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

A long straddle buys a call and put at the same strike and profits from a large move up or down.

Question 2

What is the maximum loss on a long call option?

Accepted Answer

The premium paid

Answer

A long call's maximum loss is limited to the premium paid for the option.

Question 3

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

Accepted Answer

Selling a call against it

Answer

A covered call sells a call option against shares already owned to generate premium income.

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

A bull call spread buys a lower-strike call and sells a higher-strike call to reduce cost and cap profit.

Question 5

The breakeven point of a long put is calculated as:

Accepted Answer

Strike minus premium

Answer

A long put breaks even at the strike price minus the premium paid.

Options Trading Practice Test