Level 0 Options
What is the strategy where an investor sells a put that is backed by cash in the account?
Cash-Secured Equity Puts
Why would an investor buy a call or a put?
Call - To protect a short position or to speculate on upward movement in the underlying stock.
Put - to protect from downside movement in a security they own or to speculate on downward movement in the underlying security.
What is a covered call?
An investor sells a call that is typically backed by owning 100 shares of a security per contract
What are the risks of being long an option?
The premium you paid
What is a protective put?
Investor buys a put on a position they own long as downside protection.
A client sees shares in their account and they want to know why. What options strategy might they have done?
Either they exercised a call, or were assigned a put.
When an investor owns a stock long, and buys a protective put with a strike price at the current market price: What is this strategy called?
An investor believes that a stock will move based on an earnings call, but is unsure how. What level 1 strategy can he do? explain it
Long Straddle or a Long Strangle
Buys a call and a put on the security at the same time.
Explain an Options Collar and why an investor would do one
Investor buys a put to open and sells a covered call at the same time (they own 100 shares of the stock) They do this to buy the put for downside protection at a reduced price using premium from the call.
What is the difference between a long straddle and a long strangle?
In both strategies, you buy a put and a call. For a straddle, usually they are the same strike price. In a strangle, you buy at different strikes to spend less on premium.