Question 1

Which of the following has the obligation to sell a stock at the strike price when an option is exercised?

Accepted Answer

A) call holder 
B) call writer 
C) put holder 
D) put writer 
E) call holder and put writer 
A) call holder 
B) call writer 
C) put holder 
D) put writer 
E) call holder and put writer B

Question 2

The change in the option symbol quotation system was driven by which of the following?
I. Advances in technology
II. Increase in the number and type of option products
III. Difficulty in applying the old system to NASDAQ stocks
IV. Difficulty in applying the system to complicated option products

Accepted Answer

A) I, II, III, and IV 
B) II, III, and IV 
C) I, II, and IV 
D) II and III 
E) I, II and III 
A) I, II, III, and IV 
B) II, III, and IV 
C) I, II, and IV 
D) II and III 
E) I, II and III A

Question 3

A call option has a premium of $.50, a strike price of $26, and 3 months to expiration. The current stock price is $25.50. The stock will pay a $.40 dividend two months from now. The risk-free rate is 1%. What is the premium on a 3-month put with a strike price of $40? Assume the options are European style.

Accepted Answer

A) $.25 
B) $.51 
C) $1.23 
D) $1.33 
E) $1.50 
A) $.25 
B) $.51 
C) $1.23 
D) $1.33 
E) $1.50 D

Question 4

By definition, stock index options would include an option on which one of the following underlying assets?

Accepted Answer

A) gold 
B) corn 
C) U.S. dollar 
D) S&P 500 
E) U.S. Treasury bill 
A) gold 
B) corn 
C) U.S. dollar 
D) S&P 500 
E) U.S. Treasury bill

Question 5

You purchased 1 SPX put option with a strike of 1400. You wrote one SPX put option with the same maturity date and a strike of 1300. At maturity, what is your total payoff if the S&P 500 index is 1320?

Accepted Answer

A) −$8,000 
B) −$2,000 
C) $2,000 
D) $4,000 
E) $8,000 
A) −$8,000 
B) −$2,000 
C) $2,000 
D) $4,000 
E) $8,000

Question 6

Russ paid a total of $125 to purchase 10 call options with a strike price of $23.50. What is the break-even stock price?

Accepted Answer

A) $12.50 
B) $17.65 
C) $23.63 
D) $25.00 
E) $236.30 
A) $12.50 
B) $17.65 
C) $23.63 
D) $25.00 
E) $236.30

Question 7

You own 4 put option contracts on ALZ stock. The contracts have a $17.50 strike price and you paid an option premium of $.40. What is the break-even stock price?

Accepted Answer

A) $17.10 
B) $17.30 
C) $17.50 
D) $17.70 
E) $17.90 
A) $17.10 
B) $17.30 
C) $17.50 
D) $17.70 
E) $17.90

Question 8

Jenny purchased 2 put option contracts on Winslow Mfg. stock. The option premium was $.80 and the strike price was $37.50. On the expiration date, the stock was selling for $38.00 a share. What is the total payoff on the option contracts?

Accepted Answer

A) −$100 
B) −$50 
C) $0 
D) $50 
E) $150 
A) −$100 
B) −$50 
C) $0 
D) $50 
E) $150

Question 9

By definition, a put option grants its owner which one of the following?

Accepted Answer

A) right to buy 
B) obligation to buy 
C) right to sell 
D) obligation to sell 
E) choice to either buy or sell 
A) right to buy 
B) obligation to buy 
C) right to sell 
D) obligation to sell 
E) choice to either buy or sell

Question 10

What is the total option premium you will receive if you sell 5 June $25.00 calls on Texas Instruments?
$\text { Iexas Instruments (TXN) }$
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text {CALL}$ $\quad $ $\quad $ $\quad $$\text {PUT}$
$\begin{array}{llllll}
\text { Exp } & \text { Strike } & \text { Bid } & \text { Ask } & \text { Bid } & \text { Ask }\
\text { May } & 25.00 & 6.60 & 6.70 & \text { N/A } & .01 \
\text { Jun } & 25.00 & 6.50 & 6.75 & \text { N/A } & .03 \
\text { Oct } & 25.00 & 6.95 & 7.25 & .39 & .42 \
\text { May } & 27.50 & 4.10 & 4.15 & \text { N/A } & .01\
\text { Jun}&27.50&4.05&4.30&.07&.10
\end{array}$

Accepted Answer

A) $90 
B) $850 
C) $1,640 
D) $2,170 
E) $3,250 
A) $90 
B) $850 
C) $1,640 
D) $2,170 
E) $3,250

Question 11

Which one of the following applies to a naked call?

Accepted Answer

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 
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

Question 12

Which one of the following is a bear call spread?

Accepted Answer

A) buying a $30 call and selling a $35 call on the same stock 
B) selling a $30 call and buying a $30 call on the same stock 
C) buying a $30 call and selling a $25 call on the same stock 
D) selling a $30 call and buying a $35 put 
E) buying a $30 call and selling a $35 put 
A) buying a $30 call and selling a $35 call on the same stock 
B) selling a $30 call and buying a $30 call on the same stock 
C) buying a $30 call and selling a $25 call on the same stock 
D) selling a $30 call and buying a $35 put 
E) buying a $30 call and selling a $35 put

Question 13

Which one of the following distinguishes an option as an American style option?

Accepted Answer

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 
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

Question 14

You own 300 shares of Delta stock, which is currently worth $42 a share. You just paid an option premium of $.70 to buy 3 put contracts on this stock with a strike price of $40. What is the maximum loss per share you are avoiding by purchasing the option contract?

Accepted Answer

A) $40.00 
B) $42.85 
C) $44.15 
D) $47.00 
E) $53.85 
A) $40.00 
B) $42.85 
C) $44.15 
D) $47.00 
E) $53.85

Question 15

What is the total option premium you will receive if you sell 4 May $27.50 calls on Texas Instruments?
$\text { Iexas Instruments (TXN) }$
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text {CALL}$ $\quad $ $\quad $ $\quad $$\text {PUT}$
$\begin{array}{llllll}
\text { Exp } & \text { Strike } & \text { Bid } & \text { Ask } & \text { Bid } & \text { Ask }\
\text { May } & 25.00 & 6.60 & 6.70 & \text { N/A } & .01 \
\text { Jun } & 25.00 & 6.50 & 6.75 & \text { N/A } & .03 \
\text { Oct } & 25.00 & 6.95 & 7.25 & .39 & .42 \
\text { May } & 27.50 & 4.10 & 4.15 & \text { N/A } & .01\
\text { Jun}&27.50&4.05&4.30&.07&.10
\end{array}$

Accepted Answer

A) $90 
B) $850 
C) $1,640 
D) $2,170 
E) $3,375 
A) $90 
B) $850 
C) $1,640 
D) $2,170 
E) $3,375

Question 16

Which one of the following is the primary purpose of a protective put?

Accepted Answer

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 
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

Question 17

A call option grants its owner which one of the following?

Accepted Answer

A) right to buy 
B) obligation to buy 
C) right to sell 
D) obligation to sell 
E) choice to either buy or sell 
A) right to buy 
B) obligation to buy 
C) right to sell 
D) obligation to sell 
E) choice to either buy or sell

Question 18

You own 10 put option contracts on JL Industrial stock. You paid an option premium of $.75 for a strike price of $26.25. On the option expiration date, the stock was selling for $25.15 a share. What is your percentage return?

Accepted Answer

A) −100.00% 
B) −18.75% 
C) 46.67% 
D) 194.00% 
E) 149.75% 
A) −100.00% 
B) −18.75% 
C) 46.67% 
D) 194.00% 
E) 149.75%

Question 19

A European call has a strike price of $37.50. The underlying stock's price is $38.20. What is the lower price bound of this call?

Accepted Answer

A) $0 
B) $.30 
C) $.50 
D) $.70 
E) $1.00 
A) $0 
B) $.30 
C) $.50 
D) $.70 
E) $1.00

Question 20

Gerold purchased 3 put option contracts at an option premium of $.95 and a strike price of $40. At expiration, the stock price was $42.25 per share. What is his percentage return?

Accepted Answer

A) −100.00% 
B) 0% 
C) 15.79% 
D) 21.62% 
E) 31.58% 
A) −100.00% 
B) 0% 
C) 15.79% 
D) 21.62% 
E) 31.58%

Which of the following has the obligation to sell a stock at the strike price when an option is exercised?

The change in the option symbol quotation system was driven by which of the following? I. Advances in technology II. Increase in the number and type of option products III. Difficulty in applying the old system to NASDAQ stocks IV. Difficulty in applying the system to complicated option products

By definition, stock index options would include an option on which one of the following underlying assets?

You purchased 1 SPX put option with a strike of 1400. You wrote one SPX put option with the same maturity date and a strike of 1300. At maturity, what is your total payoff if the S&P 500 index is 1320?

Russ paid a total of $125 to purchase 10 call options with a strike price of $23.50. What is the break-even stock price?

You own 4 put option contracts on ALZ stock. The contracts have a $17.50 strike price and you paid an option premium of $.40. What is the break-even stock price?

Jenny purchased 2 put option contracts on Winslow Mfg. stock. The option premium was $.80 and the strike price was $37.50. On the expiration date, the stock was selling for $38.00 a share. What is the total payoff on the option contracts?

By definition, a put option grants its owner which one of the following?

Which one of the following applies to a naked call?

Which one of the following is a bear call spread?

Which one of the following distinguishes an option as an American style option?

You own 300 shares of Delta stock, which is currently worth $42 a share. You just paid an option premium of $.70 to buy 3 put contracts on this stock with a strike price of $40. What is the maximum loss per share you are avoiding by purchasing the option contract?

Which one of the following is the primary purpose of a protective put?

A call option grants its owner which one of the following?

You own 10 put option contracts on JL Industrial stock. You paid an option premium of $.75 for a strike price of $26.25. On the option expiration date, the stock was selling for $25.15 a share. What is your percentage return?

A European call has a strike price of $37.50. The underlying stock's price is $38.20. What is the lower price bound of this call?

Gerold purchased 3 put option contracts at an option premium of $.95 and a strike price of $40. At expiration, the stock price was $42.25 per share. What is his percentage return?

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 15: Stock Options

Which of the following has the obligation to sell a stock at the strike price when an option is exercised?

The change in the option symbol quotation system was driven by which of the following? I. Advances in technology II. Increase in the number and type of option products III. Difficulty in applying the old system to NASDAQ stocks IV. Difficulty in applying the system to complicated option products

By definition, stock index options would include an option on which one of the following underlying assets?

You purchased 1 SPX put option with a strike of 1400. You wrote one SPX put option with the same maturity date and a strike of 1300. At maturity, what is your total payoff if the S&P 500 index is 1320?

Russ paid a total of $125 to purchase 10 call options with a strike price of $23.50. What is the break-even stock price?

You own 4 put option contracts on ALZ stock. The contracts have a $17.50 strike price and you paid an option premium of $.40. What is the break-even stock price?

Jenny purchased 2 put option contracts on Winslow Mfg. stock. The option premium was $.80 and the strike price was $37.50. On the expiration date, the stock was selling for $38.00 a share. What is the total payoff on the option contracts?

By definition, a put option grants its owner which one of the following?

Which one of the following applies to a naked call?

Which one of the following is a bear call spread?

Which one of the following distinguishes an option as an American style option?

You own 300 shares of Delta stock, which is currently worth $42 a share. You just paid an option premium of $.70 to buy 3 put contracts on this stock with a strike price of $40. What is the maximum loss per share you are avoiding by purchasing the option contract?

Which one of the following is the primary purpose of a protective put?

A call option grants its owner which one of the following?

You own 10 put option contracts on JL Industrial stock. You paid an option premium of $.75 for a strike price of $26.25. On the option expiration date, the stock was selling for $25.15 a share. What is your percentage return?

A European call has a strike price of $37.50. The underlying stock's price is $38.20. What is the lower price bound of this call?

Gerold purchased 3 put option contracts at an option premium of $.95 and a strike price of $40. At expiration, the stock price was $42.25 per share. What is his percentage return?

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters