Options Trading For Beginners 2

Question 1

What does buying a call option give the holder the right to do?

Accepted Answer

Buy the underlying at the strike price before expiration

Answer

A call option grants the holder the right, but not the obligation, to buy the underlying at the strike price.

Question 2

What is the maximum loss for a buyer of a single call option?

Accepted Answer

The premium paid

Answer

A long option buyer can only lose the premium they paid for the contract.

Question 3

One standard U.S. equity option contract typically represents how many shares?

Accepted Answer

100

Answer

A standard equity option contract controls 100 shares of the underlying stock.

Question 4

A call option is 'in the money' when the stock price is:

Accepted Answer

Above the strike price

Answer

A call has intrinsic value when the stock trades above its strike price.

Question 5

What is the 'strike price' of an option?

Accepted Answer

The price at which the option can be exercised

Answer

The strike price is the fixed price at which the underlying can be bought or sold when exercised.

Options Trading Practice Test