SIE CH.5 Quiz

A customer sells 1 ABC Feb 50 Call @ $7 when the market price of ABC is $52. If the market value of ABC falls to $48 and stays there through February, the customer will: A. gain $700B. lose $700C. gain $4,300D. lose $4,300

A

A customer sells short 100 shares of ABC stock at $60 and sells 1 ABC Oct 60 Put @ $6. The market falls to $30 and the put is exercised. The gain or loss is: A. $600 gainB. $600 lossC. $2,400 gainD. $2,400 loss

A

An option contract has intrinsic value if exercise is profitable to the: A. holder, ignoring the premium paidB. writer, ignoring the premium receivedC. holder, including the premium paidD. writer, including the premium received

A

Selling a put against a stock position sold short is a suitable strategy when the market is expected to: A. remain stableB. rise sharplyC. fall sharplyD. fluctuate sharply

A

The last time to trade expiring equity options is: A. 4:00 PM EST on the third Friday of the monthB. 11:59 PM EST on the last calendar day of the monthC. 4:00 PM EST on the last business day of the monthD. on the Saturday following the third Friday of the month

A

The maximum gain for the writer of a call is: A. the premium receivedB. unlimitedC. strike price minus premium receivedD. strike price plus premium received

A

What can be used to efficiently hedge a broadly diversified stock portfolio? A. The purchase of S&P options contractsB. The purchase of individual options contracts on the stock positions in the portfolioC. The short sale of the stock positions in the portfolioD. The long sale of the stock positions in the portfolio

A

On the same day in a margin account, a customer sells short 100 shares of ABC at $41 and buys 1 ABC Jan 45 Call @ $7. The customer will break even at: A. $34 per shareB. $38 per shareC. $48 per shareD. $52 per share

A short stock/long call= short saleprice-premium

A client sells 1 ABC Jan 40 Put when the market price of ABC stock is $39. The put contract: A. is in the money because it is currently profitable to the holderB. is out the money because it is currently unprofitable to the sellerC. requires the client to deliver the stock if exercisedD. gives the client the right to sell the stock if exercised

A

A customer buys 100 shares of ABC stock which is trading at $65. The customer thinks the market will remain at $65 in the following months, so he decides to sell 1 ABC Sept 65 Call @ $3. ABC then goes to $60 and the customer's call contract expires and the customer decides to liquidate his stock position at the current market price. The customer has a: A. $200 lossB. $300 gainC. $500 lossD. $500 gain

A

A customer sells 1 ABC Jul 40 Put at $6 when the market price of ABC is $38. The breakeven point is: A. $32B. $34C. $44D. $46

B

A customer sells short 100 shares of ABC at $54 and buys 1 ABC Jan 55 Call @ $6. ABC goes to $79 and the customer exercises the call to cover her short stock position. The customer has a: A. $600 lossB. $700 lossC. $2,000 lossD. $2,100 loss

B

A customer sells short 100 shares of ABC stock at $41 and buys 1 ABC Mar 40 Call @ $5. The maximum potential gain is: A. $3,500 B. $3,600C. $4,100D. $4,600

B

A customer sells short 100 shares of ABC stock at $60 and sells 1 ABC Oct 60 Put @ $6. The market rises to $68 and the put expires. The customer buys the stock in the market covering his short stock position. The gain or loss is: A. $200 gainB. $200 lossC. $600 gainD. $600 loss

B

A customer would buy put contracts because the customer: A. is bullish on the underlying securityB. is bearish on the underlying securityC. is neutral on the underlying securityD. wishes to generate ordinary income

B

An options strategy where the maximum potential loss is equal to the difference between the value of the underlying long securities position and premiums received is a: A. naked call writerB. covered call writerC. naked put writerD. covered put writer

B

Which statement is TRUE? A. Regular way trades of listed options settle same dayB. Regular way trades of listed options settle on the business day after trade dateC. Regular way trades of listed options settle on the calendar day after trade dateD. Regular way trades of listed options settle 2 business days after trade date

B

A customer buys 2 ABC Jan 15 Puts @ $2 when the market price of ABC is $14. The breakeven point is: A. $11B. $13C. $17D. $19

B long put BE= strike price-premium

A customer buys 1 ABC Feb 50 Call @ $7 when the market price of ABC is $52. The customer's breakeven point is: A. $43B. $45C. $57 D. $59

C

A customer buys 1 ABC Oct 65 Put at $7 when the market price of ABC is 62. ABC stock rises to $70 and stays there through October. The customer: A. breaks evenB. loses $200 C. loses $700D. loses $1,200

C

A customer buys 100 shares of ABC stock at $40 and buys 1 ABC Oct 40 Put @ $4. The breakeven point is: A. $36B. $40C. $44D. $48

C

A customer buys 100 shares of ABC stock at $56 and buys 1 ABC Jul 55 Put @ $2.50 on the same day. The maximum potential loss is: A. 0 B. $250 C. $350D. unlimited

C

A customer buys 300 shares of ABCD stock at $67 per share and then writes 3 ABCD Jul 70 Calls @ $2.25. The breakeven point is: A. $60.25 B. $63.25 C. $64.75 D. $67.75

C

A customer purchases 100 shares of ABC stock at $34 and buys 1 ABC Jan 30 Put @ $2 on the same day in a cash account. Subsequently, the stock goes to $44 and the customer's put expires and the customer sells the stock in the market at the prevailing market price. The customer has a(n): A. $200 lossB. $800 lossC. $800 gainD. $1,000 gain

C

A customer sells 1 ABC Jul 70 Put at $5 when the market price of ABC is $75. The market falls and the customer is exercised. Months later, the customer then sells the stock in the market at $72. The customer has: A. a $300 profitB. a $500 profit C. a $700 profitD. no profit or loss

C

A customer sells short 100 ABC at $45 and buys 1 ABC Jan 45 Call @ $3. ABC goes to $30 and the customer lets the call expire and closes out the stock position at the market. The customer has a: A. $300 lossB. $1,200 lossC. $1,200 gainD. $1,600 gain

C

A customer sells short 100 shares of PDQ at $49 and sells 1 PDQ Sep 50 Put @ $6. The breakeven point is: A. $43B. $44C. $55D. $56

C

A customer who is short stock will buy a call to: A. hedge the short stock position in a falling marketB. protect the short stock position from a falling marketC. protect the short stock position from a rising marketD. generate additional income in a stable market

C

If the writer of an equity put contract is exercised, the writer must deliver: A. cash in 1 business dayB. stock in 1 business dayC. cash in 2 business daysD. stock in 2 business days

C

Long the stock and short the call is an appropriate strategy in a: A. declining market B. rising market C. stable market D. fluctuating market

C

The O.C.C. is responsible for all the following EXCEPT: A. Standardization of listed options contractsB. Issuance of listed options contractsC. Trading of listed options contractsD. Assignment of exercises of listed options contracts

C

The maximum gain for the holder of a put is: A. the premium paidB. unlimitedC. strike price minus premium paidD. strike price plus premium paid

C

What are the profit/loss characteristics of taking a short call position? A. Unlimited upside (profit) and unlimited downside (loss) B. Unlimited upside (profit) and limited downside (loss) C. Limited upside (profit) and unlimited downside (loss) D. Limited upside (profit) and limited downside (loss)

C

A client buys an ABC Jul 50 Call @$2 when the stock is trading at $55. The contract: A. is out of the moneyB. has 2 points of intrinsic valueC. has 3 points of intrinsic valueD. has 5 points of intrinsic value

D

A customer buys 10 ABC Jan 50 Calls @ 4.75 when the market price of ABC is $51 per share. The maximum gain potential is: A. $4,750B. $45,125 C. $50,000D. unlimited

D

A customer buys 100 shares of ABC stock at $56 and buys 1 ABC Oct 55 Put @ $3.50 on the same day. The maximum potential gain is: A. $5,150B. $5,850C. $5,950D. unlimited

D

A customer sells short 100 shares of ABC stock at $62 and sells 1 ABC Oct 60 Put @ $6. The maximum potential loss is: A. $600 B. $5,600C. $6,000D. unlimited

D

Exercise settlement of index options is European Style. This means that: A. exercise settlement will occur the next business day B. exercise is permitted at any time up until expiration C. exercise settlement will be made in Euros D. exercise is only permitted at the expiration date

D

If the writer of a call contract is assigned, the call writer must: A. pay the strike price for the security in next business dayB. pay the strike price for the security in 2 business daysC. deliver the security the next business dayD. deliver the security in 2 business days

D

Which of the following is NOT standardized for listed option contracts? A. Contract sizeB. Expiration dateC. Strike price intervalD. Commissions and exercise Costs

D