Option 3 - Puts & Calls

Question 1

If you were to Buy a call?

Answer 1

Buy the stock.

Question 2

If you were to Sell a call?

Answer 2

Sell the stock.

Question 3

If you were to Buy a Put?

Answer 3

Sell the stock.

Question 4

If you were to Sell a Put?

Answer 4

Buy a stock.

Question 5

Put buyer can do what with stock?

Answer 5

Sell at XP

Question 6

A Put buyer has the right to buy or sell the underlying security?

Answer 6

Sell

Question 7

A Put buyer receives or pays the Premium?

Answer 7

Pays premium (Max loss).

Question 8

What is the max loss for the Put buyer?

Answer 8

The Premium

Question 9

What does the Put buyer hope the stock does? Rise or Fall?

Answer 9

Fall (Put down)

Question 10

What is the maximum gain for a Put buyer?

Answer 10

XP - Premium (if MV = 0, will lose XP - Premium)

Question 11

The Put Writer has to do what as regards the contract?

Answer 11

Obligation to buy at XP.

Question 12

What is the economic motivation for the Put Writer?

Answer 12

Receives the Premium (his max gain) generate easy income.

Question 13

Does the Put Writer hope the stock rises or falls?

Answer 13

Falls (if MV = 0, will lose XP - premium).