Options Trading Millionaires 3 — Questions and Answers
Question 1: What is the maximum loss on a long call option?
- The premium paid (Correct answer)
- Unlimited
- The strike price
- The stock price
Correct answer: The premium paid
A long call buyer can only lose the premium paid for the option.
Question 2: An iron condor profits most when the underlying stock does what?
- Stays within a range (Correct answer)
- Soars upward
- Crashes downward
- Pays a dividend
Correct answer: Stays within a range
An iron condor is a neutral strategy that profits when price stays between the short strikes.
Question 3: What does 'delta' approximately represent for an option?
- Change in option price per $1 move in the stock (Correct answer)
- Time until expiration
- Volatility level
- Interest rate sensitivity
Correct answer: Change in option price per $1 move in the stock
Delta estimates how much an option's price moves for each $1 change in the underlying.
Question 4: Why is position sizing critical for traders trying to grow wealth with options?
- It limits how much one trade can damage the account (Correct answer)
- It increases leverage automatically
- It removes the need for stops
- It guarantees profits
Correct answer: It limits how much one trade can damage the account
Proper position sizing prevents a single losing trade from devastating the portfolio.
Question 5: A covered call involves owning stock and doing what?
- Selling a call against the shares (Correct answer)
- Buying a put
- Selling the stock short
- Buying another 100 shares
Correct answer: Selling a call against the shares
A covered call sells a call option against owned shares to generate premium income.
Question 6: What is the main tradeoff of a covered call?
- Capped upside in exchange for premium (Correct answer)
- Unlimited downside
- No income
- Forced stock purchase
Correct answer: Capped upside in exchange for premium
The covered call earns premium but caps gains if the stock rises above the strike.
Question 7: Why do many traders avoid holding options through earnings announcements?
- Implied volatility crush can erase premium (Correct answer)
- Markets close during earnings
- Options are banned then
- Premiums always rise after
Correct answer: Implied volatility crush can erase premium
After earnings, implied volatility often collapses, sharply reducing option value even if the stock moves.
Options Trading Millionaires 3
What is the maximum loss on a long call option?