Module 1 Lesson 1

Question 1

What is an Option?

Answer 1

A contract between two parties to transact on an underlying asset at a predetermined price, by a predetermined date.

Question 2

What is an Option premium?

Answer 2

The cost to by a contract at a specific price.

Question 3

What is known as writing an Option?

Answer 3

An option was created out of thin air. The seller is agreeing to take on an obligation in exchange for an upfront payment of premium.

Question 4

What is an call Option?

Answer 4

The right to buy the underlying stock per the terms of the contract.

Question 5

What is an Put Option?

Answer 5

The right to sell the underlying stock per the terms of the contract.

Question 6

What are the components of a contract?

Answer 6

1. Underlying ( the stock ex. Apple), 2. Strike Price (The price at which the options buyer gets to transact, 3. Expiry date (the contract doesn’t last forever), 4. Premium ((what the option buyer pays to the option seller)

Question 7

The Option buyer is always the one who?

Answer 7

Pays the premium because they are buying a right.

Question 8

The Option seller is always the one who?

Answer 8

Collects premiums because they are taking on obligations

Question 9

In Options trading what is an Asymmetrical Payoff Profile?

Answer 9

Limited downside but unlimited upside.

Question 10

What is the main reason why people want to buy Options?

Answer 10

Leverage (less capital needed to buy the stock).

Question 11

All option contracts are expressed on a?

Answer 11

PER share basis.