Quiz

It’s been almost one year since I last published an options quiz.  Time for another. 

Your participation is appreciated becasue it helps me gauge which material is most appropriate for readers of Options for Rookies

 

1)

 

2)

 

 

 

3) You decide to trade some Weeklys and open an iron condor position by selling an out of the money SPX put spread (1100/1110) and an out of the money SPX call spread (1220/1230).  All options expire in one week.  SPX is trading at 1160. [Corrected to 1160]

By Tuesday of expiration week, ONE of the following events occurred:

To reply, choose ‘other’ and enter (for example) a,b,c,d

 

4) Let’s assume you have been bullish and earned a significant profit on your investment portfolio since May 2010. You are concerned with protecting your profits. 

Please consider cost, how much protection is gained, and the possibility of earning a lot more money if the market undergoes another major rally


 

 

5)  Poll: This question is directed to you as a trader/investor.  I am not looking for a theoretical reply, but am asking which of the following worked for you. 

 

 

Thanks for participating

806

“Your book is well written, comprehensible, coherent and detailed.  I was especially pleased with the absence of useless chatter.”  VT 

 


 

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11 Responses to Quiz

  1. David 10/08/2010 at 5:02 AM #

    Question 3 seems to have a couple of bugs. 1) do you mean SPX is at 1160 or 1180? 2) only one answer can be selected so its not possible to rank the choices.

  2. Mark Wolfinger 10/08/2010 at 8:09 AM #

    1160
    Thank you.

  3. Rajesh 10/08/2010 at 8:23 AM #

    Hi Mark,
    In question 2, do you consider the interest on the credit earned and the lost opportunity of interest on the debit. In which case, the answer would be different.
    Thanks,
    Rajesh

  4. Mark Wolfinger 10/08/2010 at 8:32 AM #

    Rajesh,
    This is a quiz to determine the relative knowledge level of the readership.
    That helps me write a more useful blog.
    In this example, ignore interest.
    I thought of mentioning that, but decided not to do so.

  5. rluser 10/08/2010 at 9:18 AM #

    i read 2 as containing “90/95P”

  6. Mark Wolfinger 10/08/2010 at 9:34 AM #

    yup.
    thx

  7. Sina 10/10/2010 at 3:04 AM #

    Mark, I have a simple option question completely unrelated to the quiz. If I wanted to sell short a stock or an ETF which is thinly traded or hard to borrow, the broker might not allow it (maybe because they don’t have the stock/etf at hand). But if I own a put option and I exercise the put option, am I guaranteed a short position which I could keep in my portfolio indefinitely, or can the broker force me to close it out because it’s difficult to borrow (please assume I have more than enough cash for the margin on the short position)? Thanks a lot. Sina

  8. Mark Wolfinger 10/10/2010 at 9:09 AM #

    Hello Sina,
    Long time, no hear from you.
    1) No. When you exercise a put option you must deliver the shares, just as if you made a ‘regular’ exchange trade. The usual procedure is for the broker to borrow the shares for you, so this is NOT the answer.
    However, if you buy 1 put and sell one call – same strike and expiration, you now are short 100 SYNTHETIC ETF SHARES. Note: The strike price and expiration must be identical for the put and call.
    You will face trouble only if you are eventually assigned an exercsie notice on the calls – because you will not be able to deliver the shares, so be careful which strike price you choose.
    The longer-term the options, the fewer commissions you will have to pay to hold this trade. But, don’t use long-term options if you plan to exit this trade soon.
    Also verify that the price paid for this trade is reasonable. By that I mean – do not sell the ETF under parity. If you don’t know how to figure that out, come back to ask.

  9. Sina 10/10/2010 at 5:52 PM #

    Hi Mark,
    Thanks for your reply. I’m currently trying out pair trading, which is the reason for my question. I still have to figure how much margin pair trading involves – it would be costly if the broker doesn’t take into account the correlation between the two.
    I hope you’re doing well, and I’m glad to see your website thriving and you continuing to be very helpful for traders. Take care, and thanks again. Sina

  10. Mark Wolfinger 10/10/2010 at 8:06 PM #

    Ask your broker how they margin pairs trading.
    I would be shocked if you are anything but naked long one and naked short the other – if you are using Reg T margin.
    If your account is eligible for ‘portfolio margin’ then you would receive the hedged status you seek.

  11. Sina 10/11/2010 at 12:28 AM #

    I do have Portfolio Margin for my account, and I will very soon see what impact pair trading will have on my margin. Thanks.