Help with Options Trading Quiz :)

[Lewball77]

Hi Everyone, I am doing an option trading quiz through my broker CMCMarkets before I can begin trading options. I have failed the quiz once already. I am not asking for answers but if anyone could let me know which questions I have gotten wrong so that I can review them that would be great. Im just not sure where Im going wrong, thanks.

Question 1.

You enter the following Index option position for S&P/ASX 200 Index (XJO):
Long 1 XJO June 5000 Call @ 100 points.
What is the total premium paid for this position, assuming an Index Multiplier of $10?


X a) $1,000.

b) $2,000.

c) $1,100.

d) $100.


Answer: A

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Question 2.

A Call option is “at the money” when:


a) The underlying price is below the Strike price.

b) The underlying price is above the Strike price.

X c) The underlying price is equal to the Strike price.


Answer: C

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Question 3.

The “Theoretical Price” of an option is:


X a) An estimate of the value of an option calculated by a mathematical model (formula).

b) Neither of these.

c) The exact price that an option must be bought or sold.


Answer: A

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Question 4.

Options can be used by:


X a) Both of these answers.

b) Hedgers wishing to protect themselves against adverse price moves.

c) Speculators desiring to profit from a market move with limited risk.


Answer: A

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Question 5.

Options traded on the ASX:


a) Are all European Exercise.

X b) Some are European and some are American Exercise.

c) Are all American Exercise.


Answer: B

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Question 6.

A speculator who is considering the purchase of a Put option will:


X a) Pay the entire premium up front.

b) Profit if the market advances.

c) Put up margin requirements.


Answer: A

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Question 7.

A “Payoff Diagram” shows the relationship between:


a) Underlying Price and Time to Expiry.

X b) Profit / Loss of an option position and Underlying Price.

c) Option Price and Underlying Price.


Answer: B

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Question 8.

All else remaining constant, increased volatility for the underlying affects option prices because:


a) There is a higher chance of dividends being paid by the underlying stock.

X b) All of these.

c) There is a higher chance of the option to be “in the money” the future.

d) There is more time for the option price to increase.


Answer: B

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Qustion 9.

If XYZ stock is trading at $60, how much intrinsic value and time value does a XYZ 50 Strike Call option with a premium of $12 have?


a) $60 intrinsic value; $10 time value.

b) $10 intrinsic value; $12 time value.

X c) $10 intrinsic value; $2 time value.

d) $50 intrinsic value; $2 time value.


Answer: C

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Question 10.

If XYZ stock is trading at $40, how much intrinsic value and time value does a XYZ 50 Strike Put option with a premium of $13 have?


a) $40 intrinsic value; $10 time value.

b) $10 intrinsic value; $13 time value.

X c) $10 intrinsic value; $3 time value.

d) $50 intrinsic value; $3 time value.


Answer: C

 

[cynic]

My answer to question 8 would have been different from yours.

Question 7 has me slightly confused between two of the options so am uncertain on this one.

Edit: Upon further consideration I would definitely have answered 7 differently to yourself.

 

[dutchie]

Maybe consider not trading options if you failed the test. I'm sure you will ignore that advise, so maybe take this... don't bother with OZ options.

 

[Santafe]

I would have chosen C for question 8. Please tell us, did you eventually get the quiz right? and which question was it that had you stumped? Cheers

 

[Santafe]

I did up to level 2 options trading at CMC as they stated that level 2 was then eligible to sell covered calls.

So I took it that meant I could sell covered calls against underlying held stock positions.

BZZZZZT Wrong. I come to sell a covered call against an underlying and CMC then explain to me NO you can only sell covered calls when you purchase the stock and sell the call at same time. Well that's not what I were lead to believe CMC,

Thanks so much for the misleading information, or half true information.

Then they tell me in order to sell covered calls against underlying stock on their web platform that I would need to establish level 5 options trading.

However I could still make a covered call against underlying stock if I went through the CMC phone brokerage, whereby the already way excessive options fee of $30 would then escalate to something totally obtuse and unprincipled excessively exorbitant highway robbery of $60

Now please explain this to me, if I am able to sell the covered call as were lead to believe at level 2, and if in fact that through some bureaucratic red tape disqualified me from doing so as it was a pre requisite to buy the stock and sell the covered call simultaneously. And yet still they allow me eligibility to sell the covered call against underlying stock through overpriced unnecessary exorbitant phone brokerage. Then why cant they just allow me the same facility to sell the same covered call on their online platform at the much more reasonable price. The mind boggles how this mob run such a scam like brokerage service.



And as for the Quiz posed for getting to these options trading levels. They themselves are some kind of a joke I am sure.

As I were asked in the level 2 quiz a basic easily known question of which trading day of the month do options expire. And the 3 alternative answers none allowed for the correct answer of the 3rd Thursday of each month but gave some other bogus alternative answers to select from. So please tell me how you can possibly answer a question correctly when none of the actual options for the correct answer to that question are actually there to choose from. What a joke. I am told the ASX sets these questions. Seems more like some kindergarten students set the questions.

Now I have to anticipate to get to level 5 options trading just to be allowed the more civil liberty of cheaper covered call writing and ease of online facility to trade that is unreasonably denied a client at pleb level 2 .
And also I have to consider seriously changing broker services to Interactive Brokers for a much more reasonably better priced options trading facility.