Weekly Quiz 6

An investor writes an uncovered RST May 25 put for a premium of 4. At what market price will the investor break even?

$21

A customer buys an IBM call option and pays a 2.50 point premium. The aggregate dollar amount paid is:

$250.00

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

Which of the following statements is TRUE regarding stock index options?

An exercise is settled by cash instead of the delivery of securities

An investor sold 5 JOJO April 70 calls for a premium of 6 points each. If the market price of JOJO is $74 these options have:

An intrinsic value of 4 and a time value of 2

What's the market outlook for the buyers of put options?

Bearish

Which of the following is the best hedge for a long stock position?

Buying a put

An index option has been exercised. What is the writer of the option required to do to satisfy his obligation?

Deposit cash equal to the difference in the strike price and the value of the index.

Which term is used to describe the price at which a call owner can buy a stock?

Exercise price

In which of the following types of accounts can an uncovered call writing strategy be executed?

Margin

When an option contract is exercised, the writer:

Must fulfill the obligation to buy or sell the underlying instrument

Which of the following derivatives are issued and guaranteed by the OCC?

Options

Which central clearinghouse has to reach a settlement with the Commodity Future Trading Commission and the SEC to strengthen its standard policy?

Options Clearing Corp.

The current market value of a stock is below the strike price of a call option. This situation is referred to as:

Out-of-the-money

An investor has written 3 XYZ May 40 calls. Which of the following is correct?

She must deliver 300 shares if exercised against.

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

Short a call

A covered call writer can be described as being:

Short the call, and long the stock

If an equity option is exercised, when does the stock transaction settle?

T + 2

Which of the following is TRUE for the writers (sellers) of call options?

They have the obligation to sell 100 shares of stock.

Which of the following is TRUE for the buyers of call options?

They have the right to buy 100 shares of stock.

Which of the following is TRUE for the buyers of put options?

They have the right to sell 100 shares of stock.