Options Trading Options Trading Strategy Test 5

Question 1

A collar combines owning stock, buying a put, and:

Accepted Answer

Selling a call

Answer

A collar pairs a protective put with a sold call to offset the put's cost while capping upside.

Question 2

Gamma measures the rate of change of which Greek?

Accepted Answer

Delta

Answer

Gamma measures how quickly delta changes as the underlying price moves.

Question 3

A long call butterfly profits most when the stock at expiration is:

Accepted Answer

At the middle strike

Answer

A long call butterfly reaches maximum profit when the underlying lands at the middle strike.

Question 4

Which strategy carries theoretically unlimited risk?

Accepted Answer

Naked short call

Answer

A naked short call has unlimited risk because the underlying price can rise indefinitely.

Question 5

The intrinsic value of a call option is:

Accepted Answer

Stock price minus strike, if positive

Answer

A call's intrinsic value is the stock price minus the strike when that difference is positive.

Options Trading Practice Test