Options Readiness Self-Check

If your paycheck stopped tomorrow, how long could your cash savings (not retirement accounts or investments) cover your essential bills? (Money foundation)

1. A. Less than 1 month
2. B. 1 to 2 months
3. C. 3 to 5 months
4. D. 6 to 11 months
5. E. 12 months or more

Do you carry high-interest debt, such as credit card balances you don’t pay off in full each month? (Money foundation)

1. A. Yes, and it’s growing, or I’m behind on payments.
2. B. Yes, a sizable balance that I’m working to pay down.
3. C. A small balance I expect to pay off in the next few months.
4. D. None right now, though I’ve carried a balance in the past year.
5. E. None. I pay any credit cards in full every month.

Think about money you might someday use for options. Which sounds most like your situation? (Money foundation)

1. A. It would be most or all of my savings and investments.
2. B. It would come from my emergency fund, or from money I’ll need in the next few years.
3. C. I have some long-term investments, but this would be a big share of them, and losing it would set back my plans.
4. D. I already have a core long-term, diversified portfolio, and this would be a small slice I could leave tied up for a while.
5. E. I already have a core long-term, diversified portfolio, and this would be a small slice I could afford to lose completely without changing my plans.

Calls and puts: which sounds most like you right now? (Options knowledge)

1. A. I’m not sure yet what an option is.
2. B. I’ve heard of calls and puts, but I couldn’t explain the difference.
3. C. I can explain it: a call is the right to buy and a put is the right to sell, at a set price (the strike) by a set date.
4. D. I can explain that, plus that one standard contract usually covers 100 shares and the buyer pays a premium for the right.
5. E. All of that, plus the seller’s side: the seller collects the premium and takes on an obligation, which in some positions can mean very large losses.

Exercise and assignment: which sounds most like you right now? (Options knowledge)

1. A. I don’t know what these words mean yet.
2. B. I’ve heard them, but I’m fuzzy on who has to do what.
3. C. I know exercise is when the buyer uses the right, and assignment is when the seller is told to follow through.
4. D. I also know what assignment means in shares: sell 100 shares at the strike for a call, or buy 100 shares at the strike for a put.
5. E. I also know most U.S. stock options can be assigned early, before expiration, and that options in the money at expiration are generally exercised automatically.

Made-up Stock XYZ trades at $50. How many of these three statements could you explain to a friend in your own words? (Options knowledge)

1. Covered call: you own 100 shares and sell a $55 call. If XYZ jumps to $70, your shares can be called away at $55, so you give up the gain above $55.
2. Cash-secured put: you sell a $45 put and set aside $4,500. If XYZ falls to $35, you can be assigned and have to buy 100 shares at $45, well above the market price.
3. Time decay: all else equal, an option’s time value shrinks as expiration gets closer, which works against the buyer.

All three statements are true (simplified, hypothetical, ignoring fees and taxes). This is a check on how well you could explain them, not a trick question.

1. A. None of them yet.
2. B. One of them, roughly.
3. C. Two of them.
4. D. All three, roughly.
5. E. All three, confidently, and I could work out the dollar amounts.

Hypothetical: you paid $250 for one option on Stock XYZ ($2.50 a share × 100 shares). Two weeks later it’s worth $50. What would you most likely do? (Temperament & time)

An option buyer can lose the entire premium paid. Some option sellers can lose much more than they collect.

1. A. Put more money in to win it back fast.
2. B. Hold on and hope it comes back, with no plan for when to stop.
3. C. Feel stressed, keep checking it, and honestly not be sure what to do.
4. D. Follow the exit rule I set before buying, even if that means taking the loss.
5. E. Follow my exit rule, accept that I could lose the full $250, and write down what I learned before trying anything else.

How do you feel about following written rules, such as keeping each position small and deciding your exit before you start? (Temperament & time)

1. A. I’d rather go with my gut. Rules feel limiting.
2. B. I like the idea, but I usually don’t stick to plans like that.
3. C. I’d try, but I’ve never done it before.
4. D. I already stick to rules like this elsewhere in my money life, such as a budget or automatic investing.
5. E. I’d write the rules down, keep positions small, and check every position against them, even when it feels boring.

How much time could you regularly set aside to keep learning and to check on any options positions? (Temperament & time)

Options have expiration dates and can move quickly, so they usually need more attention than a long-term, diversified portfolio.

1. A. Almost none. I’d look when I remember.
2. B. A few minutes a week, on and off.
3. C. About an hour a week.
4. D. A few hours a week, including time to keep learning.
5. E. Time to check positions most market days, plus regular study time, especially near expiration dates.