Question 1

Which of the following creates a bull spread?

Accepted Answer

A) Buy a low strike price call and sell a high strike price call 
B) Buy a high strike price call and sell a low strike price call 
C) Buy a low strike price call and sell a high strike price put 
D) Buy a low strike price put and sell a high strike price call 
A) Buy a low strike price call and sell a high strike price call 
B) Buy a high strike price call and sell a low strike price call 
C) Buy a low strike price call and sell a high strike price put 
D) Buy a low strike price put and sell a high strike price call A

Question 2

How can a strangle trading strategy be created?

Accepted Answer

A) Buy one call and one put with the same strike price and same expiration date 
B) Buy one call and one put with different strike prices and same expiration date 
C) Buy one call and two puts with the same strike price and expiration date 
D) Buy two calls and one put with the same strike price and expiration date 
A) Buy one call and one put with the same strike price and same expiration date 
B) Buy one call and one put with different strike prices and same expiration date 
C) Buy one call and two puts with the same strike price and expiration date 
D) Buy two calls and one put with the same strike price and expiration date B

Question 3

Six-month call options with strike prices of $35 and $40 cost $6 and $4,respectively.What is the maximum gain when a bull spread is created by trading a total of 200 options?

Accepted Answer

A) $100 
B) $200 
C) $300 
D) $400 
A) $100 
B) $200 
C) $300 
D) $400 C

Question 4

Which of the following creates a bear spread?

Accepted Answer

A) Buy a low strike price put and sell a high strike price put 
B) Buy a high strike price put and sell a low strike price put 
C) Buy a high strike price call and sell a low strike price put 
D) Buy a high strike price put and sell a low strike price call 
A) Buy a low strike price put and sell a high strike price put 
B) Buy a high strike price put and sell a low strike price put 
C) Buy a high strike price call and sell a low strike price put 
D) Buy a high strike price put and sell a low strike price call

Question 5

Which of the following describes a protective put?

Accepted Answer

A) A long put option on a stock plus a long position in the stock 
B) A long put option on a stock plus a short position in the stock 
C) A short put option on a stock plus a short call option on the stock 
D) A short put option on a stock plus a long position in the stock 
A) A long put option on a stock plus a long position in the stock 
B) A long put option on a stock plus a short position in the stock 
C) A short put option on a stock plus a short call option on the stock 
D) A short put option on a stock plus a long position in the stock

Question 6

What is a description of the trading strategy where an investor sells a 3-month call option and buys a one-year call option,where both options have a strike price of $100 and the underlying stock price is $75?

Accepted Answer

A) Neutral Calendar Spread 
B) Bullish Calendar Spread 
C) Bearish Calendar Spread 
D) None of the above 
A) Neutral Calendar Spread 
B) Bullish Calendar Spread 
C) Bearish Calendar Spread 
D) None of the above

Question 7

Which of the following is correct?

Accepted Answer

A) A calendar spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different 
B) A calendar spread can be created by buying a put and selling a call when the strike prices are the same and the times to maturity are different 
C) A calendar spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different 
D) A calendar spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different 
A) A calendar spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different 
B) A calendar spread can be created by buying a put and selling a call when the strike prices are the same and the times to maturity are different 
C) A calendar spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different 
D) A calendar spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different

Question 8

Which of the following is true of a box spread?

Accepted Answer

A) It is a package consisting of a bull spread and a bear spread 
B) It involves two call options and two put options 
C) It has a known value at maturity 
D) All of the above 
A) It is a package consisting of a bull spread and a bear spread 
B) It involves two call options and two put options 
C) It has a known value at maturity 
D) All of the above

Question 9

A trader creates a long butterfly spread from options with strike prices $60,$65,and $70 by trading a total of 400 options.The options are worth $11,$14,and $18.
-What is the maximum net gain (after the cost of the options is taken into account)?

Accepted Answer

A) $100 
B) $200 
C) $300 
D) $400 
A) $100 
B) $200 
C) $300 
D) $400

Question 10

A trader creates a long butterfly spread from options with strike prices $60,$65,and $70 by trading a total of 400 options.The options are worth $11,$14,and $18.
-A trader creates a long butterfly spread from options with strike prices $60,$65,and $70 by trading a total of 400 options.The options are worth $11,$14,and $18.What is the maximum net loss (after the cost of the options is taken into account)?

Accepted Answer

A) $100 
B) $200 
C) $300 
D) $400 
A) $100 
B) $200 
C) $300 
D) $400

Question 11

How can a strap trading strategy be created?

Accepted Answer

A) Buy one call and one put with the same strike price and same expiration date 
B) Buy one call and one put with different strike prices and same expiration date 
C) Buy one call and two puts with the same strike price and expiration date 
D) Buy two calls and one put with the same strike price and expiration date 
A) Buy one call and one put with the same strike price and same expiration date 
B) Buy one call and one put with different strike prices and same expiration date 
C) Buy one call and two puts with the same strike price and expiration date 
D) Buy two calls and one put with the same strike price and expiration date

Question 12

When the interest rate is 5% per annum with continuous compounding,which of the following creates a principal protected note worth $1000?

Accepted Answer

A) A one-year zero-coupon bond plus a one-year call option worth about $59 
B) A one-year zero-coupon bond plus a one-year call option worth about $49 
C) A one-year zero-coupon bond plus a one-year call option worth about $39 
D) A one-year zero-coupon bond plus a one-year call option worth about $29 
A) A one-year zero-coupon bond plus a one-year call option worth about $59 
B) A one-year zero-coupon bond plus a one-year call option worth about $49 
C) A one-year zero-coupon bond plus a one-year call option worth about $39 
D) A one-year zero-coupon bond plus a one-year call option worth about $29

Question 13

How can a straddle be created?

Accepted Answer

A) Buy one call and one put with the same strike price and same expiration date 
B) Buy one call and one put with different strike prices and same expiration date 
C) Buy one call and two puts with the same strike price and expiration date 
D) Buy two calls and one put with the same strike price and expiration date 
A) Buy one call and one put with the same strike price and same expiration date 
B) Buy one call and one put with different strike prices and same expiration date 
C) Buy one call and two puts with the same strike price and expiration date 
D) Buy two calls and one put with the same strike price and expiration date

Question 14

Which of the following is correct?

Accepted Answer

A) A diagonal spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different 
B) A diagonal spread can be created by buying a put and selling a call when the strike prices are the same and the times to maturity are different 
C) A diagonal spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different 
D) A diagonal spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different 
A) A diagonal spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different 
B) A diagonal spread can be created by buying a put and selling a call when the strike prices are the same and the times to maturity are different 
C) A diagonal spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different 
D) A diagonal spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different

Question 15

A stock price is currently $23.A reverse (i.e short) butterfly spread is created from options with strike prices of $20,$25,and $30.Which of the following is true?

Accepted Answer

A) The gain when the stock price is greater that $30 is less than the gain when the stock price is less than $20 
B) The gain when the stock price is greater that $30 is greater than the gain when the stock price is less than $20 
C) The gain when the stock price is greater that $30 is the same as the gain when the stock price is less than $20 
D) It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20 
A) The gain when the stock price is greater that $30 is less than the gain when the stock price is less than $20 
B) The gain when the stock price is greater that $30 is greater than the gain when the stock price is less than $20 
C) The gain when the stock price is greater that $30 is the same as the gain when the stock price is less than $20 
D) It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20

Question 16

Which of the following creates a bull spread?

Accepted Answer

A) Buy a low strike price put and sell a high strike price put 
B) Buy a high strike price put and sell a low strike price put 
C) Buy a high strike price call and sell a low strike price put 
D) Buy a high strike price put and sell a low strike price call 
A) Buy a low strike price put and sell a high strike price put 
B) Buy a high strike price put and sell a low strike price put 
C) Buy a high strike price call and sell a low strike price put 
D) Buy a high strike price put and sell a low strike price call

Question 17

Which of the following describes a covered call?

Accepted Answer

A) A long call option on a stock plus a long position in the stock 
B) A long call option on a stock plus a short put option on the stock 
C) A short call option on a stock plus a short position in the stock 
D) A short call option on a stock plus a long position in the stock 
A) A long call option on a stock plus a long position in the stock 
B) A long call option on a stock plus a short put option on the stock 
C) A short call option on a stock plus a short position in the stock 
D) A short call option on a stock plus a long position in the stock

Question 18

How can a strip trading strategy be created?

Accepted Answer

A) Buy one call and one put with the same strike price and same expiration date 
B) Buy one call and one put with different strike prices and same expiration date 
C) Buy one call and two puts with the same strike price and expiration date 
D) Buy two calls and one put with the same strike price and expiration date 
A) Buy one call and one put with the same strike price and same expiration date 
B) Buy one call and one put with different strike prices and same expiration date 
C) Buy one call and two puts with the same strike price and expiration date 
D) Buy two calls and one put with the same strike price and expiration date

Question 19

Which of the following creates a bear spread?

Accepted Answer

A) Buy a low strike price call and sell a high strike price call 
B) Buy a high strike price call and sell a low strike price call 
C) Buy a low strike price call and sell a high strike price put 
D) Buy a low strike price put and sell a high strike price call 
A) Buy a low strike price call and sell a high strike price call 
B) Buy a high strike price call and sell a low strike price call 
C) Buy a low strike price call and sell a high strike price put 
D) Buy a low strike price put and sell a high strike price call

Question 20

What is the number of different option series used in creating a butterfly spread?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Exam 12: Trading Strategies Involving Options

Which of the following creates a bull spread?

How can a strangle trading strategy be created?

Six-month call options with strike prices of $35 and $40 cost $6 and $4,respectively.What is the maximum gain when a bull spread is created by trading a total of 200 options?

Which of the following creates a bear spread?

Which of the following describes a protective put?

What is a description of the trading strategy where an investor sells a 3-month call option and buys a one-year call option,where both options have a strike price of $100 and the underlying stock price is $75?

Which of the following is correct?

Which of the following is true of a box spread?

A trader creates a long butterfly spread from options with strike prices $60,$65,and $70 by trading a total of 400 options.The options are worth $11,$14,and $18. -What is the maximum net gain (after the cost of the options is taken into account)?

How can a strap trading strategy be created?

When the interest rate is 5% per annum with continuous compounding,which of the following creates a principal protected note worth $1000?

How can a straddle be created?

Which of the following is correct?

A stock price is currently $23.A reverse (i.e short) butterfly spread is created from options with strike prices of $20,$25,and $30.Which of the following is true?

Which of the following creates a bull spread?

Which of the following describes a covered call?

How can a strip trading strategy be created?

Which of the following creates a bear spread?

What is the number of different option series used in creating a butterfly spread?

Introduction

Mechanics of Futures Markets

Hedging Strategies Using Futures

Interest Rates

Determination of Forward and Futures Prices

Interest Rate Futures

Swaps

Securitization and the Credit Crisis of 2007

OIS Discounting, Credit Issues, and Funding Costs

Mechanics of Options Markets

Properties of Stock Options

Binomial Trees

Wiener Processes and Ito’s Lemma

The Black-Scholes-Merton Model

Employee Stock Options

Options on Stock Indices and Currencies

Futures Options

The Greek Letters

Volatility Smiles

Basic Numerical Procedures

Value at Risk

Estimating Volatilities and Correlations

Credit Risk

Credit Derivatives

Exotic Options

Filters