Eddie's Third Test
Suppose you purchase one Texas Instruments August 75 call contract quoted at $8.50 and write one Texas Instruments August 80 call contract quoted at $6. If, at expiration, the price of a share of Texas Instruments stock is $79, your profit would be _______
$150
You write one IBM July 120 call contract for a premium of $4. You hold the option until the expiration date when IBM stock sells for $121 per share. You will realize a____on the investment.
$300 Profit
A put on Sanders stock with a strike price of $35 is priced at $2 per share while a call with a strike price of $35 is priced at $3.50. The maximum per share loss to the writer of an uncovered put is __________ and the maximum per share gain to the writer of an uncovered call is _________
$33.00; $3.50
An investor purchases a call at a price of $2.50. The expiration price is $35.00. If the current stock price is $35.10, what is the break even point for the investor?
$37.50
A stock is trading at $50. You believe there is a 60% chance the price of the stock will increase by 10% over the next three months. You believe there is a 30% chance the stock will drop by 5% and you think there is only a 10% chance of a major drop in price of 20%. At the money 3 month puts are available at a cost of $650 per contract. What is the expected dollar profit for a writer of a naked put at the end of three months? _________.
$4.75
After one year, the exchange rate is unchanged and the share price is ₤55. What is the dollar-denominated return? _
10%
After one year, the exchange rate is unchanged and the share price is ₤55. What is the pound-denominated return? _
10%
How many shares can the investor purchase? _
100
After one year, the exchange rate is $1.60/₤ and the share price is ₤55. What is the dollar-denominated return? _
25.7%
After one year, the exchange rate is $1.50/₤ and the share price is ₤45. How much of your dollar-denominated return is due to the currency change?
6.43%
All else the same, an_____style option will be____valuable than a _____style option.
American/More/European
Models of financial markets that emphasize psychological factors affecting investor behavior are called _
Behavioral Finance
The maximum loss a buyer of a stock call option can suffer is the_______
Call Premium
What strategy is designed to ensure a value within the bounds of two different stock prices?
Collar
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
A put option on Snapple Beverage has an exercise price of $30. The current stock price of Snapple Beverage is $24.25. The put option is _________.
In the Money
You buy a call option and a put option on General Electric. Both the call option and the put option have the same exercise price and expiration date. This strategy is called a _________.
Long Straddle
You buy a call option on Merritt Corp. with an exercise price of $50 and an expiration date in July and write a call option on Merritt Corp. with an exercise price of $55 with an expiration date in July. This is called a ________
Money Spread
It appears from empirical work that exchange rate risk is _______.
Mostly Diversifiable
Which one of the following country risks refers to the possibility of expropriation of assets, changes in tax policy and the possibility of restrictions on foreign exchange transactions?
Political Risk
The value of a listed call option on a stock is lower when _______________.
The exercise price is higher The contract approaches maturity The stock decreases in value
The potential loss for a writer of a naked call option on a stock is _________.
Unlimited
Which of the following strategies makes a profit if the stock price stays stable?
Write Call and Write Put