Stock Trading Stock Trading Options & Derivatives 3

Question 1

Gamma in options trading measures:

Accepted Answer

The rate of change of delta for a one-point move in the underlying asset

Answer

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

Answer

The dollar value of time decay per day for an option position

Answer

The correlation between the option price and interest rate changes

Question 2

The Black-Scholes model is primarily used to:

Accepted Answer

Calculate the theoretical fair value of European-style options

Answer

Predict future stock prices based on fundamental analysis

Answer

Determine appropriate position sizing for a stock portfolio

Answer

Forecast earnings per share for publicly traded companies

Question 3

A futures contract differs from an options contract in that:

Accepted Answer

Futures obligate both parties to transact at a specified price on a future date

Answer

Futures give the buyer the right but not the obligation to buy or sell

Answer

Futures contracts can never be used for speculative purposes

Answer

Futures are only available on individual stocks, not commodities or indices

Question 4

Vega measures an option's sensitivity to changes in:

Accepted Answer

Implied volatility

Answer

The underlying stock's price

Answer

The risk-free interest rate

Answer

Time remaining until expiration

Question 5

What is the primary risk to the seller (writer) of a naked call option?

Accepted Answer

The underlying stock could rise without limit, creating theoretically unlimited losses

Answer

The premium received will erode to zero if the stock doesn't move

Answer

The stock could decline to zero, costing the seller the full share price

Answer

The option buyer can demand early exercise at any inconvenient time

Question 6

Which statement best describes an out-of-the-money (OTM) put option?

Accepted Answer

The put's strike price is below the current stock price

Answer

The put's strike price is above the current stock price

Answer

The put has no time value remaining before expiration

Answer

The put's premium equals the intrinsic value of the position

Question 7

What does 'open interest' represent in options markets?

Accepted Answer

The total number of outstanding options contracts that have not been closed or exercised

Answer

The daily trading volume of a specific options contract

Answer

The difference between the bid and ask price of an option

Answer

The number of options contracts available for a given expiration date