SIE Options 2023 questions and answers

Call option Gives the holder the right, but not the obligation to buy a fixed amount of securities at a fixed price for a fixed period of time . They pay a premium-the marker price of the contract. Holder must deliver cash and take delivery of stock (buy stock) Customer is fealing bullish if he buys a call contract Settlement time for call contract 2 business days after exercise days Holder Buyer (long) If a customer buys a put contract they are feeling: Bearish Short put (sell put) You think the market is going to go up (bullish) -max potential gain is premium -max potential loss: b/e down to 0 A customer owning 100 shares of stock could receive protection by: Buying a put put Right to sell (for holder) If you buy a put, your max potential loss is: The premium price The maximum gain for the holder of a put is: The strike price minus premium paid If you are selling a call, your max potential loss is: Unlimited To hedge a short stock, you would take what position? A long call Long Call Bullish . Contract will be valuable if stock rises above the contracts strike price Short Call Bearish . Seller wants and thinks market will go down Long Put Bearish Short Put Bearish. Sells wants contract to expire worthless. This will happen if the market remains at or above the contracts strike price Long the stock and short the call is an appropriate strategy in a: Stable market. You sell the call contract to generate extra income. If the customer expects the market to rise, they would not write true call. If they expect it to fall, they would sell the stock and buy a put as a hedge You can protect a long stock position by: Buying a put. This protects stock you own (long stock). If market drops they have the put position as insurance and can exercise the put You can protect a short stock position by buying: A call. If the stock rises, he can exercise the call and buy the stock at the strike price, eliminating the risk of rising stock prices The sale of covered calls is used to: Generate additional income in a stable market Which of the following strategies has unlimited loss potential? Short stock/short put Options Clearing Corporation (OCC) Responsible for: standardization or listed options contracts -issuance of listed options contracts -assignment of exercises of listed options contracts covered No need to go to market to fulfill obligation (like you already are long 100 shares, you own 100 shares) The purchase of a call is what type of strategy? Bull The writer of a put is obligated to: But the stock at the strike price The seller is the Writer Long Call Right to buy. Max gain unlimited. Max loss premium. B/e =strike + p Short Call Obligation to sell. Max gain: premium max loss: unlimited B/E: strike + premium Long Put Right to sell . Max loss premium. B/E: strike minus premium. Max gain B/E down to 0 Short Put Obligation to buy Max gain: Premium Max loss: B/E down to 0 B/E: strike minus premium In the money Calls go in the money when the market price rises above the strike price. Puts go in the money when the market price falls below the strike price If you sell a call, your max potential loss is: Unlimited If you buy a call, your max potential gain is: Unlimited If you buy a put, your max potential loss is: Premium If you buy a put, your max potential gain is: Strike price minus premium If you sell a put, your max potential gain is: Premium If you sell a put, your max potential loss is: Strike minus premium What strategy is used to generate additional income against a long stock position? Short call (selling call contract) If the writer of a put on a listed stock is exercised, the writer must: Deliver cash, take delivery of stock Selling a put against a stock position sold short is a suitable strategy when: The market is expected to remain stable What provides the greatest profit potential in a bear market? A long put . Because they have the right to sell stock at a fixed price What guarantees price but not execution? Buy limits and sell limits Limit orders Specifies the execution at the limit price or better. Buy stop orders: Protect a profit on short positions, limit loss on short positions, acquire stock if a resistance level is broken. They are placed at a price higher than the current market. If the market rises, the stop price is "elected/triggered" and becomes a market or