Understanding Options in Finance

What is the primary difference between a call option and a put option?

• Both call and put options give the right to sell.

• Both call and put options give the right to buy.

• A call option gives the right to buy, while a put option gives the right to sell.

• A call option gives the right to sell, while a put option gives the right to buy.

In the Nvidia example, what happens if the stock price stays below the strike price of $130?

• The option is exercised for a profit.

• The option expires worthless.

• The option is sold for a premium.

• The option is converted into stock.

How does leverage work in the context of call options?

• It eliminates the need for a premium.

• It reduces the risk of loss.

• It increases the potential return on investment.

• It guarantees a profit.

What is the main purpose of buying a put option?

• To increase the stock price.

• To hedge against potential losses.

• To guarantee dividends.

• To avoid paying premiums.

In the Boeing example, what is the net profit if the stock price rises to $200 and the put option expires worthless?

• $6,000

• $8,000

• $7,500

• $5,500

What obligation does a short call position entail?

• No obligation, only rights.

• The obligation to sell shares if the option is exercised.

• The obligation to hold shares indefinitely.

• The obligation to buy shares if the option is exercised.

Which option position involves selling the right to sell?

• Long put

• Short put

• Long call

• Short call

What does a payoff diagram illustrate?

• The market trends over time.

• The dividends paid by a stock.

• The potential profit and loss of an option.

• The historical stock prices.

What is a key factor that affects option pricing?

• The current stock price only.

• The company's dividend history.

• The stock's volatility and time until expiration.

• The number of shares outstanding.

What is the relationship between long and short option positions?

• They are opposites, with one's gain being the other's loss.

• They are independent of each other.

• They both require the same premium.

• They both result in unlimited profit.