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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 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
Leverage
Uncovered option/Naked option
Short stock position
Equivalent strategy
2. 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
Hedging
Gamma
Interest
Combination
3. 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.
Rho
Short stock position
Strangle
GTC
4. An option on shares of an individual common stock.
Market on close (MOC)
Condor spread
Equity option
Synthetic short stock
5. 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
Assignment
Short
Expiration cycle
Equivalent strategy
6. 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.
GTC
Condor spread
Option
Synthetics
7. 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
Future
Volatility
Expiration cycle
Pin risk
8. Same as ask price
Offer price
Leverage
Ask/ask price
Bear spread
9. Amount by which an option is ITM.
Intrinsic value
Synthetic short put
Rho
Horizontal spread
10. 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
Expiration date
Debit spread
Horizontal spread
11. A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. (buying 1 LMN Jan 50 call - and writing 1 LMN Jan 55 call; simultaneously buying 1 LMN Jan 55 put
Box spread
Contract size
Theta
Condor spread
12. The sensitivity of an options theoretical value to a change in implied volatility.
reaking
Short stock position
Vega
Edge
13. 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
Clearinghouse
Expiration date
Straddle
14. 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
Chicago Board Options Exchange (CBOE)
Out-of-the-money (OTM)
Time decay
15. 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.
Index
Edge
Rho
Synthetics
16. 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.
Expiration month
Black-Scholes formula
Chicago Board Options Exchange (CBOE)
Options pricing curve
17. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Neutral
Arbitrage
Options pricing model
American-style options
18. A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. (buying 1 LMN Jan 50 call - and writing 1 LMN Jan 55 call; simultaneously buying 1 LMN Jan 55 put
Box spread
LEAPS
All-or-none order (AON)
Expiration
19. 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.
Diagonal spread
Equivalent strategy
Bear
Synthetic short stock
20. 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
Hedge/Hedged position
Condor spread
All-or-none order (AON)
Interest rate risk
21. 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.
Vertical spread
Options pricing model
Indexing
Investment
22. At the money
Options pricing model
Vertical spread
ATM
Volatility
23. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Bull spread (call)
Fill-or-kill order (FOK)
Contract size
Clearinghouse
24. The estimated value of an option derived from a mathematical model.
FOK
Option writer
ATM
Theoretical value (TV)
25. The highest price a dealer is willing to pay for a security at a particular time.
Butterfly spead (Put)
Intrinsic value
Bid/bid price
In-the-money option (ITM)
26. 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.
Adjusted Option
Indexing
Expiration time
Uncovered option/Naked option
27. An order that is designated to be executed on or before the expiration date. (all or none)
Assigned
Delta
Option
AON
28. A means of increasing return or worth without increasing investment.
Leverage
Covered call/Covered call writing
European-style option
Option Chain
29. Third Friday of expiration month
Last trading day
Broker loan rate
Options pricing curve
FOK
30. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Broker loan rate
Calendar spread
Implied volatility
Bid/bid price
31. 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
Open interest
Butterfly spread
Neutral strategy
Vertical spread
32. 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
Theoretical value (TV)
Strike price
Collar
Expiration time
33. 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.
Covered option
Future
Selling short
Neutral
34. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Neutral
Historic volatility
Bull
Bear market
35. The stock price(s) at which an option strategy results in neither a profit nor a loss.
AON
American-style options
Bear market
Break-even point(s)
36. 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.
Bear spread (put)
Ask/ask price
Backspread
Broker/Dealer
37. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Strike price
Synthetic long put
Gamma
Expiration month
38. 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.
Reverse conversion
Intrinsic value
Carry/Carrying charge
Synthetics
39. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Break-even point(s)
Time value
CTA
Covered call/Covered call writing
40. A short stock position and a short put position.
Future
Credit spread
All-or-none order (AON)
Synthetic short call
41. 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.
Covered call/Covered call writing
Leg
Carry/Carrying charge
American-style options
42. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.
Calendar spread
Option
Time decay
Assigned
43. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Options pricing curve
Edge
Conversion
Strike price
44. 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.
Uncovered option/Naked option
Break-even point(s)
Broker loan rate
Synthetic long put
45. 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
Ratio write
Strangle
Out-of-the-money (OTM)
46. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Delta
Butterfly spread
Selling short
Neutral
47. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u
Uncovered option/Naked option
Rho
Open interest
Bear spread
48. 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)
Hedge/Hedged position
Interest
Bull spread (call)
Premium
49. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Calendar spread
Synthetics
Early exercise
Fences
50. At the money
ATM
Offer price
Exercise
Automatic exercise