Unit 3
Which of the following option strategies has the most risk? A) Short puts B) Long puts C) Long calls D) Short calls
D) Short calls
Your customer wants to be in a position to buy CDS stock while taking in premium. Which of the following options positions might accomplish this? A) Long puts B) Short calls C) Long calls D) Short puts
D) Short puts
All of the following are terms that can be used to describe an option contracts strike price relative to the price of the underlying stock except A) at the money. B) out of the money. C) in the money. D) above the money.
D) above the money.
An investor owns one NMS June 40 call trading at 5. If the underlying value of NMS stock is 45, the contract is trading A) with no intrinsic value. B) at the money. C) out of the money. D) at parity.
D) at parity.
MOS stock is trading at 55. A March 55 call contract would therefore be trading A) in the money. B) with intrinsic value. C) at par. D) at the money.
D) at the money.
What is the intrinsic value of an XYZ 40 call bought at a premium of 3 when the current market value of XYZ is at 30? A) $7 B) $0 C) -$7 D) -$10
B) $0
If par value of the bond is $1,000, what is the value of 1 bond point? A) $100 B) $10 C) Cannot be calculated without knowing the current price of the bond D) $1
B) $10
An investor is short 1 December 15 put at 6. The investor's maximum loss on this position is A) $2,100. B) $900. C) $1,500. D) $60.
B) $900.
A customer believes the price of MJS stock will rise but is not currently in a position to purchase the stock outright. How could the customer use options to profit from a rise in the stock's price? I. Buy calls II. Write calls III. Buy puts IV. Write puts A) I and IV B) I and III C) II and IV D) II and III
A) I and IV
A put option reaches its expiration date and goes unexercised. This means I. the buyer gains the premium paid. II. the buyer loses the premium paid. III. the writer gains the premium received. IV. the writer loses the premium received. A) II and III B) I and III C) II and IV D) I and IV
A) II and III
An investor is convinced that CDT stock will soon decline in value for a number of reasons. Which investment strategy will allow the investor to take advantage of the anticipated decline in share value with the smallest cash investment? A) Purchase a put option B) Purchase a call option C) Sell the company's stock short D) Purchase a call spread
A) Purchase a put option
Typically, a corporation would not issue A) debentures. B) option contracts. C) preferred stock. D) common stock.
B) option contracts.
Listed options can be exercised by A) the holder after the expiration date. B) the holder from the time of purchase until they expire. C) the writer from the time of purchase until they expire. D) the writer after the expiration date.
B) the holder from the time of purchase until they expire.
The maximum loss on a long put is A) the strike price. B) the premium. C) strike price + premium. D) strike price - premium.
B) the premium.
Which of the following for call option contracts is true? A) Maximum loss is the same for both parties. B) Maximum gain and loss are the same for both parties. C) Breakeven is the same for both parties. D) Maximum gain is the same for both parties.
C) Breakeven is the same for both parties.
On a long put, when the premium equals the intrinsic value, the put is A) out of the money. B) at its breakeven point. C) at parity. D) past expiration.
C) at parity.
Your customer is long 1 October 75 put at 2. The customer's maximum gain potential is A) $7,700. B) $7,500. C) $2,000. D) $7,300.
D) $7,300.
If a customer sold puts to open, which of the following transactions would be allowed if the options agreement was not returned signed within 15 days? A) Buy calls to close B) Sell calls to open C) Sell puts to open D) Buy puts to close
D) Buy puts to close
The maximum gain on a short call is A) strike + premium. B) the strike price. C) strike - premium. D) the premium.
D) the premium.
The maximum gain on a short put is A) strike price - premium. B) strike price + premium. C) the strike price. D) the premium.
D) the premium.
The buyer of a call has A) the obligation to sell the stock. B) the right to sell the stock. C) the obligation to buy the stock. D) the right to buy the stock.
D) the right to buy the stock.
On a short put, when the premium equals the intrinsic value, the put is A) out of the money B) at parity C) past expiration. D) at its breakeven point
B) at parity
A customer purchased 1 MNO Jan 50 call at 2. What is the breakeven point for both the purchaser and the seller? A) 52 B) 50 C) 50 and 48 D) 52 and 48
A) 52
The XYZ May 45 puts are trading 2.50. The current market value (CMV) for XYZ stock is $42.50. The May 45 put is A) at parity. B) without any intrinsic value. C) at the money. D) out of the money.
A) at parity.
The owner of a listed put equity option has the right to A) sell the stock at the strike price. B) buy another put at discount. C) buy the stock at the strike price. D) sell another put at a premium.
A) sell the stock at the strike price.
The breakeven point on a long call is A) strike + premium. B) the strike price. C) strike - premium. D) the premium.
A) strike + premium.
The point at which an investor neither makes a profit nor loses money is known as A) the breakeven point. B) the minimum return. C) the maximum gain. D) the maximum loss.
A) the breakeven point.
What is the intrinsic value of an XYZ 30 call purchased at a premium of 3 when the current market value of XYZ is at 40? A) -$10 B) $10 C) $7 D) -$7
B) $10
Your client, Jane Anderson, has owned QRS for a few years but has now turned bearish on QRS. What transaction would you recommend? A) Sell QRS to open B) Sell QRS to close C) Buy QRS to close D) Buy QRS to open
B) Sell QRS to close
If the options agreement is not returned signed within 15 days of account approval, which of the following transactions could a customer perform if the initial transaction was buy calls to open? A) Buy calls to open B) Sell calls to close C) Sell calls to open D) Sell puts to open
B) Sell calls to close
When the Options Clearing Corporation (OCC) receives a notice to exercise, it will assign that notice to A) the party short the contract. B) a short broker-dealer. C) the party long the contract. D) a long broker-dealer.
B) a short broker-dealer.
An option contract having no intrinsic value at expiration will likely be A) assigned to the holder. B) allowed to expire. C) exercised by the holder. D) exercised by the writer.
B) allowed to expire.
An investor is long a January 30 call at 2. Maximum gain for this position is A) $30. B) $28. C) unlimited. D) $320.
C) unlimited.
An investor who buys and sells options on stock is A) a stockholder. B) an owner of the company. C) a lender to the company. D) neither an owner of nor a debtor of the company.
D) neither an owner of nor a debtor of the company.
All of the following terms and phrases are associated with the sell side of the contract except A) writes the contract. B)has an obligation. C) receives the premium. D) owns the contract.
D) owns the contract.
What is the intrinsic value of an XYZ 40 call sold at a premium of 3 when the current market value of XYZ is at 30? A) $0 B) -$7 C) -$10 D) $7
A) $0
Regarding options positions, which of the following statements is true? A) Call buyers have the right to purchase the underlying, and put writers may be obligated to purchase underlying. B) Call writers have the right to sell the underlying, and put writers are obligated to sell the underlying. C) Call buyers have the right to purchase the underlying, and put buyers have the right to purchase the underlying. D) Call writers may be obligated to purchase the underlying, and put writers are obligated to sell the underlying.
A) Call buyers have the right to purchase the underlying, and put writers may be obligated to purchase underlying.
At expiration, for those who trade call options, which of the following is true? A) Call buyers want the contract to be in the money. B) Call writers want the contract to be trading with intrinsic value. C) Call writers want the contract to be in the money. D) Call buyers want the contract to be out of the money.
A) Call buyers want the contract to be in the money.
Options investors who are I. bullish on a stock should buy calls. II. bullish on a stock should buy puts. III. bearish on a stock should buy calls. IV. bearish on a stock should buy puts. A) I and IV B) I and III C) II and IV D) II and III
A) I and IV
Which of the following contracts are in the money if the strike price is 30 and the market price is 40? A) Long call and short call B) Long call and long put C) Short call and short put D) Short call and long put
A) Long call and short call
Which of the following pairs of option contracts would both have intrinsic value if the strike price is 30 and the market price is 40? A) Long call and short call B) Long call and long put C) Short call and long put D) Short call and short put
A) Long call and short call
Which position has the greatest potential risk if the price of the underlying stock goes up? A) Short call B) Long put C) Long call D) Short put
A) Short call
On a long call, when the premium is equal to the intrinsic value, which of the following is true? A) The contract is at parity B) The contract is out of the money C) The contract has time value D) None of these
A) The contract is at parity
An investor holds a November 35 call that was purchased on March 3. The investor, if wanting to exercise the contract, would need to do so no later than A) the third Friday of November. B) the third Friday of March. C) one business day after settlement. D) one business day after purchase.
A) the third Friday of November.
Your customer has purchased an MJS October 35 call at 4. Their proof of ownership will be A) the trade confirmation. B) the Options Clearing Corporation (OCC) issued certificate. C) the certificate issued by the underlying company (MJS). D) the executing broker-dealer's account records.
A) the trade confirmation.
All of the following terms and phrases are associated with the buy side of the contract except A) writes the contract. B) has a right. C) owns the contract. D) pays the premium.
A) writes the contract.
An investor sells short 1 MJS June 55 put at 2. The current market value of LMN is 56. The investor's maximum loss potential is A) $10,600. B) $5,300. C) $5,425. D) unlimited.
B) $5,300.
Someone who is short 1 August 35 put at 3 will breakeven at A) 38. B) 32. C) 35. D) 30.
B) 32
If a customer sold calls to open, which of the following transactions would be allowed if the options agreement was not returned signed within 15 days? A) Sell puts to close B) Buy calls to close C) Sell puts to open D) Sell calls to open
B) Buy calls to close
Which of the following statements about listed options is true? A) The options disclosure document (ODD) must be delivered to only those who purchase out-of-the-money calls or puts. B) Listed options settle on the next business day after the trade date (T+1). C) All in-the-money options are profitable. D) Breakeven of a call option may be found by adding its strike price to the market value of the underlying stock.
B) Listed options settle on the next business day after the trade date (T+1).
An investor sells one equity call option on DGF stock. This investor is A) both bullish and bearish on the DGF stock. B) bearish on DGF the stock. C) bullish on the DGF stock. D) neither bullish nor bearish on the DGF stock.
B) bearish on DGF the stock.
All of the following terms and phrases are associated with the sell side of the contract except A) receives the premium. B) has a right. C) writes the contract. D) has an obligation.
B) has a right.
An investor is long 1 July 40 call at 2. This investor A) has the right to buy 200 shares of stock. B) has paid $200 for the call contract. C) can exercise the contract to sell stock at $40 per share. D) can exercise the contract to purchase stock at $2 per share.
B) has paid $200 for the call contract.
When XYZ is trading at 30, an XYZ 40 put bought at 3 would be A) at the money. B) in the money. C) out of the money. D) at parity.
B) in the money.
A stock currently has a market value of $75 per share. If a put option on the stock has an exercise price of $60, the put option is A) at the money. B) out of the money. C) in the money. D) at breakeven.
B) out of the money.
All of the following terms and phrases are associated with the sell side of the contract except A) receives the premium. B) pays the premium. C) is short the contract. D) has an obligation.
B) pays the premium.
While a branch office manager can initially approve an options account for trading, it must ultimately be approved by A) the Options Clearing Corporation (OCC). B) the firm's registered options principal (ROP). C) the forms trading department. D) the registered representative opening the account.
B) the firm's registered options principal (ROP).
A customer writes (sells) a call. This customer will realize the maximum gain if A) the price of the option contract rises. B) the option contract expires without being exercised. C) the price of the underlying stock rises. D) the customer is assigned on the contract.
B) the option contract expires without being exercised.
The maximum loss on a long call is A) strike price + premium. B) the premium. C) strike price - premium. D) unlimited.
B) the premium.
An investor is long 1 May 35 call at 5. The 35 in this contract represents A) the strike price, the price the investor has paid for the contract. B) the strike price, the price the investor can purchase stock at. C) the premium, the price the investor can purchase stock at. D) the premium, the price the investor has paid for the contract.
B) the strike price, the price the investor can purchase stock at.
Automatic exercise will occur at expiration for any equity option contract that is in the money by at least A) 0.05. B) 1/4 of a point. C) 0.01. D) 1/8 of a point.
C) 0.01.
An investor short a January 30 call at 4 has a maximum gain potential of A) 30 points or $3,000. B) 34 points or $3,400. C) 4 points or $400. D) 26 points or $2,600.
C) 4 points or $400.
With CCD stock at 40, a September 45 call trading at 3 is out of the money by A) 5 points and has negative intrinsic value. B) 2 points and has negative intrinsic value. C) 5 points and has no intrinsic value. D) 2 points and has no intrinsic value.
C) 5 points and has no intrinsic value.
Your customer is long 1 October 55 put at 4. The customer's breakeven point is A) 55. B) 59. C) 51. D) 40.
C) 51.
Which of the following investors are bearish? A) Call buyers and put writers B) Put buyers and put writers C) Call writers and put buyers D) Call buyers and call writers
C) Call writers and put buyers
For options investors, which of the following are true? I. Buyers pay the premium for the right to exercise. II. Buyers pay the premium and incur an obligation to buy or sell. III. Sellers receive the premium and incur an obligation to buy or sell. IV. Sellers receive the premium for the right to exercise. A) II and III B) II and IV C) I and III D) I and IV
C) I and III
Which of the following positions would give an investor an unlimited loss potential? I. Short 1 IBS Jul 50 put II. Short 100 shares of IBS stock III. Short 1 IBS Jul 50 uncovered call IV. Short 1 IBS Jul 50 covered call A) I and III B) I and II C) II and III D) II and IV
C) II and III
A 65-year-old investor is looking to earn additional income in her securities portfolio without much risk. Which of the following would likely be the least acceptable trading strategy for this investor? A) Covered call writing B) Purchasing debentures C) Naked call writing D) Purchasing junior preferred stock
C) Naked call writing
An investor who is long MES equity put options is A) is bearish on the put price but bullish on MES stock. B) wants MES stock to remain fixed at the current price. C) bearish on MES stock. D) bullish on MES stock.
C) bearish on MES stock.
Put buyers are A) neither bullish nor bearish. B) both bullish and bearish. C) bearish. D) bullish.
C) bearish.
An investor who is long LMN equity call options is A) bearish on LMN stock. B) is bearish on the call price but bullish on LMN stock. C) bullish on LMN stock. D) wants LMN stock to remain fixed at the current price.
C) bullish on LMN stock.
All of the following terms and phrases apply to the buy side of the options contract except A) exercises the contract. B) pays the premium. C) has an obligation. D) loses the premium if the contract expires.
C) has an obligation.
If a call contract has no intrinsic value, it must be A) at, or in the money. B) only in the money. C) out of, or in the money. D) at, or out of the money.
C) out of, or in the money.
The seller of a put has A) the right to sell the stock. B) the right to buy the stock. C) the obligation to buy the stock. D) the obligation to sell the stock.
C) the obligation to buy the stock.
An investor is long 6 MAS February 60 calls at 2.25 each. If at the time of the February expiration, the calls expire unexercised, how much money will the investor lose? A) $6,225 B) $810 C) $225 D) $1,350
D) $1,350
Your customer is long 1 October 75 put at 2. The customer's maximum gain potential is A) $7,500. B) $2,000. C) $7,700. D) $7,300.
D) $7,300.
An investor purchases 1 KLP October 95 put at 6.50. What is the investor's maximum potential gain with this position? A) $9,500 B) $10,150 C) $9,650 D) $8,850
D) $8,850
An investor is short a January 30 call at 5. Breakeven is A) 30. B) 25. C) 500. D) 35.
D) 35.
Which of the following option positions would offer a full hedge to a short stock position? A) Short put B) Short call C) Long put D) Long call
D) Long call
Which of the following positions will mitigate the risk of a short call position? A) Short puts B) Short stock C) Long puts D) Long calls
D) Long calls
The seller of a call has A) the right to sell the stock. B) the right to buy the stock. C) the obligation to buy the stock. D) the obligation to sell the stock.
D) the obligation to sell the stock.
Listed options expire on A) the first day of the expiration month. B) the first Friday of the expiration month. C) the business day after settlement. D) the third Friday of the expiration month.
D) the third Friday of the expiration month.
A member firm is assigned an exercise notice by the Options Clearing Corporation (OCC). The member firm may assign the exercise notice to one of its short customers by any of the following methods except A) in any way that is fair and reasonable. B) to the customer having the oldest short position. C) on a random-selection basis. D) to the customer having the largest short position.
D) to the customer having the largest short position.
Listed option transactions settle A) trade date + 2 business days. B) trade date + 3 calendar days. C) trade date + 2 calendar days. D) trade date + 1 business day.
D) trade date + 1 business day.
An investor establishes the following position: Long 1 XYZ September 40 call at 2. Utilizing this position, the maximum potential gain for the investor is A) $38 per share. B) $42 per share. C) $40 per share. D) unlimited.
D) unlimited.
An investor is short a January 30 call at 5. Maximum loss for the investor is A) 25 points or $2,500. B) 50 points or $5,000. C) 5 points or $500. D) unlimited.
D) unlimited.
All of the following terms and phrases apply to the buy side of the options contract except A) pays the premium. B) exercises the contract. C) has a right. D) wants the contract to expire.
D) wants the contract to expire.
If a customer bought puts to open, which of the following transactions would be allowed if the options agreement was not returned signed within 15 days? A) Sell puts to close B) Sell puts to open C) Buy calls to close D) Sell calls to open
A) Sell puts to close
Your customer has purchased 1 February 35 call at 2 on Tuesday, December 4. This transaction will settle on A) Wednesday, December 5. B) the last business day of February. C) the same day. D) Thursday, December 6.
A) Wednesday, December 5.
When a customer signs the options agreement, this is the customer's affirmation to all of the following except A) all long positions will be exercised. B) the risks of options trading as outlined in the options disclosure document (ODD) are understood. C) the options disclosure document (ODD) has been read. D) all rules and regulations regarding options trading will be abided by.
A) all long positions will be exercised.
A registered representative opens a new options account for a customer. In which order must the following actions take place? I. Obtain approval from the branch manager II. Obtain essential facts from the customer III. Obtain a signed options agreement IV. Enter the initial order A) II, I, III, IV B) II, I, IV, III C) I, II, III, IV D) I, II, IV, III
B) II, I, IV, III
Which of the following has a right and is bullish on the stock? A) Short put B) Long call C) Short call D) Long put
B) Long call
Your customer is long 1 October 55 put at 4. The customer's maximum loss potential is A) 59 points ($5,900). B) 51 points ($5,100). C) 40 points ($4,000). D) 4 points ($400).
D) 4 points ($400).
The maximum loss on a short call is A) strike - premium. B) the premium. C) strike + premium. D) unlimited.
D) unlimited.
An investor is short 1 XYZ January 60 put at 2. This investor A) has received $200 for writing the put contract. B) can exercise the contract to sell XYZ stock at $2 per share. C) has the right to buy 60 shares of XYZ stock. D) can exercise the contract to sell XYZ stock at $60 per share.
A) has received $200 for writing the put contract.
A put will have intrinsic value if, just before expiration, the price of the underlying stock is A) less than the exercise price. B) equal to the exercise price. C) greater than the exercise price. D) anywhere near the exercise price, above or below.
A) less than the exercise price.
A March 25 put purchased at 1.5 has expired without being exercised. The owner of the put A) loses the $150 premium paid. B) keeps the $25 paid. C) keeps the $150 paid. D) losses the $25 paid.
A) loses the $150 premium paid.
A March 30 call purchased at 3 has expired without being exercised. The owner of the call A) loses the $300 premium paid. B) losses the $30 paid. C) keeps the $300 paid. D) keeps the $30 paid.
A) loses the $300 premium paid.
When XYZ is trading at 40, an XYZ 30 put purchased at 3 would be A) out of the money. B) at parity. C) in the money. D) at the money.
A) out of the money.
When XYZ is trading at 40, an XYZ 30 put sold at 3 would be A) out of the money. B) in the money. C) at the money. D) at parity.
A) out of the money.
The breakeven point on a long put is A) strike price - premium. B) the premium. C) strike price + premium. D) the strike price.
A) strike price - premium.
The buyer of a put has A) the right to sell the stock. B) the obligation to sell the stock. C) the right to buy the stock. D) the obligation to buy the stock.
A) the right to sell the stock
The buyer of an option contract can be known as all of the following except A) writer. B) long party. C) owner. D) holder.
A) writer.
Investors who sell call and put options are known as A) writers. B) uncovered. C) long. D) covered.
A) writers.
Which of the following option positions would offer a full hedge to a long stock position? A) Long call B) Short put C) Short call D) Long put
D) Long put
Your customer establishes the following position: Long 1 XYZ January 50 put at 2. You can correctly inform the customer that the maximum potential gain on the position is A) unlimited. B) $4,800. C) $200. D) $5,200.
B) $4,800. The maximum gain is calculated by subtracting the premium from the strike price (50 − 2 = 48 per share). One contract represents 100 shares, so the buyer's maximum gain is $4,800 (this occurs if the stock becomes worthless).
The performance of listed options contracts is guaranteed by which of the following? A) Securities and Exchange Commission (SEC) B) Options Clearing Corporation (OCC) C) Federal Reserve Board (FRB) D) U.S. Treasury
B) Options Clearing Corporation (OCC)
At expiration, for those who trade put options, which of the following is true? A) Put writers want the contract to be in the money. B) Put buyers want the contract to be in the money. C) Put buyers want the contract to be out of the money. D) Put writers want the contract to be trading with intrinsic value.
B) Put buyers want the contract to be in the money.
Regarding options, it should be recognized that the maximum movement for any underlying stocks price could be A) as low as its breakeven or as high as its maximum gain point. B) as low as zero or as high as infinity. C) its breakeven. D) as low as zero or as high as its breakeven point.
B) as low as zero or as high as infinity.
Two investors have engaged in the same put transaction: one, the buyer who is now long the put and the other, the seller who is now short the put. All of the following are true except A) one investor's maximum loss potential is the other's maximum gain potential. B) both investors have a maximum loss potential that is limited to the premium paid. C) maximum gain and loss potential for one investor are different than the others maximum gain and loss potential. D) breakeven is the same number for both investors.
B) both investors have a maximum loss potential that is limited to the premium paid.
An investor owns MMS call options. This investor is A) bearish, hoping the stock will rise. B) bullish, hoping the stock will rise. C) bearish, hoping the stock will fall. D) bullish, hoping the stock will fall.
B) bullish, hoping the stock will rise.
All of the following actions must be completed before a customer enters the first option order except A) delivery of an Options Clearing Corporation (OCC) disclosure booklet. B) completion of (signing of) the options agreement. C) completion of the new account form. D) approval by a branch office manager (BOM) or registered options principal (ROP).
B) completion of (signing of) the options agreement.
An investor is short 1 XYZ January 20 call at 3. This investor A) can exercise the contract to sell XYZ stock at $20 per share. B) has received $300 for writing the call contract. C) has the right to buy 20 shares of XYZ stock. D) can exercise the contract to purchase XYZ stock at $20 per share.
B) has received $300 for writing the call contract.
With CDT stock at 42, a September 40 call trading at 3 is A) in the money by 3 points. B) in the money by 2 points. C) out of the money by 2 points. D) at the money.
B) in the money by 2 points.
The holder of an in-the-money option contract gives a do not exercise instruction (notice) to your broker-dealer. This notice A) can only be given at the time the contract is purchased. B) is used to avoid automatic exercise at expiration. C) is used to notify the writer that the contract will not be assigned to them. D) is standard, and given for all in-the-money contracts at expiration.
B) is used to avoid automatic exercise at expiration.
All of the following terms and phrases are associated with the sell side of the contract except A) has an obligation. B) lose the premium if the contract expires C) receives the premium. D) writes the contract.
B) lose the premium if the contract expires
What is the intrinsic value of an XYZ 30 call sold at a premium of 3 when the current market value of XYZ is at 40? A) $7 B) -$10 C) $10 D) -$7
C) $10
An investor is long a January 30 call at 2. Maximum loss for this position is A) $320. B) $280. C) $200. D) $30.
C) $200.
A customer writes an MMM January 70 put at 6. The maximum potential gain on this position is A) $300. B) $100. C) $600. D) $760.
C) $600.
An investor is long a January 30 call at 2. Breakeven is A) 30. B) 28. C) 32. D) 200.
C) 32.
An investor believes the price of an exchange-listed stock will likely fall in the near term. Which of the following option strategies would best support this belief? A) Selling puts B) Buying calls C) Buying puts D) Buying both calls and puts
C) Buying puts
A customer recently approved to trade options buys a put contract for the account's initial transaction. If the customer fails to return the signed option agreement within 15 days of account approval, which of the following transactions is the customer permitted to make? A) Opening sale B) Closing purchase C) Closing sale D) Opening purchase
C) Closing sale
Which of the following describes the position in a call option on a stock with a strike price of 20, a premium of 7, and a current market of 26? A) At parity B) At the money C) In the money D) Out of the money
C) In the money
Which of the following contracts do not have intrinsic value if the strike price is 40 and the market price is 30? A) Short call and short put B) Long call and long put C) Long call and short call D) Shot call and long put
C) Long call and short call
Which of the following documents must be provided to the customer prior to approval of an options account? A) Statement of additional information B) Prospectus C) Options Disclosure Document D) Official statement
C) Options Disclosure Document
Which of the following has an obligation and is bearish on the stock? A) Long call B) Short put C) Short call D) Long put
C) Short call
Your customer has one position in her account and it poses an unlimited loss potential. Which of the following is it? A) Short put B) Long call C) Short call D) Long put
C) Short call
On a short call, when the premium is equal to the intrinsic value, which of the following is true? A) The contract has time value B) The contract is out of the money C) The contract is at parity D) None of these
C) The contract is at parity
A customer buys an October 75 MMS put. MMS stock closes at 70. Which of the following is true? A) It has only premium value. B) The put is out of the money. C) The put has intrinsic value. D) The put is at the money.
C) The put has intrinsic value.
A customer of a broker-dealer makes it known that they would like to trade options in their account. The first step to accommodate the request is which of the following? A) The registered representative should provide the customer with the options disclosure document (ODD). B) The firm's registered options principal (ROP) should approve the account so trades can occur immediately. C) The registered representative should determine the suitability of options trading for the customer. D) Options Clearing Corporation (OCC) should be apprised to see if other options accounts are maintained at other broker-dealers.
C) The registered representative should determine the suitability of options trading for the customer.
When must a new options customer return a signed option account agreement form? A) Before the account is approved by a registered options principal (ROP) B) At or before the customer receives the options disclosure document (ODD) C) Within 15 calendar days of the account approval D) Before the first order is entered
C) Within 15 calendar days of the account approval
Of the following strategies, which is considered most risky in a strong bull market? A) Buying calls B) Writing puts C) Writing calls D) Buying puts
C) Writing calls
A call or put that can be exercised before expiration is A) a Western-style options. B) an Eastern-style options. C) an American-style option. D) a European-style options.
C) an American-style option.
The options disclosure document (ODD) must be provided A) only if the customer requests to see it. B) before any discussions of options can occur with the customer. C) at or before the time of account approval. D) at the time the confirmation for the first transaction is delivered.
C) at or before the time of account approval.
An investor bought a put option and, in time, the underlying security declined below the strike price of the put. The put would probably A) decline in value. B) be worthless. C) be exercised. D) not be exercised.
C) be exercised.
An investor sells (writes) put options on MAS stock. This investor is A) bearish on the MAS stock. B) neither bullish nor bearish on the MAS stock. C) bullish on MAS the stock. D) both bullish and bearish on the MAS stock.
C) bullish on MAS the stock.
Options contracts A) give both parties the right to buy or sell the underlying security. B) obligate both parties to sell the underlying security. C) give one party the right to buy or sell the underlying security. D) obligate both parties to purchase the underlying security.
C) give one party the right to buy or sell the underlying security.
An August 15 call is written at 4. The call expires without being exercised by the owner. The writer of the call A) loses the $150 paid when the call was written. B) keeps the $150 received when the call was written. C) keeps the $400 received when the call was written. D) loses the $400 paid when the call was written.
C) keeps the $400 received when the call was written.
A client has established a long put position. The contract will have intrinsic value when the price of the underlying stock is A) anywhere near the exercise price, above or below. B) greater than the exercise price. C) less than the exercise price. D) equal to the exercise price.
C) less than the exercise price.
A customer who has written an option contract receives an assignment notice. This customer is A) the party who must notify the Options Clearing Corporation (OCC) that they intend to exercise the contract. B) the party who may now assign the contract to another investor. C) now obligated to either buy or sell the underlying stock at the strike price. D) now obligated to short the stock at the current market value.
C) now obligated to either buy or sell the underlying stock at the strike price.
All of the following terms and phrases apply to the buy side of the options contract except A) loses the premium if the contract expires. B) exercises the contract. C) receives the premium. D) has a right.
C) receives the premium.
The maximum potential loss for an investor short a put option is A) strike price plus the premium received. B) unlimited. C) strike price minus the premium received. D) the premium received.
C) strike price minus the premium received.
For options, each is a two-party contract, which allows A) the seller to exercise the contract, with the buyer obligated to fulfill the terms of the contract. B) either the buyer or the seller to exercise the contract. C) the buyer to exercise the contract, with the seller obligated to fulfill the terms of the contract. D) neither the buyer nor the seller to exercise the contract.
C) the buyer to exercise the contract, with the seller obligated to fulfill the terms of the contract.
An investor owns 1 November 15 put at 5. The 15 in this contract represents A) the strike price, the price the investor has paid for the contract. B) the premium, the price the investor can purchase stock at. C) the strike price, the price the investor can sell stock at. D) the premium, the price the investor has paid for the contract.
C) the strike price, the price the investor can sell stock at.
The maximum gain on a long call is A) strike price - premium. B) strike price + premium. C) unlimited. D) the premium.
C) unlimited.
Investors who sell call and put options are known as A) uncovered. B) covered. C) writers. D) long.
C) writers.
What method is used to assign exercise notices to broker-dealers with short positions by Options Clearing Corporation (OCC)? A) First in, first out (FIFO) basis B) Any method considered fair and reasonable C) Last in, first out (LIFO) basis D) Random-selection basis
D) Random-selection basis
A June 40 call is trading at 3.5. For this call to be trading at parity the underlying stock would have to be trading at A) 36.5 B) 3.5 C) 40 D) 43.5
D) 43.5
For investors engaging in the trading of option contracts, which of the following is true? A) Sellers pay the premium and for the right to exercise the contract. B) Buyers receive the premium, which represents the right to exercise the contract. C) Sellers receive the premium, which represents the right to exercise the contract. D) Buyers pay the premium for the right to exercise the contract.
D) Buyers pay the premium for the right to exercise the contract.
A call option reaches its expiration date and goes unexercised. This means I. the buyer gains the premium paid. II. the buyer loses the premium paid. III. the writer gains the premium received. IV. the writer loses the premium received. A) II and IV B) I and IV C) I and III D) II and III
D) II and III
Which of the following pairs of options contracts is not in the money if the strike price is 40 and the market price is 30? A) Long call and long put B) Short call and long put C) Short call and short put D) Long call and short call
D) Long call and short call
An investor is long a call option. Over time, the underlying security rises in value above the strike price of the call. It is likely that the call would A) decline in value. B) have no intrinsic value. C) not be exercised. D) be exercised.
D) be exercised.
Index and foreign currency options must be settled in A) the underlying security. B) securities comprising the index and the foreign currency. C) banker's acceptances. D) cash.
D) cash.
If long one equity call option, the owner A) incurs an obligation to sell 100 shares of the underlying stock. B) incurs an obligation to purchase 100 shares of the underlying stock. C) has the right to sell 100 shares of the underlying stock. D) has the right to purchase 100 shares of the underlying stock.
D) has the right to purchase 100 shares of the underlying stock.
When XYZ is trading at 30, an XYZ 40 put sold at 3 would be A) out of the money. B) at parity. C) at the money. D) in the money.
D) in the money.
At expiration CDT stock is trading at 43. A January 40 put would be A) recognized as expiring in the money. B) expiring right at the money. C) noted as having 3 points of intrinsic value. D) left to expire unexercised.
D) left to expire unexercised.
The four basic options transactions are A) short calls, write calls, long puts, write puts. B) long calls, sell calls, write puts, short puts. C) short calls, write calls, write puts, short puts. D) long calls, short calls, long puts, short puts.
D) long calls, short calls, long puts, short puts.
An investor buys 1 DWQ May 70 call at 2, giving the investor the right to buy 100 shares of DWQ at $70 per share. All the specifications of the transaction are set or standardized by the Options Clearing Corporation (OCC) except A) contract size of 100 shares. B) expiration date in May. C) exercise price of 70. D) premium of 2.
D) premium of 2.
An equity option call buyer has the right to A) sell the stock and therefore is bearish. B) sell the stock and therefore is bullish. C) purchase stock and therefore is bearish. D) purchase stock and therefore is bullish.
D) purchase stock and therefore is bullish.
The breakeven on a short call is A) the premium. B) strike - premium. C) the strike price. D) strike + premium.
D) strike + premium.
The maximum gain on a long put is A) the strike price. B) the premium. C) strike price + premium. D) strike price - premium.
D) strike price - premium.
The maximum loss on a short put is A) the strike price. B) the premium. C) strike price + premium. D) strike price - premium.
D) strike price - premium.
If an investor is long an option contract and wishes to exercise the contract, the investor notifies the broker-dealer, who then notifies A) the Financial Industry Regulatory Authority (FINRA). B) the Federal Reserve Board (FRB). C) the Securities and Exchange Commission (SEC). D) the Options Clearing Corporation (OCC).
D) the Options Clearing Corporation (OCC).
The point at which an investor neither makes a profit nor loses money is known as A) the maximum gain. B) the maximum loss. C) the minimum return. D) the breakeven point.
D) the breakeven point.
The party who is short an option contract is known as A) the party with the right to exercise and pays the premium. B) the party with the right to exercise and receives the premium. C) the writer and pays the premium. D) the writer and receives the premium.
D) the writer and receives the premium.
