Picking your option contract/Greeks Quiz
Master the Greeks: Options Trading Quiz
Are you ready to test your understanding of options trading and the important Greeks that influence your trading decisions? This quiz will help you identify key concepts and refine your trading strategy.
Some key areas covered include:
- The meaning and importance of Greek metrics
- Choosing the right strike price for your trading style
- Understanding liquidity and expiration choices
Select the correct statements about Greeks.
Greeks are the risks associated when you purchase a contract.
The most important greeks are Theta, Gamma, Delta, and Vega.
Traders can use greeks to decide what option contracts to buy.
Greeks can also tell you which direction the stock will go.
These are all true statements. (Memorize their importance)
Theta - the decay ($) of your option contracts because of time. Makes sense because its less likely to hit break even price with less time.
Delta - the rate of change between your option contract price for every one dollar move in the stock. If delta is .60 and the stock moves $1, your contract value should increase by .60 cents
Gamma - rate of change between the delta and underlying stock price.
Vega - the rate of change between an options value and the stocks implied volatility. (Per 1% move in price)
Is there a perfect strike price?
There is no perfect strike price to choose but there are wrong strikes you can choose. (Depending on your trading style.)
Yes, there is a perfect strike price.
What should you look for when deciding to pick a strike price?
Something out of the money.
An option contract with high liquidity.
Tight spreads.
Nothing to far OTM. (out the money)
How do I know if my contract has high liquidity?
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The volume is high.
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What expiration should you choose when daytrading/scalping?
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Weekly contracts are fine. 1-2 weeks.
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What expiration for a swing trade?
Weeklys.
At least 3 weeks so theta doesn't eat up your contract.
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