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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. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Automatic exercise
Equity option
Backspread
Cash-settled American index options (cash index)
2. 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.
Calendar spread
Bear spread (put)
Bear spread
Long position
3. Options that may be exercised on or before the expiration date.
Synthetic short stock
American-style options
CTA
Time value
4. 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
Bull
Vertical spread
Last trading day
5. An option that has no intrinsic value.
In-the-money option (ITM)
Equity option
Bid/bid price
Out-of-the-money (OTM)
6. 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.
Interest
Butterfly spead (Put)
Short stock position
Index option
7. Good Til Cancel
Class of options
Equivalent strategy
GTC
FOK
8. 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
Time decay
Diagonal spread
Bull (or bullish) spread
Time spread/Calendar spread/Horizontal spread
9. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Neutral
Break-even point(s)
Hedge/Hedged position
Intrinsic value
10. 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
Expiration date
Arbitrage
Option Chain
Reverse conversion
11. The total price of an option: intrinsic value plus extrinsic value
Premium
Contract size
Early exercise
Gamma
12. A position resulting from the sale of a contract or instrument that you do not own.
Expiration
All-or-none order (AON)
Synthetic long put
Short
13. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Strike price
Hedging
Bear spread
Time spread/Calendar spread/Horizontal spread
14. 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.
Synthetics
Box spread
Broker loan rate
Straddle
15. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.
Selling short
Bear
Option writer
Bull (or bullish) spread
16. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Time spread/Calendar spread/Horizontal spread
Early exercise
Long position
Reverse conversion
17. 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]
Covered call/Covered call writing
Synthetic short call
Assignment
Time spread/Calendar spread/Horizontal spread
18. A means of increasing return or worth without increasing investment.
Series of options
Leverage
Broker loan rate
Ask/ask price
19. 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)
Reverse conversion
Vega
Bull spread (call)
Historic volatility
20. An order that is designated to be executed on or before the expiration date. (all or none)
Covered option
AON
LEAPS
Collar
21. Received notification of an assignment by rhw options clearing corporation.
Assigned
Butterfly spead (Put)
American-style options
Iron butterfly
22. 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)
Covered call/Covered call writing
Assigned
Neutral
Bear spread (call)
23. A means of increasing return or worth without increasing investment.
Backspread
Pin risk
Leverage
Expiration date
24. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Early exercise
Option writer
Gamma
Bull spread (call)
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.
Edge
Implied volatility
Index option
Bull
26. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Analytics
Premium
Time value
Bull spread (put)
27. The date an option contract becomes void.
ATM
Expiration
Investment
Interest
28. 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)
reaking
Reverse conversion
Expiration cycle
Pin risk
29. The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value. This is often referred to as the time value portion of option premiums.
CTA
Offer price
Options pricing curve
Extrinsic value
30. The interest expense on money borrowed to finance a margined securities position.
Options pricing curve
Gamma
Carry/Carrying charge
Leg
31. A position established with the specific intent of protecting an existing position. (an owner of common stock may buy a put option to hedge against a possible stock price decline).
Calendar spread
Hedge/Hedged position
Out-of-the-money (OTM)
Options pricing model
32. 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.
Put-call ratio
Indexing
Hedge/Hedged position
Options pricing model
33. 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.
Assigned
Expiration month
Long position
Short
34. The estimated value of an option derived from a mathematical model.
Bear spread (call)
DPM
Theoretical value (TV)
Adjusted Option
35. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Collar
Adjusted Option
Extrinsic value
Option writer
36. 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.
Bear
Butterfly spead (Put)
Ask/ask price
Gamma
37. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Class of options
Calendar spread
Options pricing model
Hedge/Hedged position
38. 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
Carry/Carrying charge
Ratio write
At-the-money
39. 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
Equity option
Bear spread
Investment
Strangle
40. 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.
Offer price
Synthetic long stock
Condor spread
Rho
41. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
In-the-money option (ITM)
Cash-settled American index options (cash index)
Short stock position
Class of options
42. A position established with the specific intent of protecting an existing position. (an owner of common stock may buy a put option to hedge against a possible stock price decline).
Covered call/Covered call writing
American-style options
Assigned
Hedge/Hedged position
43. A long call position and a short put position.
DPM
Uncovered option/Naked option
Bull
Synthetic long stock
44. A position resulting from the sale of a contract or instrument that you do not own.
Synthetic Long call
Butterfly spead (Put)
Covered call/Covered call writing
Short
45. Opening sale of a security.
Selling short
Exercise
All-or-none order (AON)
Good til cancel (GTC) order
46. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Short
Rho
Ask/ask price
Arbitrage
47. The sensitivity of an options theoretical value to a change in implied volatility.
Analytics
Theta
Vega
GTC
48. 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
Investment
Covered option
Short stock position
Synthetic short call
49. 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.
Broker loan rate
ATM
Bear spread (call)
Delta
50. A long call position and a short put position.
Ratio write
Fences
Synthetic long stock
Arbitrage