Options and Derivatives Flashcards
6 cards from real SIE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Options and Derivatives flashcards as text
A call option gives the holder the right to:
Answer: Buy shares at the strike price
A call option grants the holder the right, but not the obligation, to buy the underlying security at the strike price before expiration.
A put option gives the holder the right to:
Answer: Sell shares at the strike price
A put option grants the holder the right to sell the underlying security at the strike price before expiration.
What is the maximum loss for a buyer of a call option?
Answer: The premium paid for the option
The maximum loss for an option buyer is limited to the premium paid, since the option can expire worthless.
An option is 'in the money' (ITM) when:
Answer: Exercising the option would produce a positive intrinsic value
An option is in the money when exercising it would produce positive intrinsic value, regardless of the premium paid.
What does it mean to write (sell) a covered call?
Answer: Selling a call option while owning the underlying shares
A covered call involves selling a call option while owning the underlying shares, providing income in exchange for capping upside.
Options traded on US exchanges are standardized and guaranteed by which entity?
Answer: Options Clearing Corporation (OCC)
The Options Clearing Corporation (OCC) acts as the issuer and guarantor for all US listed options contracts.