Options Trading Strategies Quiz

They expect the stock price to be less volatile.

A straddle investor must exceed the initial cash outlay to make a profit.

The portfolio value is zero at the exercise price.

<p>The profit line lies below the payoff line by the cost of the call and put purchased.</p> Signup and view all the answers

<p>A strip consists of two puts and one call on the same security.</p> Signup and view all the answers

<p>A strap involves two calls and one put on the same security.</p> Signup and view all the answers

<p>A spread combines two or more calls or puts on the same stock with differing exercise prices or maturities.</p> Signup and view all the answers

<p>The stock price must depart from the exercise price by more than the total premium paid.</p> Signup and view all the answers

<p>$114</p> Signup and view all the answers

<p>When the asset is worth less than the exercise price.</p> Signup and view all the answers

<p>The put option has no value.</p> Signup and view all the answers

<p>Payoff = $X - S_T$</p> Signup and view all the answers

<p>$10</p> Signup and view all the answers

<p>Profit increases by $1 for each dollar decrease in stock price.</p> Signup and view all the answers

<p>They help visualize potential outcomes and risks in options trading.</p> Signup and view all the answers

<p>The payoff at expiration to the holder of the put option.</p> Signup and view all the answers

<p>The key factors include the underlying asset's price, the strike price, time to expiration, volatility, and interest rates.</p> Signup and view all the answers

<p>The payoff for a long put option is defined as the maximum of zero or the strike price minus the stock price at expiration: $max(0, K - ST)$.</p> Signup and view all the answers

<p>Writing a call option profits from the premium received, but risks unlimited losses if the underlying asset's price rises significantly.</p> Signup and view all the answers

<p>A bullish strategy aims to profit from rising prices, like buying call options, while a bearish strategy seeks profit from falling prices, such as purchasing put options.</p> Signup and view all the answers

<p>Options allow for leveraging investment while limiting risk to the premium paid, offering exposure to stock movements without full capital commitment.</p> Signup and view all the answers

<p>Put options can effectively hedge against potential declines in an investment's value, providing floor protection with limited downside risk.</p> Signup and view all the answers

<p>The profit diagram for a long call shows unlimited profit potential above the strike price, whereas a short call has limited profit (premium received) but unlimited loss potential.</p> Signup and view all the answers

<p>Higher volatility increases option premiums due to greater uncertainties, prompting traders to adjust strategies, such as using spreads or straddles to manage risk.</p> Signup and view all the answers