Question 1

What right does a call option give its buyer?

Accepted Answer

A call option gives the buyer the right, but not the obligation, to BUY 100 shares of the underlying security at the strike price before or on the expiration date.

Question 2

What right does a put option give its buyer?

Accepted Answer

A put option gives the buyer the right, but not the obligation, to SELL 100 shares of the underlying security at the strike price before or on the expiration date.

Question 3

What is the 'premium' in an options contract?

Accepted Answer

The premium is the price paid by the option buyer to the option seller (writer) for the rights conveyed by the contract. It represents the option's total market value.

Question 4

What is the 'strike price' (exercise price) of an option?

Accepted Answer

The strike price is the fixed price at which the option holder can buy (call) or sell (put) the underlying security if they choose to exercise the option.

Question 5

How many shares does one standard equity options contract represent?

Accepted Answer

One standard equity options contract represents 100 shares of the underlying security.

Options & Derivatives – SIE Exam Prep

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