Educated option traders who look for high returns, with reasonable risk, and seek to put the odds in their favor, usually lean towards selling options over buying?
1. True
2. False
People who sell options often have a much higher rate of return over the long run verses people who stick to a buy option strategy.
If you sell a 3 XYZ 60-strike price call options contracts for $2.50 and the stock trades up to $67, at what price do you have to deliver the stock?
1. $57.50
2. $60.00
3. $62.50
By selling a call option, you are guaranteeing the delivery of the stock at the strike price, so in this case $60.
After careful analysis, you decide stock ABC, which is trading $92 is going to go up. You take a bull position by selling one 80-strike price put for $250. However, you turn out to be wrong and the stock trades down to $84 by expiration. What is your profit/loss on the trade?
1. $250 loss
2. $0
3. $250 profit
You will still make your max profit of $250 as long as the stock does not trade below $80. This is why options can be so powerful, you can still be wrong and make money.
