FIN 42223 Exam 3
Suppose you purchase one Texas Instruments call contract with anexercise price of $75 quoted at $8.50 and write (sell) one Texas Instruments call contract with an exercise price of $80 quoated at $6 with the same expiration date. if, at expiration , the price of a share of Texas Instruments stock is $79, your profit would be__________.[You simple calcualte profit from each of the two positions and add those together.]
$1.5
You purchase one IBM call contract with an exercise price of $125 for a premium of $5. you hold the option until the expiration date when IBM stock sells for $123 per share. You will realize a_______on the investment.
$5 loss
The writer of a put option________.
Agrees to buy shares at a set price if the option holder desires
Alll else the same, an____style option will be_______valuable than a______style option.
American, more, European
When will futures price and spot price converge?
At maturity
A writer of a call option will want the value of the unerlying asset to_______, and a buyer of a put option will want the value of the underlying asset to_______.
Decrease; decrease
In the futures market the short position's loss is_______the long position's gain.
Equal to
_________option can only be exercised on the expiration date.
European
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
A person with a long position in a commodity futures contract wants the price of the commodity to______.
Increase substantially
If you combine a long stock position with buying a put option the resulting net profile will resemble the payoff profile of a__________.
Long call
What combination of puts and calls can simulate a long stock investment
Long call and short put
If an asset price declines, the investor with a______is exposed to the largest potential loss.
Long furtures contract
If an asset price declines, the investor with a_______is exposed to the largest potential loss.
Long futures contract
Which of the following phrases is used to describe an option where immediate exercise results in a negative payoff?
Out-of-the-money
What strategy could be considered insurance for an investment in a portfolio of stocks?
Protective put
A put option enables its buyer the right to _________the unerlying asset at the exercise price on or before the expiration datae.
Sell
A European put option gives its holder the right to________.
Sell the underlying asset at the exercise price only at the expiration date.
An American put options gives its hodlers the right to________.
Sell the underlying assets a tthe exercise price on or before the expiration date.
All of the positions listed will benefit from a price decline, except:
Short put
If you combine a lon stock position with selling an at the money call option the resulting net payoff proflie will resembel the payoff proflile of a _________.
Short put
Which of the following correctly provides the profit to a long position at contract maturity?
Sport price at maturity-Original futrues price
What is the driving force behind the convergence between futures price and spot price?
arbitrage
At expiration of an option contract, which phrase describes the point at which both call and puts have the same gross profit?
at the money
A call option enables its buye rthe right to_________-the underlying asset at the exercise price on or before he expiration date.
buy
An American call option gives the buyer the right to_________.
buy the underlying asset at the exercise price on or before the expiration date.
A European call options gives the buyer the right to ________.
buy the underlying asset at the exercise price only at the expiration date
The maximum loss a buyer of a stock call option can suffer is the_________.
call premium
As compared with a single options listing (options listed only on one options exchange), multiple options lisitng (options listed on multiple options exchanges a tthe same time) are associated with_______market quality.
improved
A call option on Brocklehurst Corp. has an exercise price of $30. the current stock price of Brocklehurst Corp. is $32. The call otpion is_____.
in the money
which type of signalis protective put supposed to capture or address?
increasing price signal from the underlying market
At contract maturity the value of a put option is _________, where X equals the option's strike price and ST is the stock price at contract expiration.
max (0, X-ST)
You pruchase a call option on a stock. The profit at contract maturity of the option position is________, where X equals the option's strike price, ST is the stock price at contrac expiration, and Co is the original purchase price of the option.
max(-Co,ST-X-Co)
At contract maturity the value of a call option is __________, where X equals the option's strike price and ST is the stock price at contract expiration.
max(0,ST-X)
You write a put option on a stock. the profit at contract maturity of the option position is__________, where X equals the option's strike price, ST is the stock price at contract expiration, and P0 is the original premium of the put option.
min (P0,ST-X+P0)
You invest in the stock of Valleyview Corp, and purchase a put option on ValleyView Corp. The strategy is called a
protective put
What is the purpose of hedging?
to minimize risk exposure
Current non-dividend paying stock price is $50, and ther is one period to go. Stock price wil either go up to $75 or go down to $25 and the exercise price of the call option on the stock is $50. One period borrowng and lending rate is 10%.What is the vlaue of the option today?
13.64
Current non-dividend paying stock price is $50, and there is one period to go. Stock price will either go up to $75 or go down to $25 and the exercise price of the put option on the stock is $50. One period borrowing and lending rate is 10%. What is the value of the option today?
9.09
A long hedge is a simultaneous_______position in the spot market and a______postiion in the futures market.
short; long