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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 that has no intrinsic value.
Bid/bid price
Options pricing curve
Out-of-the-money (OTM)
Arbitrage
2. 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 put
Short stock position
Arbitrage
Historic volatility
3. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Synthetic long stock
Index option
Synthetic short put
Early exercise
4. The time of day by which all exercise notices must be received on the expiration date.
Expiration time
Market on close (MOC)
Time spread/Calendar spread/Horizontal spread
Clearinghouse
5. The total price of an option: intrinsic value plus extrinsic value
Pin risk
Premium
Interest
Bear
6. 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
Expiration month
Fences
Box spread
LEAPS
7. 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)
Pin risk
Covered call/Covered call writing
Volatility
Box spread
8. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Investment
Assignment
Put-call ratio
Neutral strategy
9. A short call position and a long put position.
Synthetic short stock
Synthetic long stock
Condor spread
Option
10. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Underlying
Good til cancel (GTC) order
Theta
Future
11. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).
Box spread
Bear
Index
At-the-money
12. Good Til Cancel
Broker/Dealer
Synthetic Long call
Theta
GTC
13. The sensitivity of an options theoretical value to a change in implied volatility.
Vega
Bull spread (put)
Expiration month
Collar
14. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Synthetics
Time value
Expiration date
Offer price
15. 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)
At-the-money
Premium
Hedging
16. 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.
Intrinsic value
Extrinsic value
Carry/Carrying charge
Ratio write
17. A short call position and a long put position.
Reverse conversion
Fences
Vertical spread
Synthetic short stock
18. A spread in which the difference in the long and short options premiums results in a net debit.
Debit spread
Iron butterfly
AON
Fences
19. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Last trading day
Time spread/Calendar spread/Horizontal spread
Synthetic Long call
Bull
20. 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
Strike price
Time spread/Calendar spread/Horizontal spread
Clearinghouse
21. Designated primary market maker.
DPM
Covered option
Delta
Uncovered option/Naked option
22. The month during which the expiration date occurs
Bull spread (put)
Strangle
Expiration month
Exercise
23. Good Til Cancel
GTC
Black-Scholes formula
Leg
Synthetic short call
24. An option strategy that is neither bullish nor bearish.
LEAPS
Short
Neutral strategy
Backspread
25. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Selling short
Interest rate risk
Break-even point(s)
European-style option
26. The total number of outstanding option contracts in a given series
ATM
Collar
Open interest
Bear
27. A means of increasing return or worth without increasing investment.
Class of options
Adjusted Option
Leverage
Underlying
28. 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)
Market on close (MOC)
Time decay
Ask/ask price
Bull spread (call)
29. 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
Interest rate risk
Future
Delta
30. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Option writer
Clearinghouse
Synthetic Long call
Synthetic short call
31. 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.
Backspread
Good til cancel (GTC) order
CTA
Synthetics
32. Options that may be exercised on or before the expiration date.
Expiration date
Gamma
Hedge/Hedged position
American-style options
33. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit
Synthetic short stock
Hedging
Spread
Covered option
34. 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
Short stock position
ATM
Debit spread
Hedging
35. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit
Expiration month
Synthetic short stock
Spread
Option Chain
36. An option that has intrinsic value
In-the-money option (ITM)
Time spread/Calendar spread/Horizontal spread
Out-of-the-money (OTM)
Delta
37. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.
Credit spread
Iron butterfly
Implied volatility
Synthetic long put
38. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Hedging
Assignment
Options pricing curve
Carry/Carrying charge
39. 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
Short
Implied volatility
Out-of-the-money (OTM)
40. A debit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (writing 1 XYZ Jan 50 put and buying 1 XYZ Jan 55 put)
Neutral strategy
Open interest
Bear spread (put)
Bear market
41. 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.
Cash-settled American index options (cash index)
Pin risk
Credit spread
Bear spread (put)
42. The total number of outstanding option contracts in a given series
Leg
Automatic exercise
Strangle
Open interest
43. A position resulting from the sale of a contract or instrument that you do not own.
Synthetic short stock
Rho
Short
Synthetics
44. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Condor spread
Bear market
Assignment
Index option
45. The time of day by which all exercise notices must be received on the expiration date.
Neutral spread
Expiration time
Synthetic Long call
Chicago Board Options Exchange (CBOE)
46. 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
Intrinsic value
Iron butterfly
Short stock position
European-style option
47. 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.
Extrinsic value
Combination
Pin risk
Index
48. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
All-or-none order (AON)
Implied volatility
Expiration time
Butterfly spread (Call)
49. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
DPM
Leg
Straddle
Collar
50. 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]
Indexing
Time spread/Calendar spread/Horizontal spread
Hedging
Straddle