stc series 7 exam 5A

An investor writes an XYZ October 70 call at 3 and an XYZ October 70 put at 1. This strategy is known as a: a. Short combination b. Short straddle c. Bull spread d. Bear spread

b. Short straddle

in May, a customer sells an ABC July 40 listed call for a $6 premium and buys an ABC October 40 listed call for a $10 premium. In June, the customer closes out the July 40 sale for which he received a $6 premium by buying back the call at $9. He sells the October 40 call, which he purchased at $10, for $12. The net result to the customer on the two transactions is a: a. $100 loss b. $100 profit c. $200 loss d. $200 profit

a. $100 loss

An investor bought 5 ATT June 30 puts. These options will have intrinsic value when the market price of ATT is: a. $25 b. $30 c. $35 d. $40

a. $25

A customer purchases an ABC October 60 call paying a $4 premium and an ABC October 60 put for a $4 premium. ABC goes up to $75 per share. The put option expires unexercised. The customer exercises the call option and simultaneously sells the stock at the market price of $75. As a result of the transaction, the customer has a net: a. $700 profit b. $700 loss c. $800 profit d. $800 loss

a. $700 profit

Which of the following statements is TRUE regarding spreads? a. A put spread created for a net debit is bearish b. A put spread created for a net credit is bearish c. A call spread created for a net credit is bullish d. A call spread created for a net debit is bearish

a. A put spread created for a net debit is bearish

To protect against a loss in a short sale, an investor can: I. Sell a call II. Enter a stop-loss order III. Buy a call IV. Buy a put a. I or II only b. II or III only c. III or IV only d. I, II, or IV only

a. I or II only

A client purchases a July 50 Put @ 6 and writes a July 70 Put @ 13, creating a spread position. The client will profit if: a. The spread narrows b. The spread widens c. Both (a) and (b) d. Neither (a) nor (b)

a. The spread narrows

If an investor purchases one XYZ October 40 put for $500 when XYZ is selling at $38, the intrinsic value of the option is: a. $0 b. $200 c. $300 d. $500

b. $200

A customer writes an IBM October 120 call, receiving a $4 premium, and buys an IBM October 100 call, paying a $12 premium. IBM is currently selling at $108. If he exercises the IBM October 100 call just prior to expiration, what should the stock be selling at in order for the customer to break even? a. 100 b. 108 c. 116 d. 120

b. 108

Mr. Jones purchases 100 shares of IBM at $116 per share and writes an IBM June 115 call option at 5. Mr. Jones' breakeven point is: a. 110 b. 111 c. 120 d. 121

b. 111

Upon exercise of the option, the holder of a long put will profit if the price of the underlying stock: a. Falls below the exercise price b. Falls below the exercise price minus the premium paid c. Exceeds the exercise price d. Exceeds the exercise price plus the premium paid

b. Falls below the exercise price minus the premium paid

In which TWO of the following circumstances does an investor have unlimited risk? I. Short 1 XYZ July 50 put II. Short 100 shares of XYZ stock III. Short 1 XYZ July 50 uncovered call IV. Short 1 XYZ July 50 covered call a. I and II b. II and III c. I and III d. II and IV

b. II and III

George has the following position in his account: Long 1 XYZ Nov 45 call By adding which of the following positions creates a combination? a. Long 1 XYZ Nov 45 put b. Long 1 XYZ Nov 40 put c. Short 1 XYZ Nov 50 call d. Long 1 XYZ Nov 50 call

b. Long 1 XYZ Nov 40 put

Which of the following statements is TRUE regarding the purchaser of a call option? a. The yield on the purchaser's portfolio increases by purchasing the option b. The purchaser's loss is limited to the premium if the underlying stock declines c. The purchaser benefits if the underlying stock declines d. The purchaser exercises the option if the stock declines

b. The purchaser's loss is limited to the premium if the underlying stock declines

A client purchased 300 shares of Emily Airlines common stock at $28 a share in July of 2011. In June of 2012, the client writes 2 October 35 calls at 5 against the stock position. If the market price of Emily Airlines is trading at $39 at expiration, what is the client's realized gain? a. $1,000 b. $1,700 c. $2,400 d. $4,300

c. $2,400

On October 25, Mr. Smith purchased 5 listed XYZ Corporation July 50 calls and paid a $3 premium on each call. The current market price of XYZ Corporation is $48 per share. What is the breakeven point for Mr. Smith per option? a. $45 b. $48 c. $53 d. $58

c. $53

Mr. Jones purchases 100 shares of XYZ at $80 per share and writes an XYZ June 85 call receiving a $3 premium. If XYZ increased to $90 and the call option is exercised, Mr. Jones' profit is: a. $300 b. $500 c. $800 d. $1,800

c. $800

An investor writes an XYZ Aug 90 put at 4.50. If the put is exercised when XYZ is trading at 84.50, the investor will have: I. A cost basis of 84.50 II. A cost basis of 85.50 III. A loss of $100 if the stock is sold at the current market price IV. A gain of $100 if the stock is sold at the current market price a. I and III b. I and IV c. II and III d. II and IV

c. II and III

A writer of an uncovered call option would profit if the: I. Underlying common stock goes up II. Underlying common stock goes down III. Call expires IV. Call is exercised with the stock price above the strike price plus the premium a. I and III only b. I and IV only c. II and III only d. II and IV only

c. II and III only

Customers will have unlimited risk if they are: a. Long 1 ABC Jan 50 put b. Short 1 ABC Jan 50 put c. Short 1 ABC Jan 50 put and short 100 shares of ABC stock d. Short 1 ABC Jan 50 put and long 100 shares of ABC stock

c. Short 1 ABC Jan 50 put and short 100 shares of ABC stock

What is a client's maximum loss if she is long XAM stock and short an XAM call? a. The difference between the market price and the strike price plus the premium b. The market price plus the premium c. The market price minus the premium d. Unlimited

c. The market price minus the premium

A customer writes an IBM October 120 call and receives a $4 premium and buys an IBM October 100 call and pays a $12 premium. IBM is currently selling at $108. Assume the customer later sells the IBM October 100 call for $20. The IBM October 120 call, which he initially sold expires. The customer will realize a: a. $400 loss b. $400 profit c. $1,200 loss d. $1,200 profit

d. $1,200 profit

An investor purchases an ABC Jan 40 call @ 4 and sells an ABC April 30 call @ 9. This is an example of a: a. Variable hedge b. Vertical spread c. Horizontal spread d. Diagonal spread

d. Diagonal spread

When an option contract is exercised, the writer: a. May retransmit the assignment notice b. May close out the position upon receipt of the assignment notice c. Will establish a capital loss d. Must fulfill the obligation to buy or sell the underlying instrument

d. Must fulfill the obligation to buy or sell the underlying instrument

Which of the following statements is TRUE regarding the writer of a put option? a. The writer has an obligation to sell stock if exercised b. The writer profits if he closes the position after the premium increases c. The writer has an unlimited loss if the put option is not covered d. The writer benefits if the underlying stock increases

d. The writer benefits if the underlying stock increases