Question 1

Which of the following strategies makes a profit if the stock price declines and loses money when the stock price increases?

Accepted Answer

A)   Long call and short put
B)   Long call and long put
C)   Short call and short put
D)   Short call and long putE) A) and B)
F) C) and D)

Question 2

Which one of the following is the ticker symbol for the CBOE option contract on the S&P100 index?

Accepted Answer

A)   SPX
B)   DJX
C)   CME
D)   OEXE) A) and D)
F) None of the above

Question 3

You sell one Hewlett Packard August 50 call contract and sell one Hewlett Packard August 50 put contract.The call premium is $1.25 and the put premium is $4.50.Your strategy will pay off __________ in August.

Accepted Answer

A)   only if the stock price is either lower than $44.25 or higher than $55.75
B)   only if the stock price is between $44.25 and $55.75
C)   only if the stock price is higher than $55.75
D)   only if the stock price is lower than $44.25E) A) and B)
F) None of the above

Question 4

An investor purchases a long call at a price of $2.50.The expiration price is $35.00.If the current stock price is $35.10,what is the break even point for the investor?

Accepted Answer

A)   $32.50
B)   $35.00
C)   $37.50
D)   $37.60E) A) and B)
F) A) and C)

Question 5

You buy one Hewlett Packard August 50 call contract and one Hewlett Packard August 50 put contract.The call premium is $1.25 and the put premium is $4.50.Your highest potential loss from this position is _________.

Accepted Answer

A)   $125
B)   $450
C)   $575
D)   unlimitedE) B) and D)
F) None of the above

Question 6

An American put option gives its holder the right to _________.

Accepted Answer

A)   buy the underlying asset at the exercise price on or before the expiration date
B)   buy the underlying asset at the exercise price only at the expiration date
C)   sell the underlying asset at the exercise price on or before the expiration date
D)   sell the underlying asset at the exercise price only at the expiration dateE) B) and C)
F) A) and B)

Question 7

An investor is bearish on a particular stock and decided to buy a put with a strike price of $25.Ignoring commissions,if the option was purchased for a price of $0.85,what is the break even point for the investor?

Accepted Answer

A)   $24.15
B)   $25.00
C)   $25.87
D)   $27.86E) A) and B)
F) A) and D)

Question 8

Exchange traded stock options expire on the _______________ of the expiration month.

Accepted Answer

A)   second Monday
B)   third Wednesday
C)   second Thursday
D)   third FridayE) A) and D)
F) B) and D)

Question 9

The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
-Suppose you write a strap and the stock price winds up to be $42 at contract expiration.What was your net profit on the strap?

Accepted Answer

A)   $200
B)   $300
C)   $700
D)   $400E) C) and D)
F) B) and C)

Question 10

The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
-How can you create a position involving a put,a call,and riskless lending that would have the same payoff structure as the stock at expiration?

Accepted Answer

A)   Buy the call, sell the put; lend the present value of $40
B)   Sell the call, buy the put; lend the present value of $40
C)   Buy the call, sell the put; borrow the present value of $40
D)   Sell the call, buy the put; borrow the present value of $40E) B) and C)
F) A) and B)

Question 11

A down-and-out option _______________.

Accepted Answer

A)   provides a payoff if the firm's stock price falls below some specified percentage of what it was at the beginning of the option term
B)   provides a payoff if the firm's stock price falls below some specified dollar amount during the term of the option
C)   expires worthless if the firm's stock price falls below some specified percentage of what it was at the beginning of the option term
D)   expires worthless if the firm's stock price falls below some specified dollar amount during the term of the optionE) A) and B)
F) A) and C)

Question 12

Longer term American style options with maturities of up to three years are called __________.

Accepted Answer

A)   warrants
B)   LEAPS
C)   GICs
D)   CATsE) B) and C)
F) A) and D)

Question 13

You buy a call option on Summit Corp.with an exercise price of $40 and an expiration date in September and write a call option on Summit Corp.with an exercise price of $40 and an expiration date in October.This strategy is called a _________.

Accepted Answer

A)   time spread
B)   long straddle
C)   short straddle
D)   money spreadE) A) and D)
F) B) and C)

Question 14

a(n.______ option can only be exercised on the expiration date.

Accepted Answer

A)   Mexican
B)   Asian
C)   American
D)   EuropeanE) A) and B)
F) A) and D)

Question 15

Exercise prices for listed stock options usually occur in increments of ____,and bracket the current stock price.

Accepted Answer

A)   $1
B)   $5
C)   $20
D)   $25E) C) and D)
F) None of the above

Question 16

A down-and-in option _______________.

Accepted Answer

A)   provides a payoff if the firm's stock price falls below some specified percentage of what it was at the beginning of the option term
B)   provides a payoff if the firm's stock price falls below some specified dollar amount during the term of the option
C)   expires worthless if the firm's stock price falls below some specified percentage of what it was at the beginning of the option term
D)   expires worthless if the firm's stock price falls below some specified dollar amount during the term of the optionE) B) and C)
F) B) and D)

Question 17

If you combine a long stock position with buying an at the money put option the resulting net payoff profile will resemble the payoff profile of a _______.

Accepted Answer

A)   long call
B)   short call
C)   short put
D)   long putE) A) and B)
F) None of the above

Question 18

__________ is the most risky transaction to undertake in the stock index option markets if the stock market is expected to fall substantially after the transaction is completed.

Accepted Answer

A)   Writing an uncovered call option
B)   Writing an uncovered put option
C)   Buying a call option
D)   Buying a put optionE) A) and C)
F) All of the above

Question 19

You write a put option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,ST is the stock price at contract expiration and P0 is the original premium of the put option.

Accepted Answer

A)   Max(P0, X - ST - P0) 
B)   Min(-P0, X - ST - P0) 
C)   Min(P0, ST - X + P0) 
D)   Max(0, ST - X - P0) E) A) and D)
F) B) and C)

Question 20

A call option on Brocklehurst Corp.has an exercise price of $30.The current stock price of Brocklehurst Corp.is $32.The call option is _________.

Accepted Answer

A)   at the money
B)   in the money
C)   out of the money
D)   knocked inE) A) and B)
F) C) and D)

Exam 15: Options Markets

A down-and-out option _______________.

Correct Answer
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You buy one Hewlett Packard August 50 call contract and one Hewlett Packard August 50 put contract.The call premium is $1.25 and the put premium is $4.50.Your highest potential loss from this position is _________.

Correct Answer
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Which one of the following is the ticker symbol for the CBOE option contract on the S&P100 index?

Correct Answer
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Which of the following strategies makes a profit if the stock price declines and loses money when the stock price increases?

Correct Answer
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A call option on Brocklehurst Corp.has an exercise price of $30.The current stock price of Brocklehurst Corp.is $32.The call option is _________.

Correct Answer
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__________ is the most risky transaction to undertake in the stock index option markets if the stock market is expected to fall substantially after the transaction is completed.

Correct Answer
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You sell one Hewlett Packard August 50 call contract and sell one Hewlett Packard August 50 put contract.The call premium is $1.25 and the put premium is $4.50.Your strategy will pay off __________ in August.

Correct Answer
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Exchange traded stock options expire on the _______________ of the expiration month.

Correct Answer
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An American put option gives its holder the right to _________.

Correct Answer
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If you combine a long stock position with buying an at the money put option the resulting net payoff profile will resemble the payoff profile of a _______.

Correct Answer
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a(n.______ option can only be exercised on the expiration date.

Correct Answer
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A down-and-in option _______________.

Correct Answer
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An investor purchases a long call at a price of $2.50.The expiration price is $35.00.If the current stock price is $35.10,what is the break even point for the investor?

Correct Answer
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An investor is bearish on a particular stock and decided to buy a put with a strike price of $25.Ignoring commissions,if the option was purchased for a price of $0.85,what is the break even point for the investor?

Correct Answer
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Exercise prices for listed stock options usually occur in increments of ____,and bracket the current stock price.

Correct Answer
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You buy a call option on Summit Corp.with an exercise price of $40 and an expiration date in September and write a call option on Summit Corp.with an exercise price of $40 and an expiration date in October.This strategy is called a _________.

Correct Answer
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Longer term American style options with maturities of up to three years are called __________.

Correct Answer
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You write a put option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,S_T is the stock price at contract expiration and P₀ is the original premium of the put option.

Correct Answer
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Exam 15: Options Markets

A down-and-out option _______________.

Correct AnswerverifiedShow Answer

You buy one Hewlett Packard August 50 call contract and one Hewlett Packard August 50 put contract.The call premium is $1.25 and the put premium is $4.50.Your highest potential loss from this position is _________.

Correct AnswerverifiedShow Answer

Which one of the following is the ticker symbol for the CBOE option contract on the S&P100 index?

Correct AnswerverifiedShow Answer

Which of the following strategies makes a profit if the stock price declines and loses money when the stock price increases?

Correct AnswerverifiedShow Answer

A call option on Brocklehurst Corp.has an exercise price of $30.The current stock price of Brocklehurst Corp.is $32.The call option is _________.

Correct AnswerverifiedShow Answer

__________ is the most risky transaction to undertake in the stock index option markets if the stock market is expected to fall substantially after the transaction is completed.

Correct AnswerverifiedShow Answer

You sell one Hewlett Packard August 50 call contract and sell one Hewlett Packard August 50 put contract.The call premium is $1.25 and the put premium is $4.50.Your strategy will pay off __________ in August.

Correct AnswerverifiedShow Answer

Exchange traded stock options expire on the _______________ of the expiration month.

Correct AnswerverifiedShow Answer

An American put option gives its holder the right to _________.

Correct AnswerverifiedShow Answer

If you combine a long stock position with buying an at the money put option the resulting net payoff profile will resemble the payoff profile of a _______.

Correct AnswerverifiedShow Answer

a(n.______ option can only be exercised on the expiration date.

Correct AnswerverifiedShow Answer

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A down-and-in option _______________.

Correct AnswerverifiedShow Answer

An investor purchases a long call at a price of $2.50.The expiration price is $35.00.If the current stock price is $35.10,what is the break even point for the investor?

Correct AnswerverifiedShow Answer

An investor is bearish on a particular stock and decided to buy a put with a strike price of $25.Ignoring commissions,if the option was purchased for a price of $0.85,what is the break even point for the investor?

Correct AnswerverifiedShow Answer

Exercise prices for listed stock options usually occur in increments of ____,and bracket the current stock price.

Correct AnswerverifiedShow Answer

You buy a call option on Summit Corp.with an exercise price of $40 and an expiration date in September and write a call option on Summit Corp.with an exercise price of $40 and an expiration date in October.This strategy is called a _________.

Correct AnswerverifiedShow Answer

Longer term American style options with maturities of up to three years are called __________.

Correct AnswerverifiedShow Answer

You write a put option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,ST is the stock price at contract expiration and P0 is the original premium of the put option.

Correct AnswerverifiedShow Answer

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You write a put option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,S_T is the stock price at contract expiration and P₀ is the original premium of the put option.

Correct Answer
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Correct Answer
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