Options Trading Options Trading Strategy Test 2

Question 1

A long straddle profits when the underlying stock does what?

Accepted Answer

Makes a large move in either direction

Answer

Stays flat near the strike

Answer

Rises only slightly

Answer

Pays a dividend

Question 2

What is the maximum loss on a long call option?

Accepted Answer

The premium paid

Answer

Unlimited

Answer

The strike price

Answer

The breakeven price

Question 3

A covered call strategy involves owning the stock and doing what?

Accepted Answer

Selling a call against it

Answer

Buying a put

Answer

Buying another call

Answer

Shorting the stock

Question 4

In a bull call spread, you buy a lower-strike call and do what with a higher-strike call?

Accepted Answer

Sell it

Answer

Buy it

Answer

Exercise it

Answer

Let it expire

Question 5

The breakeven point of a long put is calculated as:

Accepted Answer

Strike minus premium

Answer

Strike plus premium

Answer

Premium minus strike

Answer

Strike times premium

Question 6

Which strategy has limited risk and limited reward?

Accepted Answer

Vertical credit spread

Answer

Naked call

Answer

Long stock

Answer

Short straddle

Question 7

An iron condor is constructed using how many option legs?

Accepted Answer

Four

Answer

Two

Answer

Three

Answer

Five