1. A trader buys 5 AAPL Jan 40 Calls @ $8.00 and sells 10 AAPL Jan 50 Calls @ $2.00 when the market price of AAPL is at 43. The position created is:
Ratio Spread
Calendar Spread
Vertical Spread
Call Spread
Answer: A
The trader created a 2×1 ratio call spread on AAPL
2. A trader sells 1 FB Dec 100 Call @ $10 when the stock price of FB is $95. The breakeven is:
$105
$100
$95
$110
Answer: D
The trader would have a breakeven calculated from short call + premium paid
3. A trader buys 100 shares of ABC stock at $50 and sells 1 ABC Jun 55 Call @ 3.00. The maximum loss is:
$5,000
$300
$5,300
$4,700
Answer : D
The stock can go to $0, causing the trader to lose $5000. The Call will then expire allowing the trader to collect the credit of $300. Therefore, the max loss on this trade is $4,700.
4. A trader has buys 1 XYZ Jun 50 Call and sells 1 XYZ Jun 55 Call on his books. What position does he have?
Long Put Spread
Long Calls
Long Strangle
Long Call Spread
Answer: The position created is a called a Long Call Spread
5. A trader buys 1 XYZ Jun 50 Call and sells 1 XYZ Sept 50 Call on his books. What position does he have?
Long Calendar Spread
Short Calendar Spread
Short Straddle
Long Straddle
Answer : B
6. A trader sells 1 ABC Jun 50 Call and buys 1 ABC Dec 50 Call. What position does he have?
Long Calendar Spread
Short Calendar Spread
Short Straddle
Long Straddle
Answer: A
7. If a trader wanted to go short a stock, but wanted to sell options, what possible trade could he place.
Short put
Short call
Long put
Long call
Answer : B
The sale of a short call is a short premium trade for going short instead of selling the stock directly. Like a stock, they both have unlimited upside risk. If the stock stays neutral, as a short call seller you will collect premium whereas a short stock position will not return any profits. Options contracts lose time premium as the position nears expiration; this is not true for stock positions.
8. When the market price of ABC stock is trading at $38 per share, which of the following choices creates a strangle?
Short 1 ABC Jan 40 put / short 1 ABC Jan 40 Call
Short 1 ABC Jan 40 put / short 1 ABC Jan 35 Cal
Short 1 ABC Jan 35 put / short 1 ABC Jan 40 Call
Short 1 ABC Jan 50 call / short 1 ABC Jan 40 Call
Answer C
A strangle is a specific variation of a combination, where both contracts are out the money.
9. When the market price of ABC stock is trading at $38 per share, which of the following choices creates an At-The-Money straddle?
short 2 ABC Jan 40 put / short 1 ABC Jan 40 Call
short 1 ABC Jan 45 call / short 1 ABC Jan 40 Call
short 1 ABC Jan 35 put / short 1 ABC Jan 45 Call
short 1 ABC Jan 40 put / short 1 ABC Jan 40 Call
Answer : D
A straddle is a specific variation of a combination, where both contracts are at the same strike.
10. The time value of 1 ABC Jun 310 Call trading at $10.00 with ABC trading at $315.58. is?
442.00
342.00
310.00
558.00
Answer : A
The current price closed at $315.58, so the contract is in the money by $5.58. Any premium above this is considered to be time premium. Therefore, since the contract is selling at $10 minus $5.58 = $4.42 time premium x 100 multiplier = $442.00
