CH 15

6. Which one of the following is defined as an option that can only be exercised at expiration? A. European style option B. in-the-money option C. out-of-the-money option D. American style option E. derivative option

A

72. Gerold purchased 3 put option contracts at an option premium of $0.95 and a strike price of $40. At expiration, the stock price was $42.25 per share. What is his percentage return? A. -100 percent B. 0 percent C. 15.79 percent D. 21.62 percent E. 31.58 percent

A

79. You own 4 put option contracts on ALZ stock. The contracts have a $17.50 strike price and you paid an option premium of $0.40. What is the break-even stock price? A. $17.10 B. $17.30 C. $17.50 D. $17.70 E. $17.90

A

81. You own 100 shares of Deltona stock which is currently worth $43 a share. You just paid an option premium of $0.85 to buy one put contract on this stock with a strike price of $40. What is the maximum loss per share you are avoiding by purchasing the option contract? A. $40.00 B. $40.85 C. $42.15 D. $43.00 E. $43.85

A

89. A European 3-month call has a strike price of $35. The stock price is currently $34.30. What is the lower price bound on this call? A. $0.00 B. $0.30 C. $0.70 D. $1.00 E. $1.30

A

91. A 4-month, $25 call option on Teller stock has an option premium of $0.25. The 4-month, $25 put option has an option premium of $0.80. The risk-free rate is 3 percent. The options are European-style. What is the price of Teller stock? A. $24.20 B. $24.53 C. $24.62 D. $25.97 E. $26.08

A

28. Which of the following characteristics are correct regarding the old style option quotation system? I. The system is known as OPRA - the Options Price Reporting Authority code II. The system has 3 data elements III. The system has 21 characters IV. The system has 5 characters V. The system is known as the OCC Series Key VI. The root symbol is the underlying stock's ticker symbol A. I, II, III, and VI B. II, III, IV, and V C. I, II, and IV D. II, III, V, and VI E. III, V, and VI

C

3. By definition, a put option grants its owner which one of the following? A. right to buy B. obligation to buy C. right to sell D. obligation to sell E. choice to either buy or sell

C

32. What is the maximum percentage loss you can incur if you buy a put option? A. 0% B. 10% C. 100% D. 1,000% E. unlimited percentage

C

37. Which one of the following statements is true? A. A call with a strike price of $25 and a stock price of $23 has positive intrinsic value. B. A European style option is more valuable than an American style option. C. An American style out-of-the-money call option can have a positive value. D. A $40 put option has more intrinsic value than a $50 put option on the same underlying asset. E. The time value of an option is equal to the intrinsic value minus the option premium.

C

4. Which one of the following is defined as the price at which an option will be exercised? A. straddle B. spread C. strike D. market E. underlying

C

43. Which one of the following is the primary purpose of a protective put? A. profit from an expected future increase in the underlying stock's value B. guarantee a higher return than is possible from just owning the underlying security C. offset the risk associated with a decrease in the value of the underlying asset D. receipt of the option premium E. increase in potential rate of return due to increase in risk

C

45. You wrote a covered call with a strike price of $45 and an option premium of $1.10. Assume the stock price is $44 a share currently and that it falls to $42 a share and remains at that price until the option expires. As a result, you will: A. lose an amount equal to the option premium. B. lose the option premium but get to keep the stock. C. keep both your stock and the option premium. D. keep the option premium but lose your shares of stock. E. lose both your stock and the option premium.

C

48. Which one of the following is a bear call spread? A. buying a $20 call and selling a $25 call on the same stock B. selling a $20 call and buying a $20 call on the same stock C. buying a $20 call and selling a $15 call on the same stock D. selling a $20 call and buying a $25 put E. buying a $20 call and selling a $25 put

C

50. A short straddle: A. involves exercising two or more options simultaneously. B. is the purchase of both a put and a call on the same underlying asset. C. obtains its maximum profit when the underlying stock price is equal to the strike price. D. involves writing a call on shares of stock you currently own. E. is a highly bullish strategy.

C

60. Katie purchased 6 call options on Atlas Co. stock with a strike price of $40.00. On the expiration date, the stock was priced at $38.95 a share. What is the total payoff on the option contracts? A. -$220 B. -$55 C. $0 D. $2.20 E. $55

C

62. Jennifer purchased 4 put option contracts on Winslow Mfg. stock. The option premium was $0.25 and the strike price was $17.50. On the expiration date, the stock was selling for $17.75 a share. What is the total payoff on the option contracts? A. -$100 B. -$50 C. $0 D. $50 E. $150

C

64. Tim purchased 5 put option contracts on Western Fields stock. The strike price was $35 and the option premium was $0.55. At expiration, the stock was selling for $35.75. What is the payoff on the option contracts? A. -$60 B. -$30 C. $0 D. $30 E. $60

C

68. You own one SPX put option with a strike of 1,300. What is the payoff at maturity for this option contract if the S&P 500 index is 1,322? A. -$3,600 B. -$36 C. $0 D. $36 E. $3,600

C

7. A list of available option contracts and their prices for a particular security listed in order of strike price and maturity date is referred to as which one of the following? A. value chain B. intrinsic list C. option chain D. strike list E. exercise price display

C

71. Courtney purchased 5 call options with a $47.50 strike price and a call premium of $1.10. On the expiration date, the underlying stock was priced at $50.60 per share. What is her percentage return on this investment? A. -100 percent B. 70.45 percent C. 181.82 percent D. 267.38 percent E. 909.10 percent

C

83. A 4-month call has a strike price of $20. The current underlying stock price is $21.45. What is the intrinsic value of this call? A. $0.00 B. $0.48 C. $1.45 D. $3.90 E. $4.35

C

84. A 6-month put has a strike price of $40. The underlying stock's price is $38.25. What is the intrinsic value of this put? A. $0.00 B. $0.90 C. $1.75 D. $2.30 E. $3.60

C

85. A 6-month put has a strike price of $32.50. The underlying stock's price is $31.10. What is intrinsic value of this put? A. $0.00 B. $0.70 C. $1.40 D. $2.10 E. $2.80

C

90. A stock is valued at $25.75 a share. A European 6-month call option has a strike price of $25 and an option premium of $1.50. The market rate is 9.5 percent and the risk-free rate is 2.5 percent. What is the price of a European 6-month put option with a $25 strike price? A. $0.00 B. $0.09 C. $0.44 D. $1.48 E. $1.61

C

94. A call option with 6 months to expiration currently sells for $2.05. A put option with the same expiration sells for $0.60. The options are European style. The risk-free rate is 3.0 percent and the strike price of both options is $50. What is the current stock price? A. $47.89 B. $49.19 C. $50.72 D. $51.29 E. $52.08

C

5. Which one of the following distinguishes an option as an American style option? A. option that grants its holder the right to purchase at the strike price B. option that grants its holder the right to sell at the strike price C. option that obligates its holder to sell at the strike price D. option that can be exercised at any time prior to expiration E. option that can only be exercised at expiration

D

51. Which one of the following is the upper price bound for the intrinsic value of a European call option on a stock? A. $0 B. strike price C. stock price D. Max (S - K, 0) E. Max (K - S, 0)

D

53. Which one of the following correctly defines the range of time values for a put option? A. $0 to +$1 B. -$1 to +$1 C. ≤ $0 D. ≥ $0 E. ¹ $0

D

54. Which one of the following values is discounted in the put-call parity formula? A. call price B. put price C. stock price D. strike price E. option premium

D

55. Which one of the following represents an arbitrage opportunity? A. stock price of $18 and strike price of $20 B. call price of $0.40 and put price of $0.40 C. PCP-implied put price of $0.30 and call price of $0.28 D. PCP-implied put price of $0.30 and put market price of $0.31 E. PCP-implied call price of $0.20 and a put market price of $0.22

D

56. What is the total option premium you will receive if you sell 6 October $25 calls on Texas Instruments? ============== A. $80 B. $350 C. $695 D. $4,170 E. $4,375

D

65. You own one SPX call option with a strike of 1,400. What is the payoff at maturity for this option contract if the S&P 500 index is 1,414? A. $0 B. $14 C. $140 D. $1,400 E. $14,000

D

70. You purchased a call option with a $22.50 strike price and a call premium of $0.40. On the expiration date, the underlying stock was priced at $23.40 per share. What is the percentage return on your investment? A. -100 percent B. 0 percent C. 50 percent D. 125 percent E. 200 percent

D

76. Jeff paid a call premium of $0.60 when he purchased his call option with a strike price of $22.00. What is the break-even stock price? A. $0.00 B. $0.25 C. $22.25 D. $22.60 E. $22.75

D

77. Russ paid a total of $75 to purchase 5 call options with a strike price of $17.50. What is the break-even stock price? A. $0.15 B. $0.30 C. $17.35 D. $17.65 E. $32.50

D

8. Which one of the following guarantees that the terms of an exchange-listed option contract are fulfilled when an option is exercised? A. Securities and Exchange Commission B. Federal Reserve C. New York Options Exchange D. Options Clearing Corporation E. Securities Investors Protection Corporation

D

88. A European call has a strike price of $37.50. The underlying stock's price is $38.20. What is the lower price bound of this call? A. $0.00 B. $0.30 C. $0.50 D. $0.70 E. $1.00

D

9. By definition, stock index options would include an option on which one of the following underlying assets? A. gold B. corn C. U.S. dollar D. S&P 500 E. U.S. Treasury bill

D

93. A stock is currently selling for $40.85. A 3-month call option with a strike price of $40 has an option premium of $1.30. The risk-free rate is 2 percent and the market rate is 9.5 percent. What is the option premium on a 3-month put with a $40 strike price? Assume the options are European style. A. $0.00 B. $0.05 C. $0.15 D. $0.25 E. $0.35

D

95. A call option with 1 month to expiration currently sells for $0.70. A put option with the same expiration sells for $1.10. The options are European style. The risk-free rate is 3 percent and the strike price of both options is $18.00. What is the current stock price? A. $16.87 B. $17.06 C. $17.29 D. $17.56 E. $17.86

D

29. Which of the following characteristics are correct regarding the new style option quotation system? I. The system is known as OPRA - the Options Price Reporting Authority code II. The system has 3 data elements III. The system has 21 characters IV. The system has 5 characters V. The system is known as the OCC Series Key VI. The root symbol is the underlying stock's ticker symbol A. I, II, III, and VI B. II, III, IV, and V C. I, II, and IV D. II, III, V, and VI E. III, V, and VI

E

33. Which one of the following statements is correct? A. Reduced Value index options are equal in size to one percent of the standard index option. B. The holder of a stock index put option is betting that the underlying index will increase in value. C. Most index options are traded on the New York Options Exchange. D. The contract size for a call option on the S&P 500 is 10 times the index. E. Some stock index options close in the morning while others close at the end of the trading day.

E

36. Which one of the following options is out-of-the-money? A. call with a $20 strike and a stock price of $21 B. put with a $35 strike and a stock price of $33 C. call with a $45 strike and stock price of $46 D. put with a $75 strike and a stock price of $70 E. call with a $50 strike and a stock price of $49

E

38. A decrease in which one of the following will increase the intrinsic value of a put option? A. strike price B. exercise price C. option premium D. time value E. underlying stock price

E

40. You bought a put with a strike price of $25. The current stock price is $23. What is the current payoff value of this option? A. -$2 B. -$1 C. $0 D. $1 E. $2

E

42. The maximum: A. profit from buying a put is the stock price. B. loss from writing a put is the option premium. C. profit from writing a call is the strike price. D. loss from buying a call is $0. E. profit from writing a put is the option premium.

E

44. You own 300 shares of ABC stock. Which one of the following would allow you to receive an option premium in exchange for selling your shares in ABC at the strike price? A. straddle B. long spread C. selling a put D. buying a call E. writing a covered call

E

49. Anna bought a $40 April call and a $40 April put on the same underlying stock. This strategy is referred to as which one of the following? A. bull spread B. bear spread C. parity play D. short straddle E. long straddle

E

52. Which one of the following is the upper price bound for the intrinsic value of a European put option on a stock? A. 0 B. strike price C. stock price D. Max (S - K, 0) E. Max (K - S, 0)

E

58. How much will it cost to purchase 5 May $27.50 calls on Texas Instruments? ============ A. $21 B. $1,215 C. $1,245 D. $1,720 E. $2,075

E

59. You bought a call option with a strike price of $35. What is your total payoff on this option contract if the underlying stock is selling for $36.70 on the option expiration date? A. $.00 B. $30.00 C. $33.00 D. $133.00 E. $170.00

E

61. Josh owns 2 call options on Foster Glass stock. The exercise price is $47.50 and the stock price at expiration is $49.01. What is the total payoff on the option contracts? A. -$0.00 B. -$3.02 C. $3.02 D. $30.20 E. $302.00

E

63. You purchased 7 put option contracts on Alto Industries. The strike price was $42.50 and the option premium was $1.30. On the expiration date, the stock was valued at $41.40 a share. What is the payoff on the option contracts? A. -$140 B. $0 C. $110 D. $360 E. $770

E

67. You purchased one SPX put option with a strike of 1,400. You wrote one SPX put option with the same maturity date and a strike of 1,300. At maturity, what is your total payoff if the S&P 500 index is 1,320? A. -$8,000 B. -$2,000 C. $2,000 D. $4,000 E. $8,000

E

73. Kim Lee purchased 6 put option contracts on Eastern Imports stock at a strike price of $47.50. The option premium was $0.65. At expiration, the stock was valued at $44.90 a share. What is her percentage return? A. -100 percent B. 0 percent C. 5.47 percent D. 32.82 percent E. 300 percent

E

74. You own 6 put option contracts on JL Industrial stock. You paid an option premium of $0.75 for a strike price of $42.50. On the option expiration date, the stock was selling for $41.00 a share. What is your percentage return? A. -100 percent B. -18.75 percent C. 51.26 percent D. 78.75 percent E. 100 percent

E

75. Jasmine purchased one call option with a strike price of $35 when the call premium was $1.10. What is the break-even stock price? A. $.00 B. $33.90 C. $34.45 D. $35.00 E. $36.10

E

82. You purchased a put with a strike price of $37.5 and an option premium of $0.45. You simultaneously bought the stock at a price of $36 a share. What is your profit per share on these transactions if the stock price at expiration is $33.50? A. -$1.15 B. -$0.15 C. $0.15 D. $0.75 E. $1.05

E

92. A stock is currently selling for $26.50. A 3-month put option with a strike price of $30 has an option premium of $4.05. The risk-free rate is 2.5 percent and the market rate is 9.75 percent. What is the option premium on a 2-month call with a $30 strike price? Assume the options are European style. A. $0.00 B. $0.33 C. $0.41 D. $0.67 E. $0.73

E

96. A call option has a premium of $2.80, a strike price of $55, and 3 months to expiration. The current stock price is $52.20. The stock will pay a $1.25 dividend in one month. The risk-free rate is 2.5 percent. What is the premium on a 3-month put with a strike price of $55? Assume the options are European style. A. $2.08 B. $2.15 C. $3.32 D. $4.12 E. $6.51

E

97. A call option has a premium of $0.60, a strike price of $40, and 3 months to expiration. The current stock price is $39.60. The stock will pay a $0.80 dividend two months from now. The risk-free rate is 3 percent. What is the premium on a 3-month put with a strike price of $40? Assume the options are European style. A. $0.25 B. $0.51 C. $0.78 D. $1.23 E. $1.50

E

66. You purchased one SPX call option with a strike of 1,500. You wrote one SPX call option with the same maturity date and a strike of 1,450. At maturity, what is your payoff if the S&P 500 is at 1,475? A. -$2,500 B. -$250 C. $25 D. $250 E. $2,500

S

11. Which one of the following terms is defined as an option that would have a positive payoff if exercised now? A. in-the-money option B. out-of-the-money option C. straddle D. crossed option E. cash-settled

A

19. Selling a call option on stock which you own is referred to as which one of the following strategies? A. covered call B. naked call C. protective put D. underlying put E. straddle

A

20. Kris implemented an option trading strategy consisting of two call options. This strategy is known as which one of the following? A. spread B. straddle C. split D. combination E. counteraction

A

30. The change in the option symbol quotation system was driven by which of the following? I. Advances in technology II. Increase in the number and type of option products III. Difficulty in applying the old system to NASDAQ stocks IV. Difficulty in applying the system to complicated option products A. I, II, III, and IV B. II, III, and IV C. I, II, and IV D. II and III E. I, II and III

A

31. Which of the following issue exchange-listed option contracts? I. CBOE II. SEC III. OCC IV. NASDAQ A. III only B. IV only C. I and III only D. II and IV only E. I, II, and III only

A

34. Which one of the following options is in-the-money? A. call with a $45 strike and an underlying stock price of $42 B. put with a $35 strike and an underlying stock price of $36 C. call with a $15 strike and an underlying stock price of $15 D. put with a $45 strike and an underlying stock price of $42 E. call with a $30 strike and an underlying stock price of $29

A

41. The maximum option payoff from: A. writing a put is $0. B. buying a put is $0. C. writing a call is an unlimited profit. D. buying a call is the strike price. E. writing a call is the stock price.

A

47. Which one of the following is a bull call spread? A. buying a $20 call and selling a $25 call on the same stock B. selling a $20 call and buying a $25 call on the same stock C. buying a $20 call and selling a $15 call on the same stock D. selling a $20 call and buying a $25 put E. buying a $20 call and selling a $25 put

A

15. Which one of the following refers to selling an option contract? A. calling B. writing C. exercising D. striking E. spotting

B

16. Which of the following has the obligation to sell a stock at the strike price when an option is exercised? A. call holder B. call writer C. put holder D. put writer E. call holder and put writer

B

25. What is the current price per underlying share if you wish to buy a June $32.50 call option on General Electric stock? =========== A. $0.68 B. $0.70 C. $0.73 D. $1.60 E. $1.62

B

39. You wrote a $40 call option on a stock that has a market price of $43. Which one of the following statements must be correct if the option expires three months from now? A. Your option currently has zero intrinsic value. B. Your option currently has a negative payoff. C. You have the right to purchase shares at $40 a share. D. Your option payoff will increase if the market price of the stock increases. E. If the market price remains stable, you will make the decision to exercise this option prior to expiration.

B

46. Which one of the following applies to a naked call? A. unlimited potential profits B. unlimited potential losses C. sale of a put on a stock you do not own D. sale of a call on a stock you currently own E. purchase of a call on a stock you do not own

B

57. What is the total amount you will receive if you sell 10 June $27.50 puts on Texas Instruments? ============== A. unknown B. $70 C. $100 D. $4,050 E. $4,300

B

69. You purchased 6 call options with a $40 strike price at a total cost of $150. On the expiration date, the underlying stock was priced at $39.20. What is the percentage return on your investment? A. -420 percent B. -100 percent C. 68.75 percent D. 2.02 percent E. 220 percent

B

78. You purchased 5 put option contracts on Mountain Builders stock at an option premium of $0.65. The strike price is $25. What is your break-even stock price? A. $19.90 B. $24.35 C. $25.00 D. $25.75 E. $30.10

B

80. Rosalita purchased a put option with a strike price of $35. She paid a total of $140 for the contract. What is the break-even stock price? A. $31.40 B. $33.60 C. $38.00 D. $41.60 E. $42.80

B

86. A 6-month call has a strike price of $30. The underlying stock is priced at $31.80 and the option premium on the call is $2.40. What is the per share time value of the call? A. $0.00 B. $0.60 C. $1.40 D. $2.80 E. $3.60

B

87. A 3-month put has a strike price of $47.50 and an option premium of $1.40. The underlying stock is selling for $46.70 per share. What is the time value of the put? A. $0.00 B. $0.60 C. $0.70 D. $1.20 E. $1.40

B

1. The value of an option is dependent upon the value of the underlying security. This relationship defines an option as which one of the following? A. equity security B. fixed income security C. derivative security D. transfer security E. dependent security

C

14. Which one of the following is equal to the option premium minus the intrinsic value? A. parity value B. payoff value C. time value D. strike value E. profit

C

18. You currently own 300 shares of Microsoft stock. If you purchase options on this stock to protect against future declines in the price of the stock you are implementing which one of the following? A. covered call B. naked call C. protective put D. bear spread E. straddle

C

2. A call option grants its owner which one of the following? A. right to buy B. obligation to buy C. right to sell D. obligation to sell E. choice to either buy or sell

C

23. Louise just purchased 3 call option contracts on GE stock. How many shares of stock can she buy at the strike price based on these contracts? A. 3 B. 30 C. 300 D. 30,000 E. 300,000

C

26. At what price will a dealer sell the Jun $34 put on General Electric stock? ========= A. $1.64 B. $1.73 C. $1.77 D. $2.52 E. $2.56

C

10. A cash-settled option is defined as an option which does which one of the following? A. requires a cash deposit upon purchase B. has a foreign currency as its underlying asset C. has the U.S. dollar at its underlying asset D. entails a cash payment to the holder upon exercise E. offers the option to either deliver the underlying asset or a cash payment

D

12. An option that would NOT yield a positive payoff if exercised today is referred to by which one of the following terms? A. hollow option B. zero option C. in-the-cellar option D. out-of-the-money option E. strike-out

D

17. Which of the following has the obligation to purchase stock at the strike price when an option is exercised? A. call holder B. call writer C. put holder D. put writer E. call writer and put holder

D

21. An option trading strategy that utilizes both put and call options is referred to as which one of the following? A. bull call spread B. butterfly spread C. split D. combination E. counteraction

D

24. How much option premium per share will you receive if you sell a September $34 put on General Electric stock? ============ A. $1.64 B. $1.68 C. $1.77 D. $2.52 E. $2.56

D

27. You are buying the June call on General Electric stock at $0.19. What amount will you pay per share if you decide to exercise this option? A. $32.50 B. $32.69 C. $33.81 D. $34.00 E. $34.19

D

35. Which one of the following combinations creates an in-the-money option? A. underlying stock price is less than the strike price of a call B. underlying stock price is $18 and the put has an exercise price of $15 C. underlying stock price is $22 and the call has an exercise price of $25 D. put strike price exceeds the underlying stock price E. put price is equal to the call price

D

13. Which one of the following terms is defined as the payoff that would be received if an option were expiring immediately? A. parity price B. market price C. time value D. underlying value E. intrinsic value

E

22. Consider both a European put and call that expire in June and have a strike price of $30. The no-arbitrage relationship between this put and call is referred to as which one of the following? A. intrinsic equilibrium B. Euro-match C. bull-call spread D. butterfly spread E. put-call parity

E