Unit 3
The maximum gain on a short call is
the premium
The maximum loss on a long call is
the premium
The buyer of a put has
the right to sell the stock.
All of the following terms and phrases apply to the buy side of the options contract except
wants the contract to expire.
Which of the following strategies is a covered call?
Short call, long call
Which of the following option positions would offer a full hedge to a short stock position?
long call
A March 30 call purchased at 3 has expired without being exercised. The owner of the call
loses the $300 premium paid
A March 30 call purchased at 3 has expired without being exercised. The owner of the call
loses the $300 premium paid.
A customer who has written an option contract receives an assignment notice. This customer is
now obligated to either buy or sell the underlying stock at the strike price.
An investor is long a January 30 call at 2. Maximum gain for this position is
unlimited
What is the intrinsic value of an XYZ 40 call bought at a premium of 3 when the current market value of XYZ is at 30?
$0 Intrinsic value is the amount that a contract is in the money. The premium of the contract is not a factor. All calls are in the money when the market value of the stock is above the strike price.
For options investors, which of the following are true? 1. Buyers pay the premium for the right to exercise. 2. Buyers pay the premium and incur an obligation to buy or sell. 3. Sellers receive the premium and incur an obligation to buy or sell. 4. Sellers receive the premium for the right to exercise.
1 and 3
A customer believes the price of MJS stock will rise but is not currently in a position to purchase the stock outright. How could the customer use options to profit from a rise in the stock's price? 1. Buy calls 2. Write calls 3. Buy puts 4. Write puts
1 and 4 The investor is bullish and will use bullish strategies.
The maximum loss on a short put is
ML = strike price - premium
A registered representative opens a new options account for a customer. In which order must the following actions take place? 1. Obtain approval from the branch manager 2. Obtain essential facts from the customer 3. Obtain a signed options agreement 4. Enter the initial order
2, 1 ,4, 3
Which of the following describes the position in a call option on a stock with a strike price of 20, a premium of 7, and a current market of 26?
In the money
The performance of listed options contracts is guaranteed by which of the following?
Options Clearing Corporation (OCC)
What method is used to assign exercise notices to broker-dealers with short positions by Options Clearing Corporation (OCC)?
Random-selection basis
Which of the following option strategies has the most risk?
Short Calls, they have unlimited loss potential
Investors who sell call and put options are known as
writers
On a long put, when the premium equals the intrinsic value, the put is
at parity.
All of the following terms and phrases apply to the buy side of the options contract except
has an obligation.
An investor is long 1 July 40 call at 2. This investor
has paid $200 for the call contract.
If long one equity call option, the owner
has the right to purchase 100 shares of the underlying stock.
With CDT stock at 42, a September 40 call trading at 3 is
in the money by 2 points
When XYZ is trading at 30, an XYZ 40 put sold at 3 would be
in the money.
All of the following terms and phrases are associated with the sell side of the contract except
pays the premium.
If a customer bought puts to open, which of the following transactions would be allowed if the options agreement was not returned signed within 15 days?
sells puts to close
If an investor is long an option contract and wishes to exercise the contract, the investor notifies the broker-dealer, who then notifies
the Options Clearing Corporation (OCC).
Listed options can be exercised by
the holder from the time of purchase until they expire.