s7 c 12 options

Which of the following methods is used by the Options Clearing Corporation in assigning exercise notices?

Random selection

The VIX (volatility index) is based on the:

S&P 500 Index

In June, a client buys 100 shares of XYZ Corporation at $27 per share and writes an XYZ October 30 call at a $3 premium. The trade is executed in a cash account. What is the breakeven point for the writer?

$24

Mr. Jones purchases a Canadian dollar September 85 call option for a premium of .82. At what price (spot rate) would the Canadian dollar need to be trading in order for Mr. Jones to exercise the option and break even? (Assume 10,000 Canadian dollars per contract.)

$0.8582

An individual purchases two BP (British pound) 150 calls @ 7.50. The contract size is 10,000 BP. The total cost for the contracts is:

$1,500.00

An investor writes 3 uncovered November 85 puts and receives a premium of $6 for each contract. What is the maximum profit that the investor can realize?

$1,800

An investor purchases one XYZ Corporation call with a strike price of 30. The investor pays $100 for the call. The market price of the stock is $29 . At expiration, the maximum amount of money the investor could lose is:

$100

An individual purchases an Australian dollar June 65 put at 2.34 that was sold at 3.68. If the contract size is 10,000 Australian dollars, what is the individual's total profit?

$134

An individual purchases 10 ABC June 90 calls @ 4 and writes 10 ABC June 95 calls @ 2. The individual's maximum loss is:

$2,000

An investor buys a DEF April 35 put at 3 and simultaneously writes a DEF April 30 put at 1. The maximum that the investor can lose on this position is:

$200

An investor purchases 1 XYZ October 40 put when the market price of XYZ is $41 per share, and pays a premium of $3. What is the maximum profit the investor can have?

$3,700

An investor writes 5 uncovered ABC May 35 puts for a premium of 3 per contract, when ABC has a market price of $36. At what market price will the investor break even?

$32

An investor purchases an ABC Corporation October 50 put and pays a premium of $7. The underlying security declines to $40 per share. For tax purposes, the proceeds of the sale are:

$4,300

Mr. Jones buys an XRX October 50 put when the market price of XRX is also $50 per share, and pays a premium of $5. If XRX declines sharply and Mr. Jones exercises the put, what is the maximum profit Mr. Jones can have?

$4,500

An investor purchases 200 shares of STC at $35 and subsequently purchases 2 STC Jan 35 puts at 2. If the puts expire, what is the investor's profit or loss?

$400 loss

With no other securities position, a customer sells short 100 shares of ABC at $40 and sells 1 ABC October 40 put for $500. The customer will break even when the price of the stock is at:

$45

An investor makes an opening sale of 10 option contracts when the bid price was $7.00 and the offer price was $7.10. Later in the day, the investor makes a closing purchase of 10 contracts when the bid price was $6.50 and the offer price was $6.55. Assuming both trades were market orders, what is the investor's gain or loss on these transactions?

$450 capital gain

A customer buys an ABC July 50 call, paying a $3 premium. Seven months later, the customer exercises the call when the market price of ABC stock is $60 per share. The customer immediately sells the stock for $6,000. When computing the profit, the customer will use a cost basis of:

$5,300

A customer owns a JRF October 50 listed call option. JRF has declared a $1.00 cash dividend. When JRF sells ex-dividend, which of the following choices will reflect the price and the number of shares of the JRF October 50 option?

$50 strike price, 100 shares

A customer writes an XYZ June 60 straddle for a 5-point premium. At expiration, the market price of XYZ is 50 and the put side is exercised. The customer then sells the stock that was put to her at the current market price. The customer has realized a:

$500 loss

An investor writes an uncovered ABC March 45 put for a premium of 4. At expiration, ABC is at $36 per share and the put option is exercised. If the stock is immediately sold by the writer at the current market price, what is the writer's profit or loss?

$500 loss

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?

$53

An investor is long 200 shares of ABC stock at $58 and short 1 ABC May 60 call at 2. What is his breakeven point?

$57

On December 16, a Mr. Smith purchased 2 listed XYZ May 70 calls and paid a $4 premium for each call when the current market price of XYZ Corporation was $69 per share. If, in May, the market price of XYZ Corporation is $67 and the calls expire, Mr. Smith loses:

$800

An investor has purchased 1,000 shares of XYZ stock. Which of the following option transactions will provide the most effective means of reducing the cost of the stock?

Selling 10 XYZ calls

A client buys 100 shares of Miramar at $42 per share. One week later she buys one Miramar Nov 40 put and pays a premium of $300. In November, the stock is at $48 per share and the put expires worthless. The tax consequences of these trades are: Miramar stock has a basis of 42 Miramar stock has a basis of 45 There is a capital loss of $300 on the put No loss is reported on the put until the stock is sold

1 and 3

An individual expects the market price of XYZ to increase. Which TWO of the following choices support his market sentiment? 1. Buy XYZ call options 2. Write uncovered XYZ call options 3. Buy XYZ put options 4. Write uncovered XYZ put options

1 and 4

When the market price of MMS is $24, a customer purchases 10 MMS May 20 puts at 2 in a cash account. Which TWO of the following statements are TRUE regarding the option purchase? 1. The settlement date for the option purchase is one business day 2. The settlement date for the option purchase is two business days 3. The Regulation T payment date is two business days 4. The Regulation T payment date is four business days

1 and 4

Which TWO of the following statements are TRUE regarding the buyer and writer of a combination? 1. The buyer of a combination expects the market to be volatile 2. The writer of a combination expects the market to be volatile 3. The buyer of a combination expects the market to remain stable 4. The writer of a combination expects the market to remain stable

1 and 4

Mrs. Ima Holder purchased 10 RFQ July 60 calls. RFQ declares a 50% stock dividend. After the dividend has been distributed, Mrs. Holder now owns:

10 contracts for 150 shares each

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?

108

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. According to SRO rules, when will the calls expire?

10:59 p.m. Central Time, 11:59 p.m. Eastern Time on the third Friday of the month

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:

111

A customer owns an AMF October 30 call option. If AMF should split 2 for 1, the customer will own:

2 AMF October 15 calls each for 100 shares

An investor purchases a British pound 160 put at 4 when the British pound is at 157. The intrinsic value of the option is:

3

Mr. Smith sells short 100 shares of MNP @ 39 and also purchases 1 MNP May 40 call @ 3. Mr. Smith's breakeven is:

36

Equity options expire on:

The third Friday of the expiration month at 11:59 p.m. Eastern Time

An investor purchases 200 shares of STC at $35 and subsequently purchases 2 STC Jan 35 puts at 2. At what market price must STC trade for the investor to have a profit?

38

An individual purchases one XYZ 40 call for 4 and one XYZ 50 call for 2. The market price of XYZ stock is currently 43. The individual's breakeven price is:

46

A firm is not permitted to accept an exercise notice from a customer for a listed equity option after:

5:30 p.m. Eastern Time on the expiration date of the option

An option contract for RFQ is for 108 shares. This is most likely a result of which of the following circumstances?

There has been a stock dividend

In August, an investor sells an uncovered listed option and receives a $600 premium. The following February, the customer makes a closing purchase transaction at 5. The result of the transaction is:

A capital gain of $100

In August, an investor sells an uncovered listed option and receives a $1,100 premium. The following February, the customer makes a closing purchase transaction at 3. The result of the transaction is:

A capital gain of $800

A customer buys an ABC July 50 call, paying a $3 premium. Seven months later, the customer exercises the call when the market price of ABC stock is $60 per share. The customer immediately sells the stock for $6,000. If the customer had sold the option at $8 instead of exercising the option, the profit would have been taxable as:

A $500 capital gain

A position in which a customer is long 1,000 shares of DEP and short 5 DEP September 50 calls is considered:

A covered option position only

Which of the following statements is TRUE regarding spreads?

A put spread created for a net debit is bearish

When a firm's customer exercises a call option, the firm will submit an exercise notice to the Options Clearing Corporation. The Options Clearing Corporation, in turn, will select a firm to receive the exercise notice based on:

A random selection basis

Which of the following statements is NOT TRUE concerning VIX options?

An investor will buy VIX puts if he expects an increase in the volatility of the S&P 500 Index

Use the following calendar to answer this question. August S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 An exercise notice for an August European-style stock index option may be entered on:

August 21

An investor who sells a July 50 put and buys a July 60 put on the same stock is establishing a:

Bear spread

An investor bought 5 NJF June 45 puts for a premium of 3 points per contract. For these options to have intrinsic value, the market price of NJF needs to be:

Below $45

A client buys 5 EW April 75 puts and sells 5 EW April 80 puts. This type of strategy is:

Bullish

A Swiss company that is expecting payment from a customer in U.S. dollars is concerned that the dollar will decline in value. To hedge against a decline in the U.S. dollar, the Swiss company should:

Buy Swiss franc calls

Which TWO of the following option recommendations are suitable for a sophisticated investor who expects the overall market to fall but is bullish on mining stocks? Buying narrow-based index calls Buying narrow-based index puts Buying broad-based index calls Buying broad-based index puts

I and IV

The settlement date between the Options Clearing Corporation and the clearing firm for options transactions is:

One business day from the trade date

Regarding exchange-traded options, all of the following are TRUE statements, EXCEPT:

Option contracts have an infinite life.

The exercise (strike) prices of listed options are NOT adjusted for:

Cash dividends

A customer wishes to close out a short option position by liquidating the option. The registered representative should mark the order ticket:

Closing purchase

Which of the following choices will eliminate a short position in a listed option?

Closing purchase

An investor purchases a PRT Oct 45 call @ 3. When PRT is selling at 51, the investor exercises the call. The investor has a:

Cost basis of 48

Regarding exchange-traded options, all of the following statements are TRUE, EXCEPT:

Option trades settle on the second business day (T + 2).

What organization acts as the counter-party in all option contracts and provides guarantees in option trading?

Options Clearing Corporation

Mr. Smith purchases 100 shares of MNP @ 30 and also purchases 1 MNP May 30 put @ 3. Mr. Smith is:

Protected from a decline in the market until the option expires

An investor wrote a 115 index option call. The option was exercised and the index closed at 125. The writer will:

Deliver cash

An investor purchases an ABC Jan 40 call @ 4 and sells an ABC April 30 call @ 9. This is an example of a:

Diagonal spread

On the day prior to the ex-dividend date for an ordinary cash dividend, a holder of a call tenders an exercise notice. The investor will be:

Entitled to the dividend

Mike is long a yield-based put option in his account. Mike would like to see interest rates:

Fall

An investor who has owned XYZ stock for two years buys an XYZ October put. This will:

Have no effect on his holding period

An investor will be in a position to acquire stock under which TWO of the following circumstances? 1. The investor buys a call 2. The investor buys a put 3. The investor sells a call 4. The investor sells a put

I and IV

Which TWO of the following statements are TRUE about the market price of an option? 1. The more volatile the underlying stock, the smaller the premium 2. The current market price of the stock compared to the strike price influences the size of the option's premium 3. The longer the period of time remaining until the option expires, the greater the premium 4. Out-of-the money options have no time value

II and III

A U.S. importer needs to purchase British pounds to pay for a shipment of goods. The exchange of U.S. dollars for British pounds would occur:

In the Interbank market

The spot prices of foreign currencies are determined:

In the Interbank market

TUV Sep 5.00 puts trade on the CBOE. With the approval of its shareholders, TUV Corporation will reduce its outstanding shares by a factor of 20, which has the effect of increasing its market price 20-fold. What effect will this have on the TUV Sep 5.00 put?

Investors who previously owned 1 TUV Sep 5.00 put will now own 1 TUV Sep 100 put

Which of the following statements is TRUE regarding the Interbank market?

It helps establish the spot prices for foreign currencies

George has the following position in his account: Long 1 XYZ Nov 45 call By adding which of the following positions creates a combination?

Long 1 XYZ Nov 40 put

An investor is short 2,000 XYZ calls. In determining position limits, which of the following choices will be totaled with the short calls?

Long XYZ puts

For the buyer of an option, the premium paid is considered the:

Maximum risk

When an option contract is exercised, the writer:

Must fulfill the obligation to buy or sell the underlying instrument

An investor selling a combination will profit if the price of the underlying security is:

Neutral

Logan has the following position in his account. Logan is long 1 DEF May 35 call. He anticipates a slight bullish move in DEF from which he wants to benefit, but he also wants some income generated to reduce the cost of the position without adding additional risk. He could accomplish this by adding which of the following positions to his account?

Short 1 DEF May 45 call

An investor is long 1,000 shares of XYZ at $32 per share and the current market value of XYZ is $38. The investor believes the stock is not likely to fluctuate over the next few months and actually has a long-term bullish outlook. Which of the following positions will allow the investor to increase the portfolio's yield without increasing the downside risk?

Short 10 XYZ 40 calls

An employee in the operations department of a broker-dealer asks an Operations Professional what is meant by the term, covered XAM put. The BEST answer would be if it includes a position in which a customer is:

Short XAM stock

Which of the following option positions obligates the investor to sell shares if exercised?

Short a call

An investor writes an XYZ October 70 call at 3 and an XYZ October 70 put at 1. This strategy is known as a:

Short straddle

Which of the following positions would be considered a covered option?

Short the stock, short a put

In which of the following situations does an investor have unlimited risk?

Sold a put and is short the stock

Which of the following statements is TRUE in relation to the buyer of a call option?

The investor has limited risk

A client buys 100 shares of MTB at $58 per share and writes 2 MTB October 60 calls at 3. Which of the following statements is TRUE?

The maximum loss is unlimited

Which of the following statements is NOT TRUE regarding the purchaser of a put option?

The only way to realize a profit is to exercise the option

An investor purchases an EPG Jan 40 put at 5 and writes an EPG Jan 50 put at 13. The investor would profit in all of the following situations, EXCEPT:

The spread widens

All of the following trades may be executed in a cash account, EXCEPT the sale of a(n):

Uncovered call option

An exercise limit is the maximum number of options contracts that a customer may exercise in a five-consecutive-business-day period for each:

Underlying stock on each side of the market

If a broker-dealer is assigned an exercise notice on Monday, May 2, on what day will the called stock settle?

Wednesday, May 4

Which of the following positions/strategies is NOT bullish?

Writing a straddle

Which of the following option strategies has the greatest risk?

Writing an uncovered call