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

A covered call involves selling a call option against shares of stock you already own, generating income from the premium collected.

Question 2

What is the maximum profit for a covered call position?

Accepted Answer

Strike price minus stock purchase price plus premium received

Answer

The maximum profit for a covered call is the premium received plus any gain from the stock up to the strike price.

Question 3

A cash-secured put involves:

Accepted Answer

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

Answer

A cash-secured put means selling a put option while keeping enough cash in reserve to purchase the shares at the strike price if assigned.

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

A short strangle involves selling an OTM call and an OTM put, collecting premium from both while profiting if the underlying stays between the two strikes.

Question 5

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

Accepted Answer

$47

Answer

The breakeven for a short put is the strike price minus the premium received: $50 - $3 = $47.

Options Trading Practice Test

Options Trading Practice Test

Options Trading Options Income Strategies