3. Derivatives and Pricing

Option Basics — Quiz

Test your understanding of option basics with 5 practice questions.

Practice Questions

Question 1

Which of the following option Greeks measures the sensitivity of an option's price to the passage of time?

Question 2

An investor implements a bull call spread strategy. Which of the following accurately describes the components of this strategy?

Question 3

What is the payoff for the buyer of a strangle at expiration if the spot price ($S_T$) is below the lower strike price ($K_1$), where $K_1 < K_2$?

Question 4

If a European call option has a current price of $C = 5$, a European put option has a current price of $P = 3$, both with a strike price of $K = 100$ and an expiration date $T$ in 3 months. The current stock price is $S_0 = 102$. Assuming a risk-free interest rate of $r = 0.04$ (4\%) per annum, what is the theoretical relationship according to put-call parity for a non-dividend-paying stock?

Question 5

Which of the following option trading strategies involves buying a put option to protect an existing long position in the underlying stock?