Options Trading Options Income Strategies 2

Question 1

What is an iron condor options strategy?

Accepted Answer

A combination of a bull put spread and a bear call spread

Answer

An iron condor combines a bull put spread (sell lower put, buy even lower put) and a bear call spread (sell higher call, buy even higher call) to profit from low volatility.

Question 2

What is the primary goal of selling a covered call on a stock you own long-term?

Accepted Answer

To generate additional income from the position

Answer

Selling covered calls generates extra income (premium) on top of any dividends, enhancing the overall return of a long stock position.

Question 3

Which income strategy has defined risk on both the upside and downside?

Accepted Answer

Iron condor

Answer

An iron condor has defined maximum loss because the long options purchased define the maximum risk on both the call and put sides.

Question 4

At what point does a sold (short) put reach maximum profit?

Accepted Answer

At expiration with the stock above the strike price

Answer

A short put reaches maximum profit when the option expires worthless with the stock price above the strike price, allowing the seller to keep the full premium.

Question 5

What is the maximum loss for an iron condor position?

Accepted Answer

Width of the widest spread minus the net premium received

Answer

The maximum loss for an iron condor is the width of the widest spread (in points) minus the net premium received, occurring when the stock blows through one of the short strikes.

Options Trading Practice Test

Options Trading Practice Test

Options Trading Options Income Strategies 2