CH 15 INV

The value of a listed call option is lower when

-The exercise price is higher -The contract approaches maturity -The stock decreases in value

Each listed stock option contract gives the holder the right to buy or sell ____ shares of stock

100

At contract maturity the value of a call option is ____, where X equals the options's strike price and St is the stock price at contract expiration

Max (0, St-X)

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)

The writer of a put option___

agrees to buy shares at a set price if the option holder desires

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 option gives the buyer the right to

buy the underlying asset at the exercise price only at the expiration date

European option

can only be exercised on the expiration date

NOT an advantage of exchange-traded option over an OTC option

contracts that are tailored to meet the needs of market participants

A writer of a call option will want the value of the underlying asset to _____, and a buyer of a put option will want the value of the underlying asset to ____

decrease, decrease

The initial maturities of most exchange-traded options are generally

less than 1 year

an American style option will be ___ valuable than a ___ style option

more, European

a covered call strategy benefits from what environment

price stability

You invest in the stock of Valleyview Corp. and purchase a put option on Valleyview Corp. This strategy is called a

protective put

A futures call option provides its holder with the right to ___

purchase a futures contract at a specified price for a specified period of time

An American put option gives its holder the right to____

sell the underlying asset at the exercise price on or before the expiration date

A time spread may be executed by

selling an option with one expiration date and buying a similar option with a different expiration date

The value of a listed put option is lower when

the contract approaches maturity

The Option Clearing Corporation is owned by

the exchanges on which stock options are traded

call premium

the maximum loss of a buyer of a stock option can suffer

writing an uncovered put option

the most risky transaction to undertake in the stock-index option markets if the stock market is expected to fall substantially after the transaction is completed

The potential loss for a writer of a naked call option on a stock is ___

unlimited