Fin Ch 15

6. Which one of the following is defined as an option that can only be exercised at expiration? A. European style option B. in-the-money option C. out-of-the-money option D. American style option E. derivative option

A

3. By definition, a put option grants its owner which one of the following? A. right to buy B. obligation to buy C. right to sell D. obligation to sell E. choice to either buy or sell

C

32. What is the maximum percentage loss you can incur if you buy a put option? A. 0% B. 10% C. 100% D. 1,000% E. unlimited percentage

C

37. Which one of the following statements is true? A. A call with a strike price of $25 and a stock price of $23 has positive intrinsic value. B. A European style option is more valuable than an American style option. C. An American style out-of-the-money call option can have a positive value. D. A $40 put option has more intrinsic value than a $50 put option on the same underlying asset. E. The time value of an option is equal to the intrinsic value minus the option premium.

C

4. Which one of the following is defined as the price at which an option will be exercised? A. straddle B. spread C. strike D. market E. underlying

C

43. Which one of the following is the primary purpose of a protective put? A. profit from an expected future increase in the underlying stock's value B. guarantee a higher return than is possible from just owning the underlying security C. offset the risk associated with a decrease in the value of the underlying asset D. receipt of the option premium E. increase in potential rate of return due to increase in risk

C

45. You wrote a covered call with a strike price of $45 and an option premium of $1.10. Assume the stock price is $44 a share currently and that it falls to $42 a share and remains at that price until the option expires. As a result, you will: A. lose an amount equal to the option premium. B. lose the option premium but get to keep the stock. C. keep both your stock and the option premium. D. keep the option premium but lose your shares of stock. E. lose both your stock and the option premium.

C

48. Which one of the following is a bear call spread? A. buying a $20 call and selling a $25 call on the same stock B. selling a $20 call and buying a $20 call on the same stock C. buying a $20 call and selling a $15 call on the same stock D. selling a $20 call and buying a $25 put E. buying a $20 call and selling a $25 put

C

50. A short straddle: A. involves exercising two or more options simultaneously. B. is the purchase of both a put and a call on the same underlying asset. C. obtains its maximum profit when the underlying stock price is equal to the strike price. D. involves writing a call on shares of stock you currently own. E. is a highly bullish strategy.

C

7. A list of available option contracts and their prices for a particular security listed in order of strike price and maturity date is referred to as which one of the following? A. value chain B. intrinsic list C. option chain D. strike list E. exercise price display

C

54. Which one of the following values is discounted in the put-call parity formula? A. call price B. put price C. stock price D. strike price E. option premium

D

8. Which one of the following guarantees that the terms of an exchange-listed option contract are fulfilled when an option is exercised? A. Securities and Exchange Commission B. Federal Reserve C. New York Options Exchange D. Options Clearing Corporation E. Securities Investors Protection Corporation

D

9. By definition, stock index options would include an option on which one of the following underlying assets? A. gold B. corn C. U.S. dollar D. S&P 500 E. U.S. Treasury bill

D

33. Which one of the following statements is correct? A. Reduced Value index options are equal in size to one percent of the standard index option. B. The holder of a stock index put option is betting that the underlying index will increase in value. C. Most index options are traded on the New York Options Exchange. D. The contract size for a call option on the S&P 500 is 10 times the index. E. Some stock index options close in the morning while others close at the end of the trading day.

E

36. Which one of the following options is out-of-the-money? A. call with a $20 strike and a stock price of $21 B. put with a $35 strike and a stock price of $33 C. call with a $45 strike and stock price of $46 D. put with a $75 strike and a stock price of $70 E. call with a $50 strike and a stock price of $49

E

38. A decrease in which one of the following will increase the intrinsic value of a put option? A. strike price B. exercise price C. option premium D. time value E. underlying stock price

E

40. You bought a put with a strike price of $25. The current stock price is $23. What is the current payoff value of this option? A. -$2 B. -$1 C. $0 D. $1 E. $2

E

42. The maximum: A. profit from buying a put is the stock price. B. loss from writing a put is the option premium. C. profit from writing a call is the strike price. D. loss from buying a call is $0. E. profit from writing a put is the option premium.

E

44. You own 300 shares of ABC stock. Which one of the following would allow you to receive an option premium in exchange for selling your shares in ABC at the strike price? A. straddle B. long spread C. selling a put D. buying a call E. writing a covered call

E

49. Anna bought a $40 April call and a $40 April put on the same underlying stock. This strategy is referred to as which one of the following? A. bull spread B. bear spread C. parity play D. short straddle E. long straddle

E

11. Which one of the following terms is defined as an option that would have a positive payoff if exercised now? A. in-the-money option B. out-of-the-money option C. straddle D. crossed option E. cash-settled

A

19. Selling a call option on stock which you own is referred to as which one of the following strategies? A. covered call B. naked call C. protective put D. underlying put E. straddle

A

2. A call option grants its owner which one of the following? A. right to buy B. obligation to buy C. right to sell D. obligation to sell E. choice to either buy or sell

A

20. Kris implemented an option trading strategy consisting of two call options. This strategy is known as which one of the following? A. spread B. straddle C. split D. combination E. counteraction

A

31. Which of the following issue exchange-listed option contracts? I. CBOE II. SEC III. OCC IV. NASDAQ A. III only B. IV only C. I and III only D. II and IV only E. I, II, and III only

A

41. The maximum option payoff from: A. writing a put is $0. B. buying a put is $0. C. writing a call is an unlimited profit. D. buying a call is the strike price. E. writing a call is the stock price.

A

47. Which one of the following is a bull call spread? A. buying a $20 call and selling a $25 call on the same stock B. selling a $20 call and buying a $25 call on the same stock C. buying a $20 call and selling a $15 call on the same stock D. selling a $20 call and buying a $25 put E. buying a $20 call and selling a $25 put

A

15. Which one of the following refers to selling an option contract? A. calling B. writing C. exercising D. striking E. spotting

B

16. Which of the following has the obligation to sell a stock at the strike price when an option is exercised? A. call holder B. call writer C. put holder D. put writer E. call holder and put writer

B

39. You wrote a $40 call option on a stock that has a market price of $43. Which one of the following statements must be correct if the option expires three months from now? A. Your option currently has zero intrinsic value. B. Your option currently has a negative payoff. C. You have the right to purchase shares at $40 a share. D. Your option payoff will increase if the market price of the stock increases. E. If the market price remains stable, you will make the decision to exercise this option prior to expiration.

B

46. Which one of the following applies to a naked call? A. unlimited potential profits B. unlimited potential losses C. sale of a put on a stock you do not own D. sale of a call on a stock you currently own E. purchase of a call on a stock you do not own

B

1. The value of an option is dependent upon the value of the underlying security. This relationship defines an option as which one of the following? A. equity security B. fixed income security C. derivative security D. transfer security E. dependent security

C

14. Which one of the following is equal to the option premium minus the intrinsic value? A. parity value B. payoff value C. time value D. strike value E. profit

C

18. You currently own 300 shares of Microsoft stock. If you purchase options on this stock to protect against future declines in the price of the stock you are implementing which one of the following? A. covered call B. naked call C. protective put D. bear spread E. straddle

C

23. Louise just purchased 3 call option contracts on GE stock. How many shares of stock can she buy at the strike price based on these contracts? A. 3 B. 30 C. 300 D. 30,000 E. 300,000

C

10. A cash-settled option is defined as an option which does which one of the following? A. requires a cash deposit upon purchase B. has a foreign currency as its underlying asset C. has the U.S. dollar at its underlying asset D. entails a cash payment to the holder upon exercise E. offers the option to either deliver the underlying asset or a cash payment

D

12. An option that would NOT yield a positive payoff if exercised today is referred to by which one of the following terms? A. hollow option B. zero option C. in-the-cellar option D. out-of-the-money option E. strike-out

D

17. Which of the following has the obligation to purchase stock at the strike price when an option is exercised? A. call holder B. call writer C. put holder D. put writer E. call writer and put holder

D

21. An option trading strategy that utilizes both put and call options is referred to as which one of the following? A. bull call spread B. butterfly spread C. split D. combination E. counteraction

D

34. Which one of the following options is in-the-money? A. call with a $45 strike and an underlying stock price of $42 B. put with a $35 strike and an underlying stock price of $36 C. call with a $15 strike and an underlying stock price of $15 D. put with a $45 strike and an underlying stock price of $42 E. call with a $30 strike and an underlying stock price of $29

D

35. Which one of the following combinations creates an in-the-money option? A. underlying stock price is less than the strike price of a call B. underlying stock price is $18 and the put has an exercise price of $15 C. underlying stock price is $22 and the call has an exercise price of $25 D. put strike price exceeds the underlying stock price E. put price is equal to the call price

D

5. Which one of the following distinguishes an option as an American style option? A. option that grants its holder the right to purchase at the strike price B. option that grants its holder the right to sell at the strike price C. option that obligates its holder to sell at the strike price D. option that can be exercised at any time prior to expiration E. option that can only be exercised at expiration

D

13. Which one of the following terms is defined as the payoff that would be received if an option were expiring immediately? A. parity price B. market price C. time value D. underlying value E. intrinsic value

E

22. Consider both a European put and call that expire in June and have a strike price of $30. The no-arbitrage relationship between this put and call is referred to as which one of the following? A. intrinsic equilibrium B. Euro-match C. bull-call spread D. butterfly spread E. put-call parity

E