Trading Jobs Options Trading Fundamentals 2

Question 1

What is the breakeven point for a long call option?

Accepted Answer

Strike price plus premium

Answer

The breakeven for a long call is the strike price plus the premium paid, because the stock must rise above that total cost to profit.

Question 2

A 'bull call spread' involves which combination of options?

Accepted Answer

Buy a lower-strike call, sell a higher-strike call

Answer

A bull call spread involves buying a call at a lower strike and selling a call at a higher strike, limiting both profit potential and premium cost.

Question 3

Which options strategy profits when implied volatility increases regardless of price direction?

Accepted Answer

Long straddle

Answer

A long straddle (buying a call and put at the same strike) profits from large price moves or increases in implied volatility in either direction.

Question 4

What does 'Theta' represent in options trading?

Accepted Answer

Rate of time decay per day

Answer

Theta measures the daily erosion of an option's time value, representing how much value the option loses each day as expiration approaches.

Question 5

What is the options market term for when the underlying price equals the strike price?

Accepted Answer

At-the-money

Answer

At-the-money (ATM) refers to when the underlying asset's current price is equal or very close to the option's strike price.

Trading Jobs Practice Test