Options Quiz

It's time for another quiz.

Rookie Section

1) It's two weeks before expiration and you own a covered call position: Long 400 shares of XZY and short 4 Jun 30 calls.  The stock is trading at $34 per share.

When you look at your statement the next morning you notice that you have been assigned an exercise notice on your 4 calls and that you no longer own a position in XZY shares.  You are disappointed because the stock went ex-dividend this morning, paying $0.42 per share.  You wanted those dividends.

2) You sold your first credit spread by buying ZZX Nov 45 puts and selling an equal number of ZZX Nov 50 puts.  The stock is currently trading at $54 per share and expiration arrives in 35 days.

One week later, ZZX is trading at $49.

3) An investor owns 3 Feb 20 calls. The closing price for the underlying stock on expiration Friday is $19.99.

Non-Rookie Section

You own a 5-lot position of QZZ Nov iron condors.  The call portion is the QZZ Nov 690/700 spread.  Although you were quite comfortable with that call position when you made the trade, with only three weeks remaining before the options expire, QZZ has rallied to 675, and you are ready for a Stage I adjustment.

Assume that your adjustment choices are limited to the five listed below.

Assume this is your last trade and that you will hold the position through expiration.  These assumptions violate my trading philosophy, but this is a quiz based on a given set of circumstances.

a) Sell 5 QZZ Nov 630/620 put spreads; collecting $0.90 for each.  The $450 cash will cushion any upside losses.

b) Buy 3 QZZ Nov 720 calls.

c) Buy to cover, 20% of your current position, or 1 QZZ Nov 690/700 call spread

d) Buy one QZZ Nov 680 call.

e) Buy 5 QZZ Dec/Nov 700 call spreads, thereby converting the position into a double diagonal spread.  Cost $5 ($500 cash) per spread.

Answers tomorrow


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