Options Education

Question 1:

Which of the following factors does NOT affect the price of an option:

  1. strike price
  2. expected market volatility
  3. margin rate
  4. time until expiration

C is the correct answer.

Question 2:

If all other market factors do not change, as time passes:

  1. calls lose value and puts gain value
  2. both calls and puts lose value
  3. expected market volatility decreases
  4. expected market volatility increases

B is the correct answer.

Question 3:

Gamma measures:

  1. the amount the option price loses over time
  2. the amount the option delta loses over time
  3. the amount the option price changes as the market price changes
  4. the amount the option delta changes as the market price changes

D is the correct answer.

Question 4:

Which statement is NOT true?

  1. The Greeks (delta, gamma, theta, and vega) measure how option prices and risks change as market conditions change.
  2. The Greeks are used by traders to control risk by creating hedge positions.
  3. As expiration approaches, options become more risky and should always be hedged.
  4. Hedging is similar to buying insurance.

C is the correct answer.