Chapter 12 Mastery Progress Exam

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 When the underlying stock has a stock split or stock dividend, the option contract must be adjusted. For a stock dividend or an odd split, the number of contracts is kept constant while the number of shares per contract is increased. Therefore, Mrs. Holder will still have 10 contracts but the number of shares per contract is increased by 50% to 150.

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 IBM should be selling at $108 at expiration for the customer to break even. The customer will call away the stock at the $100 strike price, but receive stock worth $108, for an $8 profit. However, to create the spread, it cost the customer $8 ($12 to buy the October 100 call minus the $4 he received on the sale of the October 120 call). Therefore, when the stock is at $108, the customer will break even. The profit on exercising the option is offset by the cost of creating the spread position.

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 The writer of a covered call will have a breakeven point equal to the purchase price of the stock (116) less the premium received (5). Therefore, his breakeven point is $111 ($116 - $5 = $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 When a stock splits 2 for 1 (an even split), the number of contracts increases and the strike price is reduced proportionately. The number of shares representing each listed option remains at 100 shares. The customer will now have 2 calls for 100 shares each at the adjusted strike price of $15 or 2 AMF October 15 calls for 100 shares each of AMF. Listed options are adjusted for stock splits, stock dividends, and rights offerings, but are not adjusted for cash dividends.

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 The breakeven formula for call buyers is the strike price plus the premium. The strike price is 85 (0.8500) and the premium is .82 ($0.0082). Therefore, the spot rate for the Canadian dollar would need to be $0.8582 for Mr. Jones to break even.

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 British pound option premiums are quoted in cents per unit. To convert to dollars, the decimal point must be moved two places to the left. The total cost is calculated by multiplying the contract size (10,000) by the premium expressed in dollars ($0.0750), yielding $750.00 per contract. Since the individual purchased two contracts, the total cost is $1,500.00.

An individual purchased stock for $10,000 and has written calls against the stock over a two-year period. She received premiums totaling $1,500 in the first year and $2,000 in the second year, with all of the options expiring. What's her total cost basis on the stock after the second year?

$10,000 When covered calls expire (as in this question), the premium will be realized as a short-term capital gain and the cost basis for the stock will generally remain the same. If the options were closed out prior to expiration, the result is either a capital gain or loss based on the difference in premiums. If an option was exercised, the premium would be added to the option's strike price to determine the sales proceeds and the gain/loss would be either short-term or long-term based on how long the stock had been held prior to its sale. Keep in mind, to find the breakeven point on a covered call, the premium received is subtracted from the cost to purchase the stock.

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 The buyer of a call or put option pays a premium. The buyer paid $100 for the call, which is the maximum that can be lost.

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 Premiums for Australian dollar options are quoted in cents per unit. To express the premium in dollar terms, the decimal must be moved two places to the left. The total cost is the contract size (10,000) times the premium expressed in dollars (decimal moved two places to the left, $.0234), which equals $234. Since the contract was sold at 3.68 ($368), the profit is $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 This is a debit spread since the investor is paying more (4) for the purchased call than he receives (2) for the call that was written. The maximum loss for a debit spread is the amount of the debit. A simple way to look at a debit spread is to focus in on the buy side of the spread. This is the more valuable option contract and, therefore, defines the investment strategy. Approach the questions as if the investor purchased the 90 call at the net debit of 2 ($2,000 for 10 contracts). The maximum loss when purchasing an option is the premium (net premium).

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 This is a debit spread. The investor paid $200 more for the option purchased than he received for the option sold. If both options expire, he will lose the entire $200, which is his maximum potential loss.

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 The proceeds of the sale for tax purposes are $4,300 ($5,000 strike price minus the $700 premium paid for the option equals the proceeds of the sale). The cost basis of the stock purchased is $4,000. The customer's profit is then $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 If the stock became worthless, Mr. Jones could then buy 100 shares and put it (sell it) to the writer for the $50 per share strike price, which equals $5,000 ($50 x 100 shares = $5,000). Mr. Jones would then make a profit of $5,000 minus the $500 premium paid for the put, which would be $4,500. The $4,500 is the maximum profit Mr. Jones could have since the stock could go no lower than zero.

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 individual who sells short risks a loss if the price of the stock rises. If the price rises to $50 and the stock is bought in the open market to cover, the loss will be $1,000 minus the premium, for a net loss of $500. If the market price rises to 45, the loss of $500 is exactly matched by the premium income of $500 and the investor breaks even. The breakeven point for a short seller who writes a put is the market price of the short sale plus the premium.

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 An investor who places a market order will normally buy at the offer and sell at the bid. In this case, the investor sold 10 contracts at the bid price of $7.00, for sales proceeds of $7,000 (10 contracts x $700 per contract). To close out the position, the investor bought 10 contracts at the offer price of $6.55, for a total cost of $6,550 ($655 x 10 contracts). The $450 capital gain is based on the difference between the cost basis and sales proceeds.

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 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:

$500 capital gain

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 When the stock is put to the writer, he must buy the stock for $4,500. His cost basis for tax purposes is $4,100 ($4,500 strike price - $400 premium received). Since he sold the stock for $3,600, he has a net $500 loss ($4,100 - $3,600).

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 The strike price plus the premium equals the breakeven point for the buyer of a call. The breakeven point is $53 ($50 strike price + the $3 premium = $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 Since this is a position that involves a stock position PLUS an option position, using the phrase "call up and put down" will not work to calculate breakeven. For positions like this, the first step in determining the breakeven point is to calculate the investor's net investment amount. In this question, the investor paid out a total of $11,600 (200 shares x $58 per share), but received $200 in premium on the sale of the call. Therefore, the investor's net investment amount is $11,400. The second step is to recognize that since the investor has a 200 share position, the $11,400 must be divided by 200 to determine the breakeven point of $57. Theoretically, if ABC stock is trading at $57, the investor would lose 1-point per share for each 100 share position ($200 total loss); however, since the call option is out-of-the-money and expires worthless, the investor would keep the $200 premium. The $200 loss in the stock is offset by the $200 received in option premium and the investor will break even.

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 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

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

In May, a customer sells an STC July 40 listed call for a $6 premium and buys an STC July 30 listed call for $10. The customer has created which of the following?

A debit spread executed for a cost of $400 which will be profitable if the price of STC increases

Which of the following statements is TRUE regarding spreads?

A put spread created for a net debit is bearish

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 transactions is:

A short-term capital gain of $800

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 Since the question does not say that the investor sold the stock after exercising the call, it is not possible to calculate a profit or loss. The investor exercised the call and, therefore, purchased 100 shares of stock at a cost of 48 (45 strike price + 3 premium).

An individual purchased an index call option that's now in-the-money. If exercised, the investor will receive:

Cash in an amount equal to the in-the-money amount

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 individual expects the market price of XYZ to increase. Which TWO of the following choices support his market sentiment? I. Buy XYZ call options II. Write uncovered XYZ call options III. Buy XYZ put options IV. Write uncovered XYZ put options

I and IV

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? I. Buying narrow-based index calls II. Buying narrow-based index puts III. Buying broad-based index calls IV. Buying broad-based index puts

I and IV

Which TWO of the following statements are TRUE regarding the buyer and writer of a combination? I. The buyer of a combination expects the market to be volatile II. The writer of a combination expects the market to be volatile III. The buyer of a combination expects the market to remain stable IV. The writer of a combination expects the market to remain stable

I and IV

An investor will be in a position to acquire stock under which TWO of the following circumstances? I. The investor buys a call II. The investor buys a put III. The investor sells a call IV. The investor sells a put

I and IV An investor who buys a call and exercises the call will acquire 100 shares of stock. An investor who sells a put that is exercised against him will also acquire 100 shares of stock.

A customer buys 10 ABC January 50 calls paying a $3 premium and 10 ABC January 50 puts also paying a $3 premium when the market price of the stock is $49 per share. The buyer's TWO breakeven points are: I. $44 II. $47 III. $53 IV. $56

I and IV The customer has the right to call the stock at $50. The customer paid a $600 premium per straddle. The breakeven point on the call is determined by adding the $50 strike price to the premium of $6. This equals a breakeven of $56. The customer also has the right to sell the stock to the writer at $50, but has paid a $600 premium. The breakeven point on the put would be six points below the strike price of $50, which equals $44. The buyer's breakeven points, therefore, will be $44 and $56.

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

II and III

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

When an option contract is exercised, the writer:

Must fulfill the obligation to buy or sell the underlying instrument

The VIX (volatility index) is based on the:

S&P 500 Index

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 The investor will take in additional income by selling a call option. If the investor sells puts, she is obligated to purchase XYZ stock if the price falls. The most effective means of reducing the price of a stock purchase is to write a covered call.

Logan has the following position in his account. Long 1 DEF May 35 call. Logan 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 By selling (short) 1 DEF May 45 call, Logan will generate income through the premium received and reduce the overall cost of the position. While the short call allows the owner to purchase DEF from him at $45 per share until it expires in May, Logan is long a DEF call that allows him to purchase the same stock at $35 per share until May. Logan has established a debit call spread. Had Logan added 1 short DEF May 25 call, he may have been required to sell DEF at $25 per share with the risk it would have cost him $35 per share to purchase DEF. If he added either of the short puts, he may have been required to purchase DEF at $25 or $45 per share without a right to dispose of it.

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

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 The terms covered or uncovered (naked) refer only to the seller (writer) of an option (also known as being short the option). If the seller of an option can fulfill the obligation of the contract without additional risk, he is considered covered. For example, the seller of a put option is obligated to purchase stock if the put option is exercised against the writer. If the customer is short the stock and the put is exercised, the seller of the put option would buy the stock to cover or close out the short stock position. A call option writer is covered if he is long or owns the stock since, if the call is exercised, the seller of the call would be able to deliver the stock he is long.

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 This is an example of a credit spread (more premium received for the option sold than paid for the option purchased). In a credit spread, the investor will profit if the spread (difference in premium) narrows.

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

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 XYZ shares could possibly become worthless. The investor can then buy 100 shares for pennies and put (sell) it to the writer for the $40 per share strike price. This equals $4,000 ($40 x 100 shares). The investors' profit is $4,000 minus the $300 premium paid for the put, which equals $3,700. The $3,700 is the maximum profit the investor can have since the share's price cannot go lower than zero.

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 The writer of a put calculates his breakeven point by deducting the $3 premium from the $35 exercise price. The writer, therefore, breaks even at $32. The breakeven point is a per-share price. The fact that the investor writes 5 contracts is not relevant.

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 Intrinsic value is defined as the in-the-money amount of the contract. A foreign currency put option is in-the-money when the spot price is less than the strike price. Since the spot price (157) is less than the strike price (160), the contract is in-the-money by 3 points.

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

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 put will have intrinsic value, also known as being in-the-money, when the market price of the underlying security is less than the strike price. In this example, the option gains intrinsic value below $45.

An investor shorted stock at $55 and the stock is now trading at $30. It's currently March and the investor is concerned that the stock may rise over the next six months and then decline again thereafter. What should the investor do?

Buy an October 30 call

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

Closing purchase

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

Deliver cash Settlement on an index option contract is made in cash. The writer must pay the contract's in-the-money amount times $100.

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

Have no effect on his holding period

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

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

Maximum risk

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

Neutral

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

Short a call

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

A client with an options account takes the following position: Long GHI Nov 65 puts and Short GHI Nov 55 puts. Which of the following statements is TRUE regarding this position?

This position will be profitable if the market price of the security declines.

Which of the following option strategies has the greatest risk?

Writing an uncovered call

Ms. Green buys 300 shares of RSW at $15 per share. She then writes 3 RSW July 20 calls at 1 and writes 3 RSW July 10 puts at 50 cents. Ms. Green's maximum potential loss on the entire position is:

$7,050 This is a tricky and involved question in which Ms. Green has written three covered calls and three uncovered puts. In both cases, the maximum loss occurs if the underlying stock (RSW) becomes worthless. If the market price of RSW is zero, the three covered calls will result in a $4,200 loss (300 shares x $15 purchase price minus the $300 premium received). The three uncovered puts will be exercised if the stock declines to zero, which is the worst case scenario. The maximum loss on an uncovered put is the total or aggregate value of the option less the premium received. The aggregate strike price of $3,000 ($10 x 100 shares x 3 contracts) minus the premium of $150 ($.50 x 100 shares x 3 contracts) equals $2,850. Therefore, the total loss is $7,050 ($4,200 + $2,850). A popular answer is a loss of $4,050 (the $4,200 loss - $150 premium received); however, this answer disregards the investor being exercised against on the short puts. Also, students often arrive at a loss of $4,950 by adding the cost of the stock ($4,500), plus the premium received from the sale of the calls ($300), plus the premium received from the sale of the puts ($150). Keep in mind, when an investor is long stock, losses will be realized by the stock declining in value. The answer of $7,050 was determined by assuming that the stock becomes worthless.

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 Mr. Smith will not exercise the call options. At expiration, the market price of XYZ is $67, which is less than the exercise price. Therefore, the options expire worthless. Mr. Smith loses $800 ($400 per contract times 2), the entire amount of the premium paid.

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

36 The purchase of a call will provide protection against a price increase in the short stock. If the stock price increases, the holder can exercise the call and buy the stock at the strike price. This limits Mr. Smith's loss. The breakeven is the short sale proceeds minus the premium paid for the call. This would equal 36 (39 - 3). If the stock price declines to 36, the 3-point profit on the short sale will be offset by the 3-point loss on the expiring call.

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 If an investor is long stock and long a put, he will have a profit if the market price exceeds the cost of his stock plus the premium for the option. The stock must trade above 37 (35 cost + 2 premium).

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 Buying two calls with different strike prices is a bullish strategy. In this example, since one of the strike prices is higher and out-of-the-money, it is less expensive than buying two calls with the same strike price. The total cost of the XYZ options is 6. The 40 call would be exercised first, resulting in a total cost of 46 (40 + 6). This is the amount at which the individual would need to sell XYZ stock to break even. If the market price of the stock is trading at any other value, the client would either have a profit or loss. For example, if the market price at expiration is $52, the client will have a $1,200 gain on the 40 call (52 - 40) and a $200 gain on the 50 call (52 - 50). The total gain of $1,400 less the combined $600 premium equals an $800 profit.

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

Use the following calendar to answer this question. August S M T W T F S 12345678910111213141516171819202122232425262728293031 An exercise notice for an August European-style stock index option may be entered on:

August 21 European style options may be exercised only on the day the contract expires—the expiration date. The expiration date for standardized option contracts, including European-style options, is the third Friday of the expiration month. In this question, an exercise notice for the August option may be entered on Friday, August 21.

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

A client has established the following position: Long 1 DEF May 50 call at 2 Short 1 DEF May 40 call at 6 In which of the following situations will the client have the maximum potential profit?

If both options contracts expired unexercised

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

Option contracts have an infinite life.

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

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

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

Which of the following positions/strategies is NOT bullish?

Writing a straddle