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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. 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)
Option
Options pricing model
Backspread
Adjusted Option
2. 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).
Hedge/Hedged position
Broker/Dealer
Index option
Series of options
3. The highest price a dealer is willing to pay for a security at a particular time.
Iron butterfly
Bid/bid price
Backspread
Edge
4. 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
Option writer
Debit spread
Theta
5. 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
Volatility
Fences
Interest rate risk
Out-of-the-money (OTM)
6. 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
Pin risk
Interest rate risk
Underlying
Synthetics
7. 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.
At-the-money
Cash-settled American index options (cash index)
Good til cancel (GTC) order
ATM
8. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Last trading day
Cash-settled American index options (cash index)
Straddle
Future
9. A short call position and a long put position.
Bull
Index
Synthetic short stock
European-style option
10. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Calendar spread
Selling short
Automatic exercise
Bid/bid price
11. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Offer price
AON
Interest rate risk
Ask/ask price
12. A short stock position and a short put position.
Synthetic short call
Index
Covered call/Covered call writing
Covered call/Covered call writing
13. The month during which the expiration date occurs
Bull
Index
Time decay
Expiration month
14. A long call position and a short put position.
Collar
Neutral
Synthetic long stock
Conversion
15. A type of order that requires that the order be executed completely or not at all.
Fill-or-kill order (FOK)
Index option
Interest
Interest rate risk
16. 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
Class of options
Time spread/Calendar spread/Horizontal spread
Indexing
17. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Equivalent strategy
Automatic exercise
Options pricing curve
Butterfly spread
18. The sensitivity of an options theoretical value to a change in implied volatility.
Vega
Rho
Butterfly spread
Options pricing curve
19. 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
Premium
LEAPS
Gamma
Broker/Dealer
20. A spread in which the difference in the long and short options premiums results in a net debit.
Bear market
Index
Offer price
Debit spread
21. 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)
Edge
At-the-money
Options pricing model
In-the-money option (ITM)
22. The total number of outstanding option contracts in a given series
All-or-none order (AON)
Open interest
reaking
Interest
23. Commodity trading advisor.
Early exercise
In-the-money option (ITM)
CTA
Strike price
24. 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.
Equivalent strategy
Combination
At-the-money
Strangle
25. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.
Cash-settled American index options (cash index)
Debit spread
Volatility
Hedging
26. The interest expense on money borrowed to finance a margined securities position.
Carry/Carrying charge
Short stock position
Ratio write
Exercise
27. At the money
Arbitrage
ATM
Interest rate risk
Bid/bid price
28. An order that is designated to be executed on or before the expiration date.
Expiration
Options pricing model
All-or-none order (AON)
Time decay
29. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Bull spread (call)
Class of options
Short stock position
Time value
30. 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.
Short stock position
Condor spread
Covered option
Out-of-the-money (OTM)
31. 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.
Arbitrage
Chicago Board Options Exchange (CBOE)
Early exercise
Edge
32. Amount by which an option is ITM.
At-the-money
Vertical spread
Intrinsic value
Black-Scholes formula
33. A market drop in the price of a security
Class of options
Covered call/Covered call writing
Selling short
reaking
34. Another name for calendar spread.
Horizontal spread
Rho
Market on close (MOC)
Good til cancel (GTC) order
35. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.
Ask/ask price
Option writer
Synthetics
Bear
36. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Assignment
Intrinsic value
Bull
Time value
37. 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
Future
Short stock position
Synthetic Long call
Automatic exercise
38. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Synthetic short put
Underlying
Class of options
Expiration month
39. 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
Out-of-the-money (OTM)
Arbitrage
Synthetic short put
40. The interest expense on money borrowed to finance a margined securities position.
Spread
Bull (or bullish) spread
Theta
Carry/Carrying charge
41. Designated primary market maker.
DPM
In-the-money option (ITM)
Volatility
Future
42. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Butterfly spread
FOK
Short
Index option
43. An order to buy or sell at the last price on the close.
Neutral strategy
Conversion
Market on close (MOC)
Carry/Carrying charge
44. The date an option contract becomes void.
DPM
Horizontal spread
Contract size
Expiration
45. Amount by which an option is ITM.
Intrinsic value
Investment
Short
Vertical spread
46. 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)
Options pricing curve
Box spread
Synthetic short stock
Options pricing model
47. A short call position and a long put position.
Credit spread
Fill-or-kill order (FOK)
Synthetic short stock
Short stock position
48. An option that has no intrinsic value.
Index
Put-call ratio
Bear spread (put)
Out-of-the-money (OTM)
49. 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
Broker loan rate
Horizontal spread
Conversion
50. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Strangle
Exercise
Leverage
Market on close (MOC)