Options Trading For Beginners 4

Question 1

A covered call involves selling a call while:

Accepted Answer

Owning the underlying shares

Answer

A covered call is writing a call against shares you already own to generate income.

Question 2

The seller (writer) of an option receives what at the trade's outset?

Accepted Answer

The premium

Answer

The option writer collects the premium upfront from the buyer.

Question 3

What is the main risk of selling a 'naked' call?

Accepted Answer

Theoretically unlimited loss

Answer

An uncovered call has theoretically unlimited loss because the stock can rise indefinitely.

Question 4

Which Greek measures an option's price sensitivity to a $1 move in the underlying?

Accepted Answer

Delta

Answer

Delta measures how much an option's price changes for a $1 move in the underlying.

Question 5

Which Greek represents time decay of an option's value?

Accepted Answer

Theta

Answer

Theta measures how much value an option loses as time passes.

Options Trading Practice Test