Optiontradingpedia.com Options Trading Basics Quiz (1) Answers Sheet Please take note that the answers in the quiz may not be presented in the order listed below. This quiz covers the following topics: 1. Differences Between Futures and Stock Options http://www.optiontradingpedia.com/differences_between_futures_and_stock_opti ons.htm 2. Differences Between Bonds and Stock Options http://www.optiontradingpedia.com/differences_between_bonds_and_stock_optio ns.htm 3. Differences Between Warrants and Stock Options http://www.optiontradingpedia.com/differences_between_futures_and_stock_opti ons.htm 4. Options Trading Basics http://www.optiontradingpedia.com/options_trading_basics.htm 5. Call Options http://www.optiontradingpedia.com/call_options.htm 6. Put Options http://www.optiontradingpedia.com/put_options.htm 7. Options Prices http://www.optiontradingpedia.com/options_s.htm ID Questions Answers 1 Which one of the following is true about stock options? (1 ) It is a form of warrant (2 ) It is a derivative instrument (3 ) It is a type of bond ( 4) It is a form of futures 2. It is a derivative instrument 1. Warrants and options are not the same instrument and they are both a form of contingent claim. 3. Bonds are fixed income debt instruments and are different from options. 4. Futures are obligatory
2 Buyers of options are ( 1) Obligated to exercise the options before expiration (2 ) Not to exercise the options before expiration ( 3) Given the right but not the obligation to exercise the options ( 4) Obligated to exercise the options on expiration day contracts between the buyer and seller. It is different from options. 3. Given the right but not the obligation to exercise the options 1. There is no obligation to exercise options prior to expiration. 2. Buyers of options are free to exercise prior to expiration if they want to. There is no obligation. 3 Call options ( 1) Rise in value when the rises ( 2) Drop in value when the rises ( 3) Rise in value when the drops ( 4) Rise in value no matter the direction of the 4. Unless in the case of an automatic random exercise, there is no obligation to exercise options on expiration day. 1. Rise in value when the rises 2. Put options drops in value when the stock rises, not call options. 4 Call options give their holder... ( 1) The right but not the obligation to buy the underlying stock at a fixed ( 2) The obligation to buy the at a fixed ( 3) The right but not the obligation to sell the underlying stock at a fixed ( 4) The obligation to sell the at a fixed 5 Call options are written when... ( 1) You expect the stock to go up 3. Put options rise in value when the stock drops, not call options. 4. There are no such options. 1. The right but not the obligation to buy the at a fixed 2. There is no obligation to exercise options. 3/4. Call options grant the right to buy, not sell. 2. You expect the stock to close below its strike
( 2) You expect the stock to close below its strike by expiration by expiration ( 3) You expect the stock to close above its strike by 1. When you expect a stock expiration to go up, you will buy call ( 4) You wish to introduce positive delta to a position options, not write them. 3. When you expect the stock to close above its strike, you would buy the call options, not write them. 6 Put Options. ( 1) Rise in value when the drops ( 2) Drop in value when the drops ( 3) Rise in value when the rises ( 4) Rise in value as expiration date draws nearer 7 Put options give their holders... ( 1) The right but not the obligation to sell its underlying stock at a fixed ( 2) The right but not the obligation to buy its underlying stock at a fixed ( 3) The obligation to buy its at a fixed ( 4) The obligation to sell its at a fixed 8 You can buy stock options... ( 1) Even if you do not own the stock itself ( 2) Only if you also own the stock itself ( 3) Only if you are also a futures trader ( 4) Only if you are a board member of the company 4. Writing call options provides negative delta, not positive delta. 1. Rise in value when the drops 2. Call options drop in value when the stock drops 3. Call options rise in value when the stock rises. 4. No options rise in value as expiration draws nearer. 1. The right but not the obligation to sell its at a fixed 2. That is the description for call options. 3 / 4. There are no obligations to exercise an option except when it is in the money during expiration. 1. Even if you do not own the stock itself You don t need to own stock, be a futures trader or be a board member to buy options from an options exchange.
9 Options and Warrants are... ( 1) Two different financial instruments with their own unique characteristics ( 2) The same thing with different names ( 3) To be purchased in tandem (4 ) To be purchased only when you own the stocks 10 Options trading is... ( 1) Risky and not suitable for every investor ( 2) Risky but suitable for every investor ( 3) Not risky but not suitable for every investor ( 4) Not risky and suitable for every investor 11 You can obtain options s from... ( 1) options chains ( 2) stock quotes ( 3) investment newsletters ( 4) options newsletters 12 Put options are written when... ( 1) The is expected to close above its strike upon expiration ( 2) The is expected to close below its strike upon expiration ( 3) The is expected to drop ( 4) The announces a change of CEO 1. Two different financial instruments with their own unique characteristics 1. Risky and not suitable for every investor 1. options chains 1. The is expected to close above its strike upon expiration 2. When the stock is expected to close below its strike, you should be buying put options, not writing them. 3. When the underlying stock is expected to drop, you should buy put options, not write them. 13 You buy options on its... ( 1) Ask ( 2) Bid ( 3) Last ( 4) Open interest 14 You sell options on its... ( 1) Bid 4. Nothing to do with options. 1. Ask 2. You sell on the bid 3. The last is simply the last it was transacted at. 4. Open interest is not a. 1. Bid
( 2) Ask ( 3) Last ( 4) Open interest 15 What are plain vanilla options? ( 1) Standardized exchange traded options ( 2) Exchange traded options on ice cream companies ( 3) White sheet options ( 4) Pink sheet options 16 Which one of the following is true about call options? ( 1) Call options can be a replacement for trading the ( 2) Call options are to be written only when the is expected to go down ( 3) Call options has the same risk level as owning the ( 4) Call options allows its holders to call in on company's conference calls 2. You buy on the ask 3 / 4. As in question 13. 1. Standardized exchange traded options 1. Call options can be a replacement for trading the 2. Call options can also be written when the stock is expected to go up in strategies such as the bull call spread. 3. Call options are riskier than owning the stock itself due to a definite expiration date. 17 Which one of the following is true about put options? ( 1) Put options can be a replacement for shorting the ( 2) Put options should only be written when the stock is expected to go up ( 3) Put options allows you to put a buying on stocks ( 4) Put options should only be bought in a bear market 4. Conference calls has nothing to do with options. 1. Put options can be a replacement for shorting the 2. Put options can also be written when the stock is expected to go down in strategies such as the bear put spread. 3. Put options allows you to fix a SELLING, not buying. 18 The expiration date of options is... ( 1) Fixed for each options contract and cannot be changed 4. Put options can also be bought in a bull market as a hedge for your profitable stocks. 1. Fixed for each options contract and cannot be changed
( 2) Extendable for each options contract when expiration date draws near ( 3) Infinite ( 4) Fixed at one month after purchase 2. Expiration date is not extendable. 3. There is always a fixed expiration date for each option. 19 Options trading is a form of gambling. ( 1) Correct ( 2) Incorrect 20 All stocks have options for trading. ( 1) Correct ( 2) Incorrect 4. Options expiration can be as far as 3 years out. 2. Incorrect 2. Incorrect