Stock Trading Stock Trading Options & Derivatives 2

Question 1

A covered call strategy involves:

Accepted Answer

Selling a call option against shares of the underlying stock you already own

Answer

Buying a call option while simultaneously buying the underlying stock

Answer

Buying a put option to hedge a long stock position

Answer

Selling both a call and a put on the same underlying stock

Question 2

A protective put is best described as:

Accepted Answer

Buying a put option on a stock you already hold to limit downside risk

Answer

Selling a put option to collect premium income on a stock you own

Answer

Buying shares of stock while simultaneously selling a put below market price

Answer

Writing a put option on a stock you wish to acquire at a lower price

Question 3

Which options strategy profits when a stock makes a large move in either direction?

Accepted Answer

Long straddle

Answer

Covered call

Answer

Bull call spread

Answer

Cash-secured put

Question 4

Delta in options trading measures:

Accepted Answer

How much an option's price changes per one-point move in the underlying asset

Answer

The rate at which an option loses value over time

Answer

The sensitivity of an option's price to changes in implied volatility

Answer

The probability that an option will expire worthless

Question 5

An iron condor options strategy profits when:

Accepted Answer

The underlying stock remains within a defined price range until expiration

Answer

The underlying stock makes a very large move up or down

Answer

Implied volatility rises sharply before expiration

Answer

The stock reaches exactly one of the short strikes at expiration

Question 6

Implied volatility (IV) in options pricing represents:

Accepted Answer

The market's expectation of future price volatility embedded in option prices

Answer

The historical standard deviation of the underlying stock's price over the past year

Answer

The guaranteed range within which the stock will trade at expiration

Answer

The annualized return of the underlying stock based on its price history

Question 7

A bull call spread involves:

Accepted Answer

Buying a lower-strike call and selling a higher-strike call with the same expiration

Answer

Buying two calls at the same strike to double directional exposure

Answer

Selling a call and buying a put to profit from a decline

Answer

Buying a call and simultaneously buying the underlying stock