Stock Broker Options Trading & Strategies

Question 1

What is a call option?

Accepted Answer

The right to buy shares at a specified strike price

Answer

The right to sell shares at a specified strike price

Answer

The obligation to buy shares at the current market price

Answer

The obligation to sell shares at the strike price

Question 2

An investor buys a put option with a $50 strike price when the stock is trading at $40. What is the intrinsic value of this put?

Accepted Answer

$10

Answer

$0

Answer

$40

Answer

$50

Question 3

What does 'in the money' mean for a call option?

Accepted Answer

The strike price is below the current market price

Answer

The strike price is above the current market price

Answer

The strike price equals the current market price

Answer

The option has no intrinsic value

Question 4

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

Accepted Answer

The premium paid for the option

Answer

The strike price of the option

Answer

The current market value of the underlying stock

Answer

Unlimited

Question 5

Which strategy profits most in a neutral market where the stock price remains flat near the strike price?

Accepted Answer

Short straddle

Answer

Long straddle

Answer

Long call

Answer

Protective put

Question 6

What is the options premium?

Accepted Answer

The price paid by the buyer to acquire the option contract

Answer

The strike price of the contract

Answer

The intrinsic value only of the option

Answer

The difference between the call price and the put price

Question 7

When does a long call option expire worthless?

Accepted Answer

When the stock price is at or below the strike price at expiration

Answer

When the stock price exceeds the strike price at expiration

Answer

When the option is exercised early by the holder

Answer

When the option is assigned to the writer