Options trading pop-quiz questions and answers
Posted on: October 31st, 2022
By: Efrain Lemus
- The purchase of an American Style option contract is: Option premium is:
- The price of the option which is paid by the buyer to the seller at the time of the transaction.
- Which of the following investors will purchase stock if the option is exercised?
- I. Owner of a call
- II. Owner of a put
- III. Writer of a call
- IV. Writer of a put
- I and IV
- As the underlying stock price increases, the premium of a call option will generally:
- Who issues a U.S. listed option?
- The Options Clearing Corp
- A call is “in-the-money” when the market price of the underlying stock is:
- Higher than the strike price
- XYZ stock is trading at $25.75 and XYZ Jul 25 calls are trading at a premium of $2. What is the time value of the Jul 25 calls?
- Which of the following options strategies are bearish?
- I. Buyer of a call
- II. Writer of a call
- III. Buyer of a put
- IV. Writer of a put
- II and III
- Which two of the following options are “in-the-money”?
- I. PQR 35 put when PQR is trading at $32
- II. PQR 35 call when PQR is trading at $32
- III. PQR 15 call when PQR is trading at $15
- IV. PQR 15 call when PQR is trading at $18
- I and IV
- An investor sells an ABC Mar 35 call. To establish a straddle, he would also:
- All of the following are possible objectives of call buyers EXCEPT:
- Hedging a long stock position against falling prices
- Which of the following is the riskiest option strategy?
- When an index option is exercised, cash settlement takes place how many business days after exercise?
- The S&P 100 Index and the AMEX Major Market Index are examples of:
- On May 4th, an investor writes one S&P 100 Jan 185 put at 6. His maximum potential gain on this position is:
- An investor writes an AMEX Major Market Index 250 call at 13. The market closes that day at $262.34. The investor will break even on his short call if, on the expiration date, the index closes at:
- If a holder of a call option tenders an exercise notice on the day prior to the ex-dividend date for an ordinary cash dividend, he will be:
- Entitled to the dividend.
- If an investor does not anticipate that the price of a stock will change and wished to take an option position, he would most likely:
- Sell an uncovered straddle
- Upon exercise of a call option, the holder of the call will realize a profit if the price of the underlying:
- Exceeds the exercise price plus the premium paid
- If buying listed call options instead of the underlying stock, which of the following is NOT an advantage?
- The call has intrinsic value in addition to the time value which gradually diminishes.
- The holder of a long put will realize a profit upon the exercise of the option if the price of the underlying stock:
- Falls below the exercise price minus the premium paid
- All of the following generally result in a profit to a naked call writer EXCEPT:
- The call is exercised and the price of the underlying is greater than the exercise price.
- In early April, an investor buys 1 XYZ Oct 60 call for $9 and sells 1 XYZ Jul 70 call for $4. If the investor buys back the Jul call for $1 and sells the Oct call for $12, what will the pretax profit or loss be?
- With no other positions, an investor sells short 100 XYZ at $40 and sells 1 XYZ Oct 40 put at $5. If the put is exercised when the market price of the stock is $35 and the stock received is used to cover the short position, what would the investor’s profit or loss be?
- $500 profit
If a Customer seeks to liquidate an open position at or near the prevailing market, the following is correct:
In a locked limit market, a fast moving market, an illiquid market, or if the system experiences failure or delay, a Customer may not be able to close out an open position at or near the prevailing market.
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