Options Trading Quiz

What are stocks?

• Stocks are contracts tied to options that you must exercise

• Stocks are buy and hold investments, you’re buying ownership of a company

• Stocks are always cheaper than options because there’s no premium

• Stocks and options are the same thing on Thinkorswim

What is an option?

• An option is ownership of 100 shares forever

• An option is a contract tied to a stock that gives you the right but not the obligation to buy or sell at a set strike price on or before a set expiration, for a premium

• An option is a margin loan you must repay

• An option is a futures contract with undefined risk

How many shares does one option contract control?

• One option contract controls 10 shares

• One option contract controls 50 shares

• One option contract controls 100 shares

• One option contract controls 1,000 shares

What is the premium when you’re looking at an options contract?

• The premium is a random number between bid and ask

• The premium is simply the price of the option (the mark price)

• The premium is only the bid price

• The premium is the theoretical price only

Which statement correctly describes how calls and puts profit relative to the stock’s direction?

• Calls profit when the stock goes down and puts profit when the stock goes up

• Calls profit when the stock goes up and puts profit when the stock goes down

• Calls and puts only profit if you hold to expiration

• Calls and puts require owning the stock upfront

Which statement best describes the maximum risk when buying options in a cash account?

• With options, the max you’re going to lose is unlimited

• With options in a cash account, the max you’re going to lose is the premium you paid

• With options, margin is required and risk is undefined

• With options, you always risk the full notional of 100 shares

In my options strategy, how do we open and close positions?

• We sell to enter and buy to exit

• We buy to enter and sell to exit

• We exercise to enter and write to exit

• We short to enter and cover to exit

What do the bid and ask represent on the options chain?

• The bid is the lowest price sellers are asking

• The ask is the highest price buyers are willing to pay

• The bid is buyers, the ask is sellers

• The mark is always equal to the ask

On an options chain, what is the mark price?

• The mark price is the midpoint between the bid and the ask

• The mark price is yesterday’s close

• The mark price is the 52-week average

• The mark price is only used for futures

Which statement correctly defines an in-the-money call?

• In the money calls have strikes above the current stock price

• In the money calls have strikes below the current stock price

• In the money puts have strikes above the current stock price

• Out of the money contracts already have intrinsic value