Options trading pop-quiz questions and answers

Posted on: October 31st, 2022
By: Tadeo Martinez

  • 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:
    • Increase
  • 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?
    • $0
    • $75
    • $125 – This one
    • $200
  • 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:
    • Sell an ABC Mar 35 put
  • 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?
    • Uncovered call writing
  • When an index option is exercised, cash settlement takes place how many business days after exercise?
    • One
  • The S&P 100 Index and the AMEX Major Market Index are examples of:
    • Broad-based indexes
  • On May 4th, an investor writes one S&P 100 Jan 185 put at 6. His maximum potential gain on this position is:
    • $600
  • 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:
    • $263
  • 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?
    • $600 profit
  • 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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