Question 1

What combination of puts and calls can simulate a long stock investment?

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) B) and C)
F) A) and D)

Question 2

When issued most convertible bonds are issued _____________.

Accepted Answer

A)   deep in the money
B)   deep out of the money
C)   slightly out of the money
D)   slightly in the moneyE) A) and B)
F) B) and D)

Question 3

The writer of a put option _______________.

Accepted Answer

A)   agrees to sell shares at a set price if the option holder desires
B)   agrees to buy shares at a set price if the option holder desires
C)   has the right to buy shares at a set price
D)   has the right to sell shares at a set priceE) A) and B)
F) A) and D)

Question 4

You purchase a call 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 C0 is the original purchase price of the option.

Accepted Answer

A)   Max(-C0, ST - X - C0) 
B)   Min(-C0, ST - X - C0) 
C)   Max(C0, ST - X + C0) 
D)   Max(0, ST - X - C0) E) B) and C)
F) B) and D)

Question 5

The initial maturities of most exchange traded options are generally __________.

Accepted Answer

A)   less than a year
B)   less than 2 years
C)   between 1 and 2 years
D)   between 1 and 3 yearsE) None of the above
F) A) and C)

Question 6

Buyers of listed options __________ required to post margins and writers of naked listed options __________ required to post margins.

Accepted Answer

A)   are; are not
B)   are; are
C)   are not; are
D)   are not; are notE) A) and C)
F) A) and D)

Question 7

A futures call option provides its holder with the right to ___________.

Accepted Answer

A)   purchase a particular stock at some time in the future at a specified price
B)   purchase a futures contract for the delivery of options on a particular stock
C)   purchase a futures contract at a specified price for a specified period of time
D)   deliver a futures contract and receive a specified price at a specific date in the futureE) All of the above
F) B) and D)

Question 8

Each listed stock option contract gives the holder the right to buy or sell __________ shares of stock.

Accepted Answer

A)   1
B)   10
C)   100
D)   1,000E) B) and D)
F) None of the above

Question 9

All else the same,an ______ style option will be ______ valuable than a ______ style option.

Accepted Answer

A)   American, more, European
B)   American, less, European
C)   American, more, Canadian
D)   American, less, CanadianE) None of the above
F) All of the above

Question 10

An Asian 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 a price determined by the average stock price during some specified portion of the option's life
C)   sell the underlying asset at the exercise price on or before the expiration date
D)   sell the underlying asset at a price determined by the average stock price during some specified portion of the option's lifeE) All of the above
F) C) and D)

Question 11

What strategy is designed to ensure a value within the bounds of two different stock prices?

Accepted Answer

A)   Collar
B)   Covered Call
C)   Protective put
D)   StraddleE) All of the above
F) C) and D)

Question 12

An American call option gives the buyer 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) A) and D)
F) B) and C)

Question 13

You write one IBM July 120 call contract for a premium of $4.You hold the option until the expiration date when IBM stock sells for $121 per share.You will realize a ______ on the investment.

Accepted Answer

A)   $300 profit
B)   $200 loss
C)   $600 loss
D)   $200 profitE) A) and B)
F) B) and C)

Question 14

You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes: 
-To establish a bull money spread with calls you would _______________.

Accepted Answer

A)   buy the 55 call and sell the 45 call
B)   buy the 45 call and buy the 55 call
C)   buy the 45 call and sell the 55 call
D)   sell the 45 call and sell the 55 callE) A) and C)
F) A) and D)

Question 15

You purchase one IBM July 90 call contract for a premium of $4.The stock has a 2 for 1 split prior to the expiration date.You hold the option until the expiration date when IBM stock sells for $48 per share.You will realize a ______ on the investment.

Accepted Answer

A)   $300 profit
B)   $100 loss
C)   $400 loss
D)   $200 profitE) None of the above
F) All of the above

Question 16

You are convinced that a stock's price will move by at least 15% over the next three months.You are not sure which way the price will move,but you believe that the results of a patent hearing are definitely going to have a major effect on the stock price.You are somewhat more bullish than bearish however.Which one of the following options strategies best fits this scenario?

Accepted Answer

A)   Buy a strip
B)   Buy a strap
C)   Buy a straddle
D)   Write a straddleE) B) and C)
F) None of the above

Question 17

You purchase one IBM July 125 call contract for a premium of $5.You hold the option until the expiration date when IBM stock sells for $123 per share.You will realize a ______ on the investment.

Accepted Answer

A)   $200 profit
B)   $200 loss
C)   $500 profit
D)   $500 lossE) A) and B)
F) A) and C)

Question 18

A writer of a call option will want the value of the underlying asset to __________ and a buyer of a put option will want the value of the underlying asset to _________.

Accepted Answer

A)   decrease, decrease
B)   decrease, increase
C)   increase, decrease
D)   increase, increaseE) A) and B)
F) None of the above

Question 19

The Option Clearing Corporation is owned by _________.

Accepted Answer

A)   the exchanges on which stock options are traded
B)   the Federal Deposit Insurance Corporation
C)   the Federal Reserve system
D)   major U.S. banksE) A) and B)
F) C) and D)

Question 20

If you combine a long stock position with selling an at the money call 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

Exam 15: Options Markets

A writer of a call option will want the value of the underlying asset to __ and a buyer of a put option will want the value of the underlying asset to _.

Correct Answer
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Correct Answer
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What strategy is designed to ensure a value within the bounds of two different stock prices?

Correct Answer
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The Option Clearing Corporation is owned by _________.

Correct Answer
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Correct Answer
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You write one IBM July 120 call contract for a premium of $4.You hold the option until the expiration date when IBM stock sells for $121 per share.You will realize a ______ on the investment.

Correct Answer
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Buyers of listed options required to post margins and writers of naked listed options required to post margins.

Correct Answer
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The initial maturities of most exchange traded options are generally __________.

Correct Answer
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When issued most convertible bonds are issued _____________.

Correct Answer
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You purchase one IBM July 125 call contract for a premium of $5.You hold the option until the expiration date when IBM stock sells for $123 per share.You will realize a ______ on the investment.

Correct Answer
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An American call option gives the buyer the right to _________.

Correct Answer
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A futures call option provides its holder with the right to ___________.

Correct Answer
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All else the same,an style option will be valuable than a __ style option.

Correct Answer
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The writer of a put option _______________.

Correct Answer
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Each listed stock option contract gives the holder the right to buy or sell __________ shares of stock.

Correct Answer
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An Asian put option gives its holder the right to ____________.

Correct Answer
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What combination of puts and calls can simulate a long stock investment?

Correct Answer
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You purchase one IBM July 90 call contract for a premium of $4.The stock has a 2 for 1 split prior to the expiration date.You hold the option until the expiration date when IBM stock sells for $48 per share.You will realize a ______ on the investment.

Correct Answer
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You purchase a call 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 C₀ is the original purchase price of the option.

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

Correct Answer
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Exam 15: Options Markets

A writer of a call option will want the value of the underlying asset to __________ and a buyer of a put option will want the value of the underlying asset to _________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What strategy is designed to ensure a value within the bounds of two different stock prices?

Correct AnswerverifiedShow Answer

The Option Clearing Corporation is owned by _________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You write one IBM July 120 call contract for a premium of $4.You hold the option until the expiration date when IBM stock sells for $121 per share.You will realize a ______ on the investment.

Correct AnswerverifiedShow Answer

Buyers of listed options __________ required to post margins and writers of naked listed options __________ required to post margins.

Correct AnswerverifiedShow Answer

The initial maturities of most exchange traded options are generally __________.

Correct AnswerverifiedShow Answer

When issued most convertible bonds are issued _____________.

Correct AnswerverifiedShow Answer

You purchase one IBM July 125 call contract for a premium of $5.You hold the option until the expiration date when IBM stock sells for $123 per share.You will realize a ______ on the investment.

Correct AnswerverifiedShow Answer

An American call option gives the buyer the right to _________.

Correct AnswerverifiedShow Answer

A futures call option provides its holder with the right to ___________.

Correct AnswerverifiedShow Answer

All else the same,an ______ style option will be ______ valuable than a ______ style option.

Correct AnswerverifiedShow Answer

The writer of a put option _______________.

Correct AnswerverifiedShow Answer

Each listed stock option contract gives the holder the right to buy or sell __________ shares of stock.

Correct AnswerverifiedShow Answer

An Asian put option gives its holder the right to ____________.

Correct AnswerverifiedShow Answer

What combination of puts and calls can simulate a long stock investment?

Correct AnswerverifiedShow Answer

You purchase one IBM July 90 call contract for a premium of $4.The stock has a 2 for 1 split prior to the expiration date.You hold the option until the expiration date when IBM stock sells for $48 per share.You will realize a ______ on the investment.

Correct AnswerverifiedShow Answer

You purchase a call 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 C0 is the original purchase price of the option.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A writer of a call option will want the value of the underlying asset to __ and a buyer of a put option will want the value of the underlying asset to _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Buyers of listed options required to post margins and writers of naked listed options required to post margins.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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All else the same,an style option will be valuable than a __ style option.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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You purchase a call 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 C₀ is the original purchase price of the option.

Correct Answer
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Correct Answer
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