FIN 307 Chapter 15

You purchase one MBI March 120 Put contract for a $10 premium. The maximum profit that you could gain from this strategy is __________.

$11,000

The May 17, 2017 price quotation for a Boring call option with a strike price of $50 due to expire in November is $20.80, while the stock price of Boring is $69.80. The premium on one Boring November 50 Call contract is __________.

$2,080

You purchase one MBI July 120 Call contract for a $5 premium. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a __________ on the investment.

$200 loss

You purchase one MBI July 90 Call contract for a $4 premium. The stock has a 2-for-1 split prior to the expiration date. You hold the option until the expiration date, when MBI stock sells for $48 per share. You will realize a __________ on the investment (hint: after split, you essentially have 2 call contracts with X = $45 at a $2 premium).

$200 profit

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?

$24.15

You purchase one MBI July 120 Put contract for a $3 premium. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a __________ on the investment.

$300 loss

You write one MBI July 120 Call contract for a $4 premium. You hold the option until the expiration date, when MBI stock sells for $121 per share. You will realize a __________ on the investment.

$300 profit

An investor purchases a call at a $2.50 premium. The strike price is $35. If the current stock price is $35.10, what is the break-even point for the investor?

$37.50

You sell one IBM July 90 Call contract for a $4 premium and two puts for a $3 premium each. You hold the position until the expiration date, when IBM stock sells for $95 per share. You will realize a __________ on this strip.

$500 profit

The writer of a put option __________.

Agrees to buy shares at a set price if the option holder desires

The maximum loss a buyer of a stock call option can suffer is the __________.

Call premium

You invest in the stock of Rayleigh Corp and write a call option on Rayleigh Corp. This strategy is called a __________.

Covered call

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 __________.

Decrease; Decrease

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

In-the-money

A put option on Dr Pepper Snapple Group, Inc has an exercise price of $45. The current stock price is $41. The put option is __________.

In-the-money

All else the same, an American-style option will be __________ valuable than a __________-style option

More; European

You invest in the stock of Valleyview Corp and purchase a put option on Valleyview Corp. This strategy is called a __________.

Protective put

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

Short call and long put

The potential loss for a writer of a naked call option on a stock is __________.

Unlimited