Options Test

1. What does liquidity mean in options?

How much dividend is paid How long the market is open How much cash a company owns How easily an option can be bought or sold

2. Why are options often expensive before major news events?

Because brokers set all prices manually Because they cannot expire Because premiums are fixed Because implied volatility is usually higher

3. What is volatility crush?

A stock split A broker fee A sharp drop in implied volatility after an expected event A guaranteed profit strategy

4. What does a Put option give the buyer?

The right to buy the underlying asset The right to receive dividends The right to vote The right to sell the underlying asset

5. Which factor usually decreases an option’s value over time?

Increased demand Time decay More time remaining Higher implied volatility

6. What usually happens to implied volatility after earnings?

It becomes zero forever It always doubles It often drops It turns into Delta

7. Why do far OTM options usually cost less?

They never expire They contain more intrinsic value They are guaranteed to profit They have a lower probability of expiring ITM

8. What does OTM mean?

Option Transfer Method Over The Market Out of The Money Open Trade Market

9. Higher implied volatility generally causes option premiums to:

Decrease to zero Stay fixed forever Increase Disappear

10. What happens when an option expires worthless?

The buyer receives free shares The contract renews automatically The buyer loses the premium paid The premium is refunded

11. What is intrinsic value?

The number of shares in an account The broker commission The dividend payment The real value an option has if it is ITM

12. What is implied volatility?

The dividend amount The broker’s fee The market’s expectation of future price movement The company’s revenue

13. What does Delta measure?

Time decay How much the option price may change when the underlying moves $1 Trading volume Expiration date

14. Why are liquid options preferable?

They remove all risk They always expire ITM They usually have tighter spreads and easier execution They never lose money

15. Which factor usually increases an option’s value?

Zero volatility More time before expiration Less demand Expired contract status

16. What is open interest?

The stock dividend The broker’s interest rate The number of company shares only The number of outstanding option contracts

17. Can options expire?

Only Puts expire No, options last forever Only Calls expire Yes, every option has an expiration date

18. What is Theta decay?

The increase in shares owned A type of stock split A broker commission The loss of option value as expiration approaches

19. Why do deep ITM options usually cost more?

They have no value They are always free They cannot expire They have more intrinsic value

20. Why should traders monitor implied volatility before buying options?

To guarantee profit To avoid overpaying for expensive premiums To change the expiration date To remove all risk

21. What is a long option position?

Opening a bank account Buying an option contract Selling stock short Owning a bond

22. What is the expiration date?

The date the company reports taxes The date the option contract ends The date the stock market closes permanently The date dividends are paid

23. What does Gamma measure?

How fast Delta changes Only the bid price The number of shares owned How fast time passes

24. When is a Call option considered ITM?

When the premium is zero When the option has no buyer When the stock price is below the strike price When the stock price is above the strike price

25. What is a short option position?

Closing a bank account Buying stock only Selling or writing an option contract Buying an option contract