Expiration date
Assignment
Volatility
Interest rate risk
49. 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.
Synthetic short put
Ratio write
Synthetic long stock
Bull spread (call)
50. 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.
Synthetic short call
Black-Scholes formula
Arbitrage
Interest rate risk