Introduction to Options Trading Flashcards
Assignment is:
a) the right of an option buyer to exercise
b) something that rarely happens to option buyers
c) the obligation of an option seller to deliver the underlying asset
d) none of the above
c) the obligation of an option seller to deliver the underlying asset
Selling a call:
a) gives the seller all rights and no obligation
b) gives the seller the obligation to deliver the asset to the buyer
c) is always canceled at expiration
d) gives the buyer the right to purchase the asset from the seller
d) gives the buyer the right to purchase the asset from the seller
What is a serial?
a) another word for a near-term put
b) the grouping of options that have the same expiration
c) the order in which they are priced
d) all of the above
b) the grouping of options that have the same expiration
What is the strike price?
a) the value of a call at expiration
b) the price at which a call must be delivered by the buyer
c) the price at which the seller must buy or sell the underlying asset
d) the at-the-money strike
c) the price at which the seller must buy or sell the underlying asset
A call gives:
a) the seller an obligation to deliver the underlying security
b) the buyer the right but not the obligation to take the underlying security
c) the seller the right of assignment
d) both a and b
d) both a and b
A put gives:
a) the seller the right of assignment
b) the buyer the obligation to take assignment of the underlying security
c) the seller an obligation to deliver the underlying security
d) both b and c
c) the seller an obligation to deliver the underlying security
An in-the-money option:
a) has value at expiration if the current price holds
b) has no value at expiration if price changes
c) must be assigned to have any value
d) none of the above
a) has value at expiration if the current price holds
An out-of-the-money option:
a) has no value at expiration
b) can be in the money if the price changes
c) gives the buyer the right to buy or sell the underlying asset
d) all of the above
d) all of the above
What is intrinsic value?
a) the amount of premium in an option
b) the opposite of extrinsic value
c) the same as a credit
d) none of the above
b) the opposite of extrinsic value
Buying long options can create which of the following positions?
a) The trader owns a call.
b) The trader owns a put.
c) The trader owns both a put and a call.
d) All of the above
d) All of the above
Selling or writing options has which of the following characteristics?
a) It gives the seller the right to exercise on or before expiration.
b) It gives the seller the obligation to deliver the underlying asset at expiration.
c) It gives the seller the right to assign options at expiration.
d) None of the above.
b) It gives the seller the obligation to deliver the underlying asset at expiration.
A large open interest and volume are generally synonymous with:
a) liquidity
b) open outcry
c) price discovery
d) all of the above
a) liquidity
In terms of the markets, what is a tick?
a) a small insect
b) the smallest price change allowed in an option or underlying asset
c) an amount that varies from stock to stock
d) none of the above
b) the smallest price change allowed in an option or underlying asset
The Greek letter theta best describes:
a) the loss of premium as options move closer to expiration
b) the increase of premium when there is more uncertainty in the market
c) the decrease of premium as uncertainty diminishes
d) none of the above; theta is not associated with options
a) the loss of premium as options move closer to expiration
An option that reaches parity is synonymous with:
a) an option that currently has no premium
b) an option that can be exercised
c) an option that can be assigned
d) all of the above
d) all of the above
