futures exam 2
Consider two two-month put options with strike prices of $35 and $40 per share and premiums of $4 and $6 per share, respectively. What is the maximum loss per share when a bear spread is created from the puts?
$-2
A stock price (which pays no dividends) is $50 and the strike price of a two year European put option is $54. The risk-free rate is 3% (continuously compounded). Which of the following is a lower bound for the option such that there are arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is above the lower bound?
$0.86
If you sell a call option with a strike price of $50 per share and a premium of $2 per share, what is your profit/loss per share if the stock price is $48 per share?
$2 gain
The price of a European call option on a non-dividend-paying stock with a strike price of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year. What is the price of a one-year European put option on the stock with a strike price of $50?
$2.09
Consider six-month call options with strike prices of $35 and $40 per share and premiums of $6 and $4 per share, respectively. What is the maximum gain per share when a bull spread is created from the calls?
$3
The price of a European call option on a stock with a strike price of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year. A dividend of $1 is expected in six months. What is the price of a one- year European put option on the stock with a strike price of $50?
$3.06
Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 2 options?
$300
The price of a stock, which pays no dividends, is $30 and the strike price of a one year European call option on the stock is $25. The risk-free rate is 4% (continuously compounded). Which of the following is a lower bound for the option such that there are arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is above the lower bound?
$5.98
A speculator can choose between buying 100 shares of a stock for $40 per share and buying 10 European call options on the stock with a strike price of $45 for $4 per option. For second alternative to give a better outcome at the option maturity, the stock price must be above
$50
an option buyer can:
- exercise the option - sell the option - let the option expire
Consider six-month call options with strike prices of $35 and $40 per share and premiums of $6 and $4 per share, respectively. What is the maximum loss per share when a bull spread is created from the calls?
-$2
which of the following is correct?
A calendar spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different
Which of the following describes a protective put?
A) A long put option on a stock plus a long position in the stock
Which of the following describes a call option?
A) The right to buy an asset for a certain price
Which of the following best describes the intrinsic value of an option?
A) The value it would have if the owner were forced to exercise immediately
Which of the following is true?
An American call option on a stock should never be exercised early when no dividends are expected
Which of the following can be used to create a long position in a European put option on a stock?
B) Buy a call on the stock and short the stock
Which of the following creates a bear spread?
B) Buy a high strike price call and sell a low strike price call
A call option is out-of-the money when
B) Stock price is less than strike price
Which of the following describes a put option?
C) The right to sell an asset for a certain price
A call option is called in-the money when
C) stock price is greater than strike price
Which of the following describes a short position in an option?
D) A position where an option has been sold
Which of the following describes a covered call?
D) A short call option on a stock plus a long position in the stock
An investor has exchange-traded put options to sell 100 shares for $20. There is 25% stock dividend. Which of the following is the position of the investor after the stock dividend?
D) Put options to sell 125 shares for $16
When the strike price increases with all else remaining the same, which of the following is true?
D) Puts increase in value while calls decrease in value
The price of a stock is $64. A trader buys 1 put option contract on the stock with a strike price of $60 when the option price is $10. When does the trader make a profit?
D) When the stock price is below $50
An individual paid 20 cents for a March $5.50 call when the underlying stock price was $5.60. The option was:
In-the-money
The price of a stock on February 1 is $84. A trader buys 200 put options on the stock with a strike price of $90 when the option price is $10. The options are exercised when the stock price is $85. The trader's net profit or loss is
Loss of $1,000
An investor has a put option contract to sell 100 shares for $60. There is a 5-for-2 stock split. Which of the following is the position of the investor after the stock split?
Put option to sell 250 shares for $24 per share
Which of the following is true for American options?
Put-call parity provides an upper and lower bound for the difference between call and put prices
Which of the following is true when dividends are expected?
The basic put-call parity formula can be adjusted by subtracting the present value of expected dividends from the stock price
A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result, the price of the call changes to $4.50. Which of the following is correct?
The put price increases to $5.50
every option transaction involves:
a buyer and a seller
An option will be exercised only when it is
in-the-money
Interest rates are zero. A European call with a strike price of $50 and a maturity of one year is worth $6. A European put with a strike price of $50 and a maturity of one year is worth $7. The current stock price is $49. Which of the following is true? A) The call price is high relative to the put price B) The put price is high relative to the call price C) Both the call and put must be mispriced D) None of the above
none of the above
which of the following is true? A) A long call is the same as a short put B) A short call is the same as a long put C) A call on a stock plus a stock the same as a put D) None of the above
none of the above
A $5.60 call option is purchased; to offset it, the buyer would:
sell a $5.60 call
The difference between an option's premium and its intrinsic value is:
time value
If you sell a call option and receive a premium of $3 per share, what's the most you can lose?
your potential loss is unlimited
