Options Trading Basics Worksheet

Multiple Choice Questions

  1. What is an option in trading?

    A. A contract giving the right to buy or sell at a specific price

    B. A type of stock

    C. A form of loan

    D. None of the above

  2. Which of the following represents a call option?

    A. Gives the right to buy

    B. Gives the right to sell

    C. A bearish market indicator

    D. None of the above

  3. What does 'strike price' refer to in options trading?

    A. The price at which an option can be exercised

    B. The cost of the option

    C. The stock price when purchased

    D. The average market price

  4. What happens to an option after its expiration date?

    A. It is renewed automatically

    B. It becomes worthless

    C. It becomes more valuable

    D. None of the above

  5. Which Greek measures how much your option moves when the stock moves $1?

    A. Delta

    B. Theta

    C. Gamma

    D. Vega

Fill-in-the-Blank Questions

  1. The cost of an option is referred to as the _.

  2. If you believe a stock's price will go down, you should buy a _ option.

  3. A contract with upcoming expiration in just a few days is a _ expiration option.

  4. To profit when a stock price goes below a strike price, you would use a _ option.

  5. The implied volatility of an option gives insight into its .

Open-Ended Questions

  1. Describe the difference between a call option and a put option.

  2. Why is understanding 'The Greeks' important for traders in the options market?

Answer Key

Multiple Choice Questions

  1. A

  2. A

  3. A

  4. B

  5. A

Fill-in-the-Blank Questions

  1. premium

  2. put

  3. short-term

  4. put

  5. price movement

Open-Ended Questions

  1. A call option gives the holder the right to purchase the underlying asset at a certain price before the expiry, indicating a bullish outlook, while a put option gives the holder the right to sell the underlying asset, indicating a bearish outlook.

  2. Understanding 'The Greeks' is essential as they provide insights into various factors affecting the option's price and potential profitability, helping traders in making informed decisions.

Notes

    Ensure clarity when answering the questions.

Additional resources can be found in the Options Handbook to deepen understanding.

Discuss these concepts in pairs before completing as a group exercise.