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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. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Butterfly spread (Call)
Expiration
Time value
Reverse conversion
2. A long stock position and a long put position.
Calendar spread
Carry/Carrying charge
Synthetic Long call
Good til cancel (GTC) order
3. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Bear market
Option Chain
Hedge/Hedged position
Implied volatility
4. An option that has no intrinsic value.
Out-of-the-money (OTM)
Good til cancel (GTC) order
Indexing
DPM
5. 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.
LEAPS
Black-Scholes formula
Combination
Leverage
6. Options that may be exercised on or before the expiration date.
Rho
American-style options
Out-of-the-money (OTM)
Options pricing curve
7. The sensitivity of an options theoretical value to a change in implied volatility.
Vega
Bull spread (put)
Neutral spread
Leg
8. 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.
Credit spread
Combination
Call Option
Future
9. A short call position and a long put position.
Clearinghouse
Synthetic Long call
GTC
Synthetic short stock
10. Amount by which an option is ITM.
Analytics
Backspread
Intrinsic value
At-the-money
11. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Options pricing curve
Covered call/Covered call writing
Future
Ratio write
12. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Equivalent strategy
Clearinghouse
Option Chain
Spread
13. 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).
Implied volatility
Hedge/Hedged position
Collar
Synthetic short stock
14. The sensitivity of an options theoretical value to a change in implied volatility.
Bid/bid price
Short
Vega
Bear spread (put)
15. A short stock position and a short put position.
Combination
Historic volatility
Synthetic short call
Gamma
16. 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.
Bull
Bull (or bullish) spread
Ratio write
Option writer
17. A credit spread in which a rise in price of the underlying security will theoretically increase the profit value of the spread. (writing 1 XYZ Jan 55 put and buying 1 XYZ Jan 50 put)
Delta
Bull spread (put)
Bid/bid price
Vertical spread
18. 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)
Premium
Neutral spread
Condor spread
Options pricing model
19. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Covered call/Covered call writing
Out-of-the-money (OTM)
Underlying
Expiration cycle
20. A spread in which the difference in the long and short options premiums results in a net debit.
Bear spread (call)
Delta
Collar
Debit spread
21. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.
Pin risk
At-the-money
Iron butterfly
Series of options
22. 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 spread
Butterfly spead (Put)
CTA
LEAPS
23. Third Friday of expiration month
Last trading day
Options pricing curve
Series of options
Synthetic long stock
24. A spread in which the difference in the long and short options premiums results in a net debit.
Put-call ratio
Neutral spread
Debit spread
Box spread
25. 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
Investment
Bear spread
Diagonal spread
Implied volatility
26. The use of money to create more money through an appreciating or income-producing asset.
Assigned
Broker loan rate
Bear market
Investment
27. The use of money to create more money through an appreciating or income-producing asset.
Neutral
Volatility
Investment
Early exercise
28. Charge levied for the privilege ofborrowing money
Cash-settled American index options (cash index)
Interest
Synthetics
Clearinghouse
29. An option that can be exercised only at expiration. Usually expire the third Friday of every month
Straddle
Expiration date
European-style option
Hedge/Hedged position
30. 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
Calendar spread
Call Option
31. Calculations performed on updated prices.
Analytics
Short stock position
Short stock position
Equity option
32. 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.
Synthetic Long call
Edge
Bear spread
Equivalent strategy
33. 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)
Bull spread (call)
Assignment
Cash-settled American index options (cash index)
Synthetic Long call
34. 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
Box spread
Strike price
Spread
Synthetic long put
35. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Cash-settled American index options (cash index)
Bull
Expiration time
Debit spread
36. 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.
Time decay
Expiration date
Leg
Iron butterfly
37. 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
Vertical spread
Broker loan rate
Historic volatility
Gamma
38. An option that can be exercised only at expiration. Usually expire the third Friday of every month
Hedging
Selling short
Debit spread
European-style option
39. 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
European-style option
Expiration cycle
Cash-settled American index options (cash index)
40. A position resulting from the sale of a contract or instrument that you do not own.
Historic volatility
Butterfly spread (Call)
Strike price
Short
41. Options that may be exercised on or before the expiration date.
Synthetic Long call
Calendar spread
Implied volatility
American-style options
42. 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
Ask/ask price
Clearinghouse
Volatility
43. An order that is designated to be executed on or before the expiration date.
Spread
Time value
All-or-none order (AON)
Series of options
44. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.
At-the-money
Intrinsic value
Synthetic Long call
reaking
45. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
ATM
Covered call/Covered call writing
Class of options
Butterfly spread
46. 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.
European-style option
Exercise
Expiration time
FOK
47. The interest expense on money borrowed to finance a margined securities position.
Carry/Carrying charge
All-or-none order (AON)
Edge
Strangle
48. The estimated value of an option derived from a mathematical model.
American-style options
Hedge/Hedged position
Theoretical value (TV)
Debit spread
49. 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)
Vertical spread
Short stock position
Adjusted Option
Long position
50. 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)
Bear spread (put)
Investment
Call Option
Covered option