[QUIZ] Unlock the Power of Options - Session 6

1. Which of the following statement is false about the US Stock Market crashes?

a.The US market as measured by the S&P500 index spends about 80% of its time in a rising bull market.
b.The bear markets may be shorter but are often fast and severe.
c.Throughout the course of history, the overall market always recovered from the bear market crashes.
d.All stocks will recover from bear markets and hence, there is no need to learn how to trade down or protect our positions.

2. The stock price for ABC is currently trading at $50.40 and we have a bearish short-term view of the stock. The $50 strike put is currently trading at $2.10 with a delta of -0.46. How much is the put premium expected to be if the stock price were to drop to $47.90?

a.$3.25
b.$0.95
c.$1.15
d.$3.07

3. What are some of the major differences between buying put and shorting stocks?

i.Buying put exposes us to unlimited risk, especially during a take-over scenario.
ii.Shorting stocks require significantly higher initial and maintenance margin, which will limit our opportunity to take other trades.
iii.Shorting require the broker to lend us stocks to be shorted, which will incur a stock borrowing fee.
iv.Put option buyers are required to pay dividends to the put sellers.

a.i and ii
b.ii, iii and iv
c. i, ii and iii
d. ii and iii

4. Which of the following is true about the Protective Put strategy?

i.This is a net credit strategy- we receive premium upfront.
ii.The best use of this strategy is when there are uncertainties in the horizon:- e.g. Earnings, major announcements and etc.
iii.The choice of expiry is based on the duration of protection needed.
iv.The concept is similar to an insurance, pay a small premium to get a peace of mind.

a. All of the above
b. i, ii and iv
c. ii, iii and iv
d. ii and iv

5. Assume we bought XYZ stock at around $100 and we have also bought a protective put with 45 days to expiry at the strike of $95. The cost of the put is $2.80. At maturity, if the price gaps down substantially, how much is our loss limited to in this scenario?

a. $500
b. $780
c. $280
d. There is no loss because we are hedged.