Options Markets

13. An American put option can be exercised A. any time on or before the expiration date. B. only on the expiration date. C. any time in the indefinite future. D. only after dividends are paid. E. None of the options

A. any time on or before the expiration date.

14. An American call option can be exercised A. any time on or before the expiration date. B. only on the expiration date. C. any time in the indefinite future. D. only after dividends are paid. E. None of the options

A. any time on or before the expiration date.

4. The price that the writer of a put option receives to sell the option is called the A. premium. B. exercise price. C. execution price. D. acquisition price. E. strike price.

A. premium.

28. A put option on a stock is said to be in the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

A. the exercise price is higher than the stock price.

30. A call option on a stock is said to be out of the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

A. the exercise price is higher than the stock price.

81. You buy one Home Depot June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3. Your strategy is called A. a short straddle. B. a long straddle. C. a horizontal straddle. D. a covered call. E. None of the options

B. a long straddle.

19. All else equal, call option values are higher A. in the month of May. B. for low dividend payout policies. C. for high dividend payout policies. D. in the month of May and for low dividend payout policies. E. in the month of May and for high dividend payout policies.

B. for low dividend payout policies.

99. To the option holder, put options are worth ______ when the exercise price is higher; call options are worth ______ when the exercise price is higher. A. more; more B. more; less C. less; more D. less; less E. It doesn't matter—they are too risky to be included in a reasonable person's portfolio.

B. more; less

15. A European call option can be exercised A. any time in the future. B. only on the expiration date. C. if the price of the underlying asset declines below the exercise price. D. immediately after dividends are paid.

B. only on the expiration date.

16. A European put option can be exercised A. any time in the future. B. only on the expiration date. C. if the price of the underlying asset declines below the exercise price. D. immediately after dividends are paid.

B. only on the expiration date.

11. An American put option allows the holder to A. buy the underlying asset at the striking price on or before the expiration date. B. sell the underlying asset at the striking price on or before the expiration date. C. potentially benefit from a stock price increase. D. sell the underlying asset at the striking price on or before the expiration date and potentially benefit from a stock price increase. E. buy the underlying asset at the striking price on or before the expiration date and potentially benefit from a stock price increase.

B. sell the underlying asset at the striking price on or before the expiration date.

66. Before expiration, the time value of a call option is equal to A. zero. B. the actual call price minus the intrinsic value of the call. C. the intrinsic value of the call. D. the actual call price plus the intrinsic value of the call.

B. the actual call price minus the intrinsic value of the call.

27. A put option on a stock is said to be out of the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

B. the exercise price is less than the stock price.

31. A call option on a stock is said to be in the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

B. the exercise price is less than the stock price.

64. You purchased one AT&T March 50 call and sold one AT&T March 55 call. Your strategy is known as A. a long straddle. B. a horizontal spread. C. a money spread. D. a short straddle. E. None of the options

C. a money spread.

91. A callable bond should be priced the same as A. a convertible bond. B. a straight bond plus a put option. C. a straight bond plus a call option. D. a straight bond plus warrants. E. a straight bond.

C. a straight bond plus a call option.

65. You purchased one AT&T March 50 put and sold one AT&T April 50 put. Your strategy is known as A. a vertical spread. B. a straddle. C. a time spread. D. a collar.

C. a time spread.

56. Buyers of call options __________ required to post margin deposits and sellers of put options __________ required to post margin deposits. A. are; are not B. are; are C. are not; are D. are not; are not E. are always; are sometimes

C. are not; are

98. An option with an exercise price equal to the underlying asset's price is A. worthless. B. in the money. C. at the money. D. out of the money. E. theoretically impossible.

C. at the money.

18. All else equal, call option values are lower A. in the month of May. B. for low dividend payout policies. C. for high dividend payout policies. D. in the month of May and for low dividend payout policies. E. in the month of May and for high dividend payout policies.

C. for high dividend payout policies.

47. The maximum loss a buyer of a stock call option can suffer is equal to A. the striking price minus the stock price. B. the stock price minus the value of the call. C. the call premium. D. the stock price. E. None of the options

C. the call premium.

29. A put option on a stock is said to be at the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

C. the exercise price is equal to the stock price.

32. A call option on a stock is said to be at the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

C. the exercise price is equal to the stock price.

48. The maximum loss a buyer of a stock put option can suffer is equal to A. the striking price minus the stock price. B. the stock price minus the value of the call. C. the put premium. D. the stock price. E. None of the options

C. the put premium.

57. Buyers of put options anticipate the value of the underlying asset will __________ and sellers of call options anticipate the value of the underlying asset will ________. A. increase; increase B. decrease; increase C. increase; decrease D. decrease; decrease E. Cannot tell without further information

D. decrease; decrease

86. Financial engineering A. is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security. B. primarily takes place for institutional investor. C. primarily takes places for the individual investor. D. is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security and primarily takes place for institutional investor. E. is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security and primarily takes places for the individual investor.

D. is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security and primarily takes place for institutional investor.

12. A European put option allows the holder to A. buy the underlying asset at the striking price on or before the expiration date. B. sell the underlying asset at the striking price on or before the expiration date. C. potentially benefit from a stock price increase. D. sell the underlying asset at the striking price on the expiration date. E. potentially benefit from a stock price increase and sell the underlying asset at the striking price on the expiration date.

D. sell the underlying asset at the striking price on the expiration date.

6. The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the A. strike price. B. exercise price. C. execution price. D. strike price or exercise price. E. strike price or execution price.

D. strike price or exercise price.

85. Some more "traditional" assets have optionlike features; some of these instruments include A. callable bonds. B. convertible bonds. C. warrants. D. callable bonds and convertible bonds. E. All of the options

E. All of the options

8. The price that the writer of a put option receives for the underlying asset if the option is exercised is called the A. strike price. B. exercise price. C. execution price. D. strike price or exercise price. E. None of the options

E. None of the options

9. An American call option allows the buyer to A. sell the underlying asset at the exercise price on or before the expiration date. B. buy the underlying asset at the exercise price on or before the expiration date. C. sell the option in the open market prior to expiration. D. sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. E. buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

E. buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

1. The price that the buyer of a call option pays to acquire the option is called the A. strike price. B. exercise price. C. execution price. D. acquisition price. E. premium.

E. premium.

2. The price that the writer of a call option receives to sell the option is called the A. strike price. B. exercise price. C. execution price. D. acquisition price. E. premium.

E. premium.

3. The price that the buyer of a put option pays to acquire the option is called the A. strike price. B. exercise price. C. execution price. D. acquisition price. E. premium.

E. premium.

10. A European call option allows the buyer to A. sell the underlying asset at the exercise price on the expiration date. B. buy the underlying asset at the exercise price on or before the expiration date. C. sell the option in the open market prior to expiration. D. buy the underlying asset at the exercise price on the expiration date. E. sell the option in the open market prior to expiration and buy the underlying asset at the exercise price on the expiration date.

E. sell the option in the open market prior to expiration and buy the underlying asset at the exercise price on the expiration date.

5. The price that the buyer of a call option pays for the underlying asset if she executes her option is called the A. strike price. B. exercise price. C. execution price. D. strike price or execution price. E. strike price or exercise price.

E. strike price or exercise price.

7. The price that the buyer of a put option receives for the underlying asset if she executes her option is called the A. strike price. B. exercise price. C. execution price. D. strike price or execution price. E. strike price or exercise price.

E. strike price or exercise price.