Trading Jobs Options Trading Fundamentals

Question 1

What does a 'call option' give the buyer the right to do?

Accepted Answer

Buy shares at the strike price

Answer

A call option gives the buyer the right, but not the obligation, to purchase the underlying security at the specified strike price.

Question 2

What is the maximum loss for a buyer of a put option?

Accepted Answer

The premium paid

Answer

The maximum loss for an option buyer is limited to the premium paid, since they can simply let the option expire worthless.

Question 3

An option that can be exercised only at expiration is called what type?

Accepted Answer

European-style

Answer

European-style options can only be exercised on the expiration date, unlike American-style options which can be exercised any time before expiration.

Question 4

What is 'intrinsic value' in options terminology?

Accepted Answer

The amount by which an option is in-the-money

Answer

Intrinsic value is the amount an option is in-the-money — for a call, it's the stock price minus the strike price (when positive).

Question 5

Which Greek measures the sensitivity of an option's price to changes in the underlying asset's price?

Accepted Answer

Delta

Answer

Delta measures how much an option's price changes for every $1 move in the underlying asset's price.

Trading Jobs Practice Test