Options and Derivatives Flashcards
6 cards from real SIE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Options and Derivatives flashcards as text
What is the intrinsic value of a call option with a $50 strike price when the stock is trading at $55?
Answer: $5
Intrinsic value for a call equals stock price minus strike price when in the money: $55 - $50 = $5.
A futures contract obligates the buyer to:
Answer: Purchase the underlying asset at a specified price on a future date
Unlike options, futures contracts create a binding obligation to buy the underlying asset at the agreed price on the delivery date.
What is a 'naked' (uncovered) call option?
Answer: Selling a call without owning the underlying stock
A naked call is written (sold) without owning the underlying shares, creating theoretically unlimited risk if the stock rises sharply.
Which options strategy profits when the underlying stock remains relatively flat?
Answer: Short straddle
A short straddle (selling both a call and a put at the same strike) profits from low volatility when the stock stays near the strike price.
At expiration, an option that is 'out of the money' will typically:
Answer: Expire worthless
An out-of-the-money option has no intrinsic value at expiration and will expire worthless, causing the buyer to lose the premium.
What is the 'time value' component of an option premium?
Answer: The portion of premium beyond intrinsic value reflecting time until expiration
Time value is the premium above intrinsic value, reflecting the probability the option will gain more value before expiration.