Test 1: Chapters 1-4

50 Questions | Total Attempts: 68

SettingsSettingsSettings
Please wait...
Test 1: Chapters 1-4

Option basics


Questions and Answers
  • 1. 
    By _____ a trade a broker is able to collect double commission.
  • 2. 
    If a trader is primarily concerned with trading a certain quantity of the asset and is less sensitive to the price at which it trades, they should use a _____ order.
  • 3. 
    The difference between the trade price and current fair value of an option is referred to in our industry as _____
  • 4. 
    You can imagine an options market maker like a casino taking bets at a roullette wheel.  The optimal situation is in which a better enters the casino and places his entire bet on one number.
    • A. 

      True

    • B. 

      False

  • 5. 
    By collecting the difference between the bid/offer and fair value, you make riskless money.
    • A. 

      True

    • B. 

      False

  • 6. 
    A _______ _____ is when the clearing firm asks you to put up more capital to cover your position.
  • 7. 
    With SPY trading at August expo 142.21 the Oct 148 call is considered:
    • A. 

      ITM

    • B. 

      ATM

    • C. 

      OTM

  • 8. 
    The price at which a transaction will occur should the owner of an option choose to exercise is known as the _____ price.
  • 9. 
    The date by which the owner of an option must make the decision of whether or not to exercise, and after which the option no longer exists is known as the _____.
  • 10. 
    A short put is a bet that the underlying will _____. (may select multiple answers)
    • A. 

      Increase

    • B. 

      Decrease

    • C. 

      Remain unchanged

  • 11. 
    American options can only be exercised at expiration.
    • A. 

      True

    • B. 

      False

  • 12. 
    Regular equity options expire when?
    • A. 

      The last day of the month

    • B. 

      The second Friday of the month

    • C. 

      The Saturday after the third Friday of the month

    • D. 

      First Friday of the month

  • 13. 
    Open interest refers to the number of option contracts of a particular strike and type that are in existence.
    • A. 

      True

    • B. 

      False

  • 14. 
    If you pay $9.50 for the WEGZ Jul 55 Put outright, where is your breakeven point at expiration? Give response in the form "$__.__".
  • 15. 
    With equity XYZ trading $17.10 you bought one XYZ Jul 17 Put for $4.30.  At Jul expo XYZ settles $16.20.  The pnl on the trade is? Give response in the form "+/-$____.__"
  • 16. 
    Consider a game in which a fair coin is flipped 5 times and which pays $1 for every "head" outcome. If one could sell the opportunity to play the game for $2.60 to an unlimited amount of people it would be a...
    • A. 

      Good bet

    • B. 

      Bad bet

    • C. 

      Roughly neutral bet

  • 17. 
    In its most basic form an option's price is simply the _____  _____ of that option at expiration.
  • 18. 
    The main ways to "spread out" the possible prices an underlying will be trading at expiration are to: (select all that apply)
    • A. 

      Increase Volatility

    • B. 

      Decrease trades in the underlying

    • C. 

      Increase trades in the underlying

    • D. 

      Decrease time

    • E. 

      Increase time

    • F. 

      Decrease Volatility

  • 19. 
    _____ can be referred to as the speed of the market.
  • 20. 
    Options closer to expiration are worth _____ than/as options which are longer dated.
    • A. 

      More

    • B. 

      Less

    • C. 

      The same

  • 21. 
    A lower standard deviation translates into a _____ volatile asset.
    • A. 

      More

    • B. 

      Less

  • 22. 
    The forward price of a stock = current stock price + ___________  - ____________.   Please separate your answers by a / with no spaces.
  • 23. 
    The standard deviation is for our purposes:
    • A. 

      An indicator of the volatility of an asset

    • B. 

      The forward price of the asset

    • C. 

      How fast the probability distribution spreads out

  • 24. 
    Stock WEGZ is trading 250.  What is a weekly standard deviation move for WEGZ if vol is 10%
    • A. 

      1

    • B. 

      2.5

    • C. 

      3.5

    • D. 

      5

  • 25. 
    Stock DUBS is trading 64. What is a daily standard deviation move for DUBS if vol is 25%?
    • A. 

      .5

    • B. 

      1

    • C. 

      1.5

    • D. 

      2

Back to Top Back to top