SIE Options and Derivatives 1

Question 1

A call option gives the holder the right to:

Accepted Answer

Buy shares at the strike price

Answer

Sell shares at the strike price

Answer

Receive dividends from the underlying stock

Answer

Short-sell the underlying stock

Question 2

A put option gives the holder the right to:

Accepted Answer

Sell shares at the strike price

Answer

Buy shares at the strike price

Answer

Receive interest on the underlying bond

Answer

Force a stock split

Question 3

What is the maximum loss for a buyer of a call option?

Accepted Answer

The premium paid for the option

Answer

Unlimited loss

Answer

Loss of the underlying stock's full value

Answer

The difference between market price and strike price

Question 4

An option is 'in the money' (ITM) when:

Accepted Answer

Exercising the option would produce a positive intrinsic value

Answer

The holder has made a profit including the premium paid

Answer

The time value exceeds the premium paid

Answer

The underlying stock pays a dividend

Question 5

What does it mean to write (sell) a covered call?

Accepted Answer

Selling a call option while owning the underlying shares

Answer

Buying a call as protection against a short stock position

Answer

Selling a call with no existing stock position

Answer

Writing an option on an index rather than individual stock

Question 6

Options traded on US exchanges are standardized and guaranteed by which entity?

Accepted Answer

Options Clearing Corporation (OCC)

Answer

FINRA

Answer

The SEC

Answer

SIPC