Options Trading Advanced Options Techniques

Question 1

What is a 'ratio spread' in options trading?

Accepted Answer

Buying one option and selling more than one option at a different strike

Answer

A ratio spread involves buying one option and selling a greater number of options at a different strike, creating an asymmetric risk/reward profile.

Question 2

What is a 'calendar spread' (also called a 'time spread')?

Accepted Answer

Buying a longer-dated option and selling a shorter-dated option at the same strike

Answer

A calendar spread involves buying a longer-dated option and selling a shorter-dated option at the same strike price, profiting from accelerating time decay on the short leg.

Question 3

What is a 'diagonal spread' in options?

Accepted Answer

Buying a longer-dated option and selling a shorter-dated option at a different strike

Answer

A diagonal spread combines elements of both a calendar spread and a vertical spread — different strikes AND different expirations.

Question 4

What is a 'synthetic long stock' position in options?

Accepted Answer

Buying a call and selling a put at the same strike and expiration

Answer

A synthetic long stock is created by buying a call and selling a put at the same strike and expiration, replicating the risk/reward profile of owning the stock.

Question 5

What is a 'backspread' in options trading?

Accepted Answer

Selling fewer options than you buy, seeking to profit from a large move

Answer

A backspread (reverse ratio spread) involves selling fewer options than you buy, positioning for a large directional move while limiting risk if the market stays flat.

Options Trading Practice Test

Options Trading Practice Test

Options Trading Advanced Options Techniques