Stock Trading Stock Trading Options & Derivatives

Question 1

A call option gives the buyer the right, but not the obligation, to:

Accepted Answer

Buy shares at the strike price before expiration

Answer

Sell shares at the strike price before expiration

Answer

Receive dividends from the underlying stock

Answer

Short the underlying stock at market price

Question 2

A call option is considered 'in the money' (ITM) when:

Accepted Answer

The strike price is below the current stock price

Answer

The strike price equals the current stock price

Answer

The strike price is above the current stock price

Answer

The option has more than 30 days to expiration

Question 3

What is the maximum loss a buyer of a call option can incur?

Accepted Answer

The premium paid for the option

Answer

Unlimited losses as the stock falls

Answer

The full value of the underlying shares

Answer

The difference between the strike price and zero

Question 4

What does the 'strike price' of an option represent?

Accepted Answer

The predetermined price at which the option can be exercised

Answer

The current market price of the underlying stock

Answer

The price at which the option contract was purchased

Answer

The price the stock must reach for the option to expire worthless

Question 5

Which options Greek measures the rate at which an option loses value as it approaches expiration?

Accepted Answer

Theta

Answer

Delta

Answer

Vega

Answer

Gamma

Question 6

A put option gives the holder the right to:

Accepted Answer

Sell the underlying asset at the strike price

Answer

Buy the underlying asset at the strike price

Answer

Receive the underlying asset's dividends

Answer

Lock in the current market price for future purchase

Question 7

What is the key difference between American-style and European-style options?

Accepted Answer

American options can be exercised any time before expiration; European options only at expiration

Answer

American options expire monthly; European options expire quarterly

Answer

American options are traded on US exchanges; European options trade in Europe only

Answer

American options cover 100 shares; European options cover 10 shares