Options Trading Options Income Strategies

Question 1

What is a covered call strategy?

Accepted Answer

Selling a call option while holding the underlying stock

Answer

Buying a call option to cover a short stock position

Answer

Selling a call option with no underlying position

Answer

Buying a call to hedge against a short call

Question 2

What is the maximum profit for a covered call position?

Accepted Answer

Strike price minus stock purchase price plus premium received

Answer

Unlimited upside like owning the stock

Answer

The premium received only

Answer

Strike price times number of shares

Question 3

A cash-secured put involves:

Accepted Answer

Selling a put option while holding enough cash to buy the shares if assigned

Answer

Buying a put option backed by cash in the account

Answer

Selling a put to hedge a long stock position

Answer

Buying shares and simultaneously buying a put

Question 4

Which income strategy involves selling an out-of-the-money call and an out-of-the-money put simultaneously?

Accepted Answer

Short strangle

Answer

Short straddle

Answer

Iron condor

Answer

Bull put spread

Question 5

What is the breakeven price for a cash-secured put with a $50 strike and $3 premium collected?

Accepted Answer

$47

Answer

$53

Answer

$50

Answer

$47 or $53

Question 6

The 'wheel strategy' in options trading typically involves:

Accepted Answer

Selling cash-secured puts until assigned, then selling covered calls

Answer

Buying calls and puts alternately to capture volatility

Answer

Rolling options forward each week to capture theta

Answer

Selling iron condors and reinvesting the premium