Stock Broker Options Trading & Strategies 3

Question 1

A long straddle strategy involves:

Accepted Answer

Buying both a call and a put with the same strike price and expiration date

Answer

A long straddle consists of purchasing a call and a put with identical strike prices and expiration dates, profiting from large price moves in either direction.

Question 2

A bull call spread is constructed by:

Accepted Answer

Buying a lower-strike call and selling a higher-strike call on the same stock

Answer

A bull call spread involves buying a call at a lower strike price and selling a call at a higher strike price, reducing the net cost but capping the maximum profit.

Question 3

What does the options Greek 'delta' measure?

Accepted Answer

The rate of change in an option's price for a $1 move in the underlying stock

Answer

Delta measures how much an option's premium is expected to change for every $1 movement in the price of the underlying security.

Question 4

Which options position offers theoretically unlimited profit potential with a limited, defined maximum loss?

Accepted Answer

Long call

Answer

A long call has theoretically unlimited profit potential as the stock can rise indefinitely, while the maximum loss is capped at the premium paid.

Question 5

One standard U.S. equity options contract typically covers how many shares of the underlying stock?

Accepted Answer

100 shares

Answer

One standard equity options contract in the U.S. represents 100 shares of the underlying stock, so the total contract cost equals the per-share premium multiplied by 100.

Stock Broker Practice Test

Stock Broker Practice Test

Stock Broker Options Trading & Strategies 3