OPTIONS: QUIZ

A customer sells 1 ABC Jan 60 Call @ $5 and buys 1 ABC Jan 70 Call @ $1 when the market price of ABC is $62. The maximum potential gain is: A. $400 B. $600 C. $1,000 D. unlimited

A. $400 If the market falls below $60, the calls will expire "out the money" and the customer will keep the credit of $4 points or $400. This is the maximum potential gain.

A customer buys 1 Swiss Franc October 90 Call @ 6 when the Franc is trading at 95. The contract is: A. trading at parity B. "in the money" C. "out the money" D. "at the money"

B. "in the money"

A customer buys 100 shares of XYZ at $74 and buys 1 XYZ Jan 75 Put @ $6. Just prior to expiration, the stock is trading at $72. The customer closes the option position at a premium of $2. One week later, the stock moves to $79 and the customer sells the stock position in the market. The net gain or loss on all transactions is: A. $100 loss B. $100 gain C. $200 gain D. $600 loss

B. $100 gain

On the same day a customer buys 100 shares of ABC stock at $30 and sells 1 ABC Jan 30 Call @ $3 and sells 1 ABC Jan 30 Put @ $2. The maximum potential gain is: A. $500 B. $2,500 C. $5,500 D. Unlimited

A. $500

On the same day in a margin account, a customer buys 1 ABC Jan 55 Put @ $5 and sells 1 ABC Jan 70 Put @ $12 when the market price of ABC is $67. The maximum potential gain is: A. $700 B. $800 C. $1,000 D. $1,200

A. $700

A client with a high risk tolerance anticipates that the market will remain flat for the next 3 months. Which position would produce the maximum profit for this client? A. Short Straddle B. Long Strangle C. Short Stock D. Long Stock

A. Short Straddle

The market sentiment of a customer who purchases a "call spread" is: A. bullish B. bearish C. neutral D. volatile

A. bullish

On the same day a customer buys 100 shares of ABC stock at $30 and sells 1 ABC Jan 30 Call @ $3 and sells 1 ABC Jan 30 Put @ $2. This strategy is known as a: A. covered straddle B. covered call writer C. ratio write D. butterfly spread

A. covered straddle

All of the following statements are true about LEAPs EXCEPT contracts: A. have maximum expirations of 4 months B. are available on individual equity securities C. are available on indexes D. have a multiplier of 100

A. have maximum expirations of 4 months

A customer buys 200 shares of ABC at $68 and sells 2 ABC May 70 Calls @ $3. The maximum potential loss is: A. $6,800 B. $13,000 C. $13,200 D. $13,800

B. $13,000 The worst case is that the stock becomes worthless. The customer paid $68 per share, reduced by $3 in collected premiums, for a net cost of $65. As the market drops, the calls will expire "out the money." The customer can lose all $65 per share x 200 shares = $13,000.

On the same day in a margin account, a customer sells 5 ABC January 40 Calls @ $6 and buys 10 ABC January 50 Calls @ $1 when the market price of ABC is at $43. The maximum potential loss is: A. $2,000 B. $3,000 C. $5,500 D. unlimited

B. $3,000

A customer sells short 100 shares of ABC stock at $38 and buys 1 ABC Mar 40 Call @ $5. The breakeven point is: A. $30 B. $33 C. $43 D. $45

B. $33 The customer sold the stock at $38 and paid $5 for the call, receiving a net amount of $33 per share. To breakeven, he must be able to buy the stock at $33 per share (to cover the short stock position).

A customer buys 1 ABC Jan 40 Straddle for a total premium of $500. Just prior to expiration ABC stock closes at $31, and the customer closes the options positions at intrinsic value. The customer will have a: A. $100 gain B. $400 gain C. $500 gain D. $900 gain

B. $400 gain

A customer owns 1 XYZ Jul 30 Put. XYZ goes ex dividend $.50. As of the morning of the ex date, the contract will cover: A. 100 shares at $29.50 B. 100 shares at $30.00 C. 101 shares at $29.50 D. 101 shares at $30.00

B. 100 shares at $30.00 Listed option contracts are not adjusted for cash dividends. They are only adjusted for 2:1 and 4:1 stock splits. For other types of stock splits and stock dividends, there is no adjustment to the contract. However, if the contract is exercised, the "deliverable" is adjusted accordingly.

A customer sells short 100 shares of DEF stock at $82 per share. The stock falls to $71, at which point the customer writes 1 DEF Sept 70 Put at $4. The stock falls to $62 and the put is exercised. The customer has a gain per share of: A. 14 points B. 16 points C. 18 points D. 24 points

B. 16 points

A customer buys 1 XMI Feb 650 Call @ $4 when XMI closes at 652. The intrinsic value of the contract is: A. 1 point B. 2 points C. 3 points D. 4 points

B. 2 points

On the same day, a customer buys 100 shares of ABC at $40 and sells short 100 shares of XYZ at $50. The customer then buys 1 ABC Jan 40 Put @ $4 and 1 XYZ Jan 50 Call @ $5. The breakeven points are: A. ABC: $36 / XYZ: $45 B. ABC: $44 / XYZ: $45 C. ABC: $36 / XYZ: $55 D. ABC: $44 / XYZ: $55

B. ABC: $44 / XYZ: $45

The Major Market Index Option contract is traded on the: A. New York Stock Exchange B. American Stock Exchange C. Chicago Board Options Exchange D. Chicago Mercantile Exchange

B. American Stock Exchange

An option contract that is exercisable at any time until expiration date is a(n): A. spot contract B. American contract C. European contract D. cash contract

B. American contract

On the same day in a margin account, a customer buys 1 ABC Jan 50 Call @ $2 and sells 1 ABC Jan 35 Call @ $8 when the market price of ABC is 41. The position will be profitable if: I both contracts expire II both contracts are exercised III the spread widens IV the spread narrows A. I and III B. I and IV C. II and III D. II and IV

B. I and IV

PHLX traded option contracts are available on which of the following currencies? I Euro II Canadian Dollar III Japanese Yen IV U.S. Dollar A. II, III, IV B. I, II, III C. I, II, IV D. I, III, IV

B. I, II, III

Which of the following are vertical spreads? I Long 1 ABC Oct 45 Call Short 1 ABC Jan 45 Call II Long 1 ABC Jan 45 Call Short 1 ABC Oct 55 Call III Long 1 ABC Oct 45 Call Short 1 ABC Oct 55 Call IV Long 1 ABC Jan 55 Call Short 1 ABC Apr 65 Call A. II only B. III only C. I and III D. II and IV

B. III only

To create a debit time spread, which statement is TRUE? A. The near expiration is purchased and the far expiration is sold B. The near expiration is sold and the far expiration is purchased C. The near expiration is purchased and the far expiration is purchased D. The near expiration is sold and the far expiration is sold

B. The near expiration is sold and the far expiration is purchased

A customer is long 100 shares of ABC stock, believes that the market will remain flat for the next 6 months. To maximize income from the position, which strategy is best? A. covered call write B. ratio call write C. short call spread D. short against the box

B. ratio call write

The Options Clearing Corporation is responsible for all of the following EXCEPT: A. standardization of listed options contracts B. setting the premium of listed options contracts C. issuance of listed options contracts D. assignment of exercises of listed options contracts

B. setting the premium of listed options contracts

A customer buys 200 shares of ABC at $68 and sells 2 ABC 70 Calls @ $3. The market rises to $80 and the calls are exercised. The customer has a: A. $300 gain B. $600 gain C. $1,000 gain D. $2,000 gain

C. $1,000 gain If the calls are exercised, the stock (which cost $68 per share) must be sold at the $70 strike price for a $2 gain x 200 shares = $400. The customer also received $300 per contract for selling the calls, for a total of $600 in premiums received. Therefore, the total gain is $400 + $600 = $1,000.

A customer buys 100 shares of XYZ at $52 and buys 1 XYZ Jan 50 Put @ $9. Just prior to expiration, the stock is trading at $46. The customer closes the option position at a premium of $7. One week later, the stock moves to $56 and the customer sells the stock position in the market. The net gain or loss on all transactions is: A. $100 loss B. $100 gain C. $200 gain D. $600 loss

C. $200 gain . The put contract was purchased at $9 and closed (sold) at $7 for a net loss of $2. The stock was purchased at $52 and sold at $56 for a net gain of $4. The net of all transactions is a 2 point or $200 gain.

A customer sells 1 ABC Jan 30 Straddle for a total premium of $500. At expiration, ABC closes at $21 and the customer is exercised. As a result, the customer will have a: A. $100 gain B. $400 gain C. $400 loss D. $900 gain

C. $400 loss

A customer sells 1 ABC Jan 50 Put @ $7 and buys 1 ABC Jan 40 Put @ $1 when the market price of ABC is $47. The maximum potential gain is: A. $100 B. $400 C. $600 D. $1,000

C. $600

Listed options are traded on which of the following? I American Stock Exchange II Philadelphia Stock Exchange III Pacific Stock Exchange IV NASDAQ Stock Market A. I and III only B. II and IV only C. I, II, III D. I, II, III, IV

C. I, II, III

The O.C.C. is responsible for which of the following? I Standardization of listed options contracts II Trading of listed options contracts III Issuance of listed options contracts IV Assignment of exercises of listed options contracts A. I and II only B. III and IV only C. I, III, IV D. I, II, III, IV

C. I, III, IV

Which TWO of the following are fully hedged stock positions? I Long stock / Long call II Long stock / Long put III Short stock / Long call IV Short stock / Long put A. I and III B. I and IV C. II and III D. II and IV

C. II and III

Which of the following option strategies are profitable in a falling market? I Long Call II Long Put III Short Call IV Short Put A. I and II B. I and IV C. II and III D. III and IV

C. II and III

Which strategies are profitable in a falling market? I Short Put Spread II Short Stock III Short Naked Call IV Short Call Spread A. I only B. I, II C. II, III, IV D. I, II, III, IV

C. II, III, IV

Which of the following positions is a long straddle? A. Long 1 ABC Jan 50 Call; Long 1 XYZ Jan 50 Put B. Long 1 ABC Jan 50 Call; Short 1 ABC Jan 60 Call C. Long 1 ABC Jan 50 Call; Long 1 ABC Jan 50 Put D. Long 1 ABC Jan 50 Put; Short 1 ABC Jan 60 Put

C. Long 1 ABC Jan 50 Call; Long 1 ABC Jan 50 Put

Which of the following will affect the VIX option premium? A. Time to expiration B. SPX price level C. SPX volatility D. All of the above

C. SPX volatility

An investor has sold 1 ABC Jan 50 Call and has bought 1 ABC Apr 60 Call. This is a: A. combination B. horizontal spread C. diagonal spread D. straddle

C. diagonal spread

On the same day in a margin account, a customer buys 5 ABC January 40 Calls @ $6 and sells 10 ABC January 50 Calls @ $1 when the market price of ABC is at $43. The customer has created a: A. short combination B. long combination C. ratio spread D. back spread

C. ratio spread

On the same day in a margin account, a customer sells 1 ABC Jan 50 Put @ $5 and buys 1 ABC Jan 40 Put @ $2. Below which of the following prices will every dollar gained on the long put be exactly offset by a dollar lost on the short put? A. $50 B. $47 C. $42 D. $40

D. $40

Regular stock option contracts can be purchased with all of the following lives EXCEPT: A. 3 months B. 6 months C. 9 months D. 12 months

D. 12 months

Which of following will create a "covered" short put position under O.C.C. rules? I Long a put on the same stock with the same strike price or higher with the same expiration or later II Bank Guarantee Letter III Short stock position in the underlying security A. I only B. I and II C. II and III D. I, II, III

D. I, II, III

Listed options are traded on which of the following? I American Stock Exchange II Philadelphia Stock Exchange III Chicago Board Options Exchange IV Pacific Stock Exchange A. I and III only B. II and IV only C. I, II, III D. I, II, III, IV

D. I, II, III, IV

Which of the following statements are TRUE about OEX LEAPs? I Contracts can only be exercised at expiration II Contracts can be exercised at any time III Contracts may be traded only at expiration IV Contracts can be traded at any time A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

A customer who is long 1 ABC Jan 75 Call wishes to create a "bull call spread." The second option position that the customer must take is: A. Short 1 ABC Jan 65 Put B. Short 1 ABC Jan 85 Put C. Short 1 ABC Jan 65 Call D. Short 1 ABC Jan 85 Call

D. Short 1 ABC Jan 85 Call

A customer sells short 500 shares of XYZ stock at $69 and sells 5 XYZ Jan70 Puts @ $3. The maximum loss potential is: A. $500 B. $6,600 C. $6,700 D. Unlimited

D. Unlimited

A customer buys 100,000 Canadian Dollars at 91 and buys 10 PHLX Canadian Dollar Oct 90 Puts @ 2.50. The customer profits if the Canadian Dollar is trading: A. below $.8750 B. below $.8850 C. above $.9250 D. above $.9350

D. above $.9350 The customer bought the Canadian Dollars at $.91 and bought a put at a premium of $.025 as a hedge against a fall in the currency. The total outlay was $.91 + $.025 = $.9350 per Canadian Dollar. To profit, the Canadian Dollar must rise above $.9350.

Index straddles would be purchased by a customer who: A. is bullish on the direction of the market B. is bearish on the direction of the market C. is neutral on the market D. believes that the market will be volatile

D. believes that the market will be volatile

A customer buys 2 ABC Jan 60 Calls @ $4 and buys 2 ABC Jan 60 Puts @ $1 on the same day when the market price of ABC stock is $62. The customer's maximum potential gain is: A. $1,000 B. $11,000 C. $59,000 D. unlimited

D. unlimited