Options Questions

[mcboston]

I am a bit confused on an assignment for a Professional Development class I am taking...

1) You want to set up a covered call position on 1,000 shares of XYZ stock. Your goal is to collect the greatest premium, and you don't mind being assigned. Which of these would you probably do if XYZ were trading for $40 per share?

A)Buy 10 calls on XYZ stock with a strike price of $25
B) Sell 10 calls on XYZ stock with a strike price of $30
C) Sell 10 calls on XYZ stock with a strike price of $45
D) Sell 10 puts on XYZ stock with a strike price of $50

2.) You sell to open ten ABC 40 puts for $2 each. What's the best thing that can happen now?

A) ABC stock stays at $40, and the puts expire worthless
B) ABC stock stays at $40, and you buy back the puts for a profit
C) ABC's price rises to $50, and you're assigned to buy the stock at $40 per share
D) ABC stock falls to $20, and you exercise the puts to sell the stock at $40 per share

3) You want to buy 100 shares of XYZ stock, and you don't want to pay more than $20 per share for it. Which option strategy would be the least expensive?

A) Buy one XYZ 20 call for $2
B) Sell one XYZ 20 call for $4
C) Buy one XYZ 20 put for $1
D) Sell one XYZ 20 put for $3

 

[stevegee58]

I'm just an old programmer but the answers are obvious. Maybe you should study harder.

 

[mcboston]

This is brand new material for me, an Education Major. Maybe one day they will be obvious to me.

 

[vanzandt]

1) You want to set up a covered call position on 1,000 shares of XYZ stock. Your goal is to collect the greatest premium, and you don't mind being assigned.

Being assigned what? If you own 1000 shares you sell 10 contracts. They either expire worthless and you still have the shares... or you lose the shares and still pocket the premium.

2.) You sell to open ten ABC 40 puts for $2 each. What's the best thing that can happen now?

A) ABC stock stays at $40, and the puts expire worthless
B) ABC stock stays at $40, and you buy back the puts for a profit
C) ABC's price rises to $50, and you're assigned to buy the stock at $40 per share
D) ABC stock falls to $20, and you exercise the puts to sell the stock at $40 per share

Obviously A)...
C) is not even an option ... basically the same as A)
D)... your f'd cause you have to buy a $20 stock for $40

3) You want to buy 100 shares of XYZ stock, and you don't want to pay more than $20 per share for it. Which option strategy would be the least expensive?

A) Buy one XYZ 20 call for $2
B) Sell one XYZ 20 call for $4
C) Buy one XYZ 20 put for $1
D) Sell one XYZ 20 put for $3

A).... why wouldn't you just buy the stock right now at $20?
B)...you are not achieving your goal because you'll never own the stock.
C)...you only make money if the stock goes down... you never buy the stock... you start making money below $19
D)...Probably the only answer... and hope the stock stays at 20... you're essentially buying it at $17

If your professor wrote these questions... tell him HE needs to go back to school.

 

[mcboston]

Thanks for the help. I sincerely appreciate you taking the time. I have looked at all the materials the professor gave us and investopedia many times but could not figure out these 3. (This material is super new to me.)

I think he did write them. They are very different questions than he provided in the notes, so I am trying to wrap my head around the concepts and compare the options against one another.

 

[vanzandt]

Thanks for the help. I sincerely appreciate you taking the time. I have looked at all the materials the professor gave us and investopedia many times but could not figure out these 3. (This material is super new to me.)

I think he did write them. They are very different questions than he provided in the notes, so I am trying to wrap my head around the concepts and compare the options against one another.

Just curious... why is he schooling education majors on options trading?
Just to see if you can explain it to your students? Your ability to learn a new field and then teach it?

 

[mcboston]

I teach in a public high school and we are interested in introducing a Financial Literacy course and/or unit into the math curriculum. I doubt we will EVER get to options, but the first components of the class I took with him (stocks) is something I can definitely see us getting to.

I am a bit in over my head!

 

[lawrence-lugar]

I teach in a public high school
I doubt we will EVER get to options

Options trading is a sexy, fun casino -- the kids will love it; While sleepy slow Stock investing will bore them to death

(...just take that recent reddit Wolf YOLO AAPL options trader news story...people were all over that)

 

[mcboston]

Haha!

 

[vanzandt]

I teach in a public high school and we are interested in introducing a Financial Literacy course and/or unit into the math curriculum. I doubt we will EVER get to options, but the first components of the class I took with him (stocks) is something I can definitely see us getting to.

I am a bit in over my head!

Well, teaching financial literacy to our youth certainly seems like a noble cause who's time is long overdue. Good luck.