Yesterday Mark posted a phenomenal five question quiz, the Options Basics Quiz.
The quiz covered a lot of the basic concepts about options trading which have been discussed here on the site. Articles covered:
- For Options Beginners, What Is An Option?
- 6 Great Option Strategies For Beginners
- 9 Option Terms Every Investor Should Know
- The Key Differences Between Options and Stocks
- Entering an Order to Buy or Sell Options Investor Series, Part I
- Investors Guide to Trading European Options
The quiz was tricky though...
So before reading the answers make sure to take the quiz...
Did you take the quiz yet?
Ok, answers below:
1. Only b.
a. You sold the call option and do not have the right to exercise (you have no rights)
b. This trade reverses the trade, but you probably lost money on this trade
c. This is not allowed
2. a. Long call and short put is the same as owning stock
3. only b.
a. European options may not be exercised prior to expiration
c. European options expire at the opening of business on the 3rd Friday of the month
d. When you exercise any European style option, you receive cash that equals the option’s intrinsic value. You neither buy nor sell shares.
4. d. When buying an option, you want to know the price at which those options are currently offered for sale. You may decide to bid less that the ask price, but none of the other prices tell you what you want to know.
5. c. If the person selling those options already owns them, then the open interest does not change because no new options are created. It’s merely a change in ownership. Alternatively if the person selling those options doesn’t own them, then new options are created when he sells (writes) them. That increases the open interest.