Questions and Answers
Which statement best describes being long on a call option?
What does being short on a put option imply?
Which of the following accurately defines being short on a call option?
What rights does a long put option grant you?
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Which of the following describes the role of a writer in options trading?
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Being long on a call means you are the taker of an option to ______ from the writer.
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Being long on a put means you are the taker of an option to ______ to the writer.
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As a short on a call, you are the writer of an option for someone to ______ from you.
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When you are short on a put, you are the writer of the option for someone to ______ to you.
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If you are long on a put, you have the option to ______ your asset.
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Study Notes
Options Trading Basics
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Long on Call:
- Refers to buying a call option, granting the holder the right to purchase the underlying asset at a predetermined price (strike price) before expiration.
- The writer (seller) of the call option is obligated to sell the underlying asset if the option is exercised.
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Long on Put:
- Refers to buying a put option, giving the holder the right to sell the underlying asset at the strike price before expiration.
- The writer of the put option is obligated to buy the underlying asset if the option is exercised.
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Short on Call:
- Involves writing (selling) a call option, thus taking on the obligation to sell the underlying asset if the option holder exercises the option.
- Potential loss is theoretically unlimited if the asset price rises significantly above the strike price.
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Short on Put:
- Involves writing a put option, obligating the writer to purchase the underlying asset if the option holder decides to sell it.
- The risk is substantial if the underlying asset drops below the strike price, as the writer must buy it at the higher strike price.
Options Trading Basics
-
Long on Call:
- Refers to buying a call option, granting the holder the right to purchase the underlying asset at a predetermined price (strike price) before expiration.
- The writer (seller) of the call option is obligated to sell the underlying asset if the option is exercised.
-
Long on Put:
- Refers to buying a put option, giving the holder the right to sell the underlying asset at the strike price before expiration.
- The writer of the put option is obligated to buy the underlying asset if the option is exercised.
-
Short on Call:
- Involves writing (selling) a call option, thus taking on the obligation to sell the underlying asset if the option holder exercises the option.
- Potential loss is theoretically unlimited if the asset price rises significantly above the strike price.
-
Short on Put:
- Involves writing a put option, obligating the writer to purchase the underlying asset if the option holder decides to sell it.
- The risk is substantial if the underlying asset drops below the strike price, as the writer must buy it at the higher strike price.
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Description
This quiz covers the fundamental concepts of options trading, including long and short positions on calls and puts. Test your understanding of what it means to be the taker or writer in options transactions. Ideal for beginners and those looking to refresh their knowledge.