Options Trading MCQs (Chapterwise Multiple Choice Questions)

What is meant by a covered call?

Buying a stock, and selling a call at the same time

Buying a stock, and selling a put at the same time

Selling stock options on securities which are not owned

Buying stock options on securities which are not owned

Answer & Explanation

Correct Answer: Buying a stock, and selling a call at the same time

Note: This Question is unanswered, help us to find answer for this one

What is a "straddle"?

Selling the underlying stock of an option

Holding both a call and a put at the same strike price

Watching the market to see what it will do

Holding both a call and a put at different strike prices

Answer & Explanation

Correct Answer: Holding both a call and a put at the same strike price

Note: This Question is unanswered, help us to find answer for this one

Which of the following is an example of options used to mitigate risk?

Buying a put option for a stock which is currently owned

Buying a call option for a stock which is currently owned

Short selling stocks

Selling put options for a stock which is currently owned

Answer & Explanation

Correct Answer: Buying a put option for a stock which is currently owned

Note: This Question is unanswered, help us to find answer for this one

When is the straddle trading strategy appropriate?

When the price may move by a small amount

When an investor believes there will be a large decrease in the stock price

When an investor believes there will be a large increase in the stock price

When an investor believes there will be a large stock price movement, but does not know in which direction

Answer & Explanation

Correct Answer: When an investor believes there will be a large stock price movement, but does not know in which direction

Note: This Question is unanswered, help us to find answer for this one

Why are younger people more apt to take on riskier investments?

Because they have a longer time horizon to allow for the risky investments to increase over time, and are immune to the short term changes

Because they do not know the value of money in the long run

Because they have less knowledge and do not know the potential for loss

Because there are short term gains to be made

Answer & Explanation

Correct Answer: Because they have a longer time horizon to allow for the risky investments to increase over time, and are immune to the short term changes

Note: This Question is unanswered, help us to find answer for this one

Which of the following would most likely be a way to classify various portfolios?

By the tax laws which apply

By the number of shares outstanding

By the time the securities were purchased

By the time horizon of the investments contained within it

Answer & Explanation

Correct Answer: By the time horizon of the investments contained within it

Note: This Question is unanswered, help us to find answer for this one

Which of the following is a common strategy used after an options trader has had a few successful transactions?

They start trading on margin.

They withdraw their original capital and use only profits to trade with.

They write naked call options.

They short sell stocks with substantial risk.

Answer & Explanation

Correct Answer: They withdraw their original capital and use only profits to trade with.

Note: This Question is unanswered, help us to find answer for this one

What is a covered call?

Selling put options

Short selling stocks

Selling a call option when the underlying stock is not owned

Selling a call stock option when the underlying stock is owned

Answer & Explanation

Correct Answer: Selling a call stock option when the underlying stock is owned

Note: This Question is unanswered, help us to find answer for this one

Which of the following situations has the least risk?

Short selling stock

Selling naked put options

Selling naked call options

Selling covered call options

Answer & Explanation

Correct Answer: Selling covered call options

Note: This Question is unanswered, help us to find answer for this one

Which of the following is a criticism of both fundamental and technical analyses?

Neither one can accurately predict future stock price movements.

Both help people make money, the question is which one helps them make more money.

The numbers needed are not readily available.

There are other strategies which work better.

Answer & Explanation

Correct Answer: Neither one can accurately predict future stock price movements.

Note: This Question is unanswered, help us to find answer for this one

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