Question 1

List two types of exotic options and describe their characteristics.

Accepted Answer

There are five exotic options mentioned

Question 2

Describe the protective put.What are the advantages of such a strategy?

Accepted Answer

A protective put consists of investing i

Question 3

A covered call position is

Accepted Answer

A)  the simultaneous purchase of the call and the underlying asset. 
B)  the purchase of a share of stock with a simultaneous sale of a put on that stock. 
C)  the short sale of a share of stock with a simultaneous sale of a call on that stock. 
D)  the purchase of a share of stock with a simultaneous sale of a call on that stock. 
E)  the simultaneous purchase of a call and sale of a put on the same stock. 
A)  the simultaneous purchase of the call and the underlying asset. 
B)  the purchase of a share of stock with a simultaneous sale of a put on that stock. 
C)  the short sale of a share of stock with a simultaneous sale of a call on that stock. 
D)  the purchase of a share of stock with a simultaneous sale of a call on that stock. 
E)  the simultaneous purchase of a call and sale of a put on the same stock.

Question 4

You purchase one IBM March 100 put contract for a put premium of $6.What is the maximum profit that you could gain from this strategy?

Accepted Answer

A)  $10,000 
B)  $10,600 
C)  $9,400 
D)  $9,000 
E)  none of these 
A)  $10,000 
B)  $10,600 
C)  $9,400 
D)  $9,000 
E)  none of these

Question 5

An option with an exercise price equal to the underlying asset's price is

Accepted Answer

A)  worthless. 
B)  in the money. 
C)  at the money. 
D)  out of the money. 
E)  theoretically impossible. 
A)  worthless. 
B)  in the money. 
C)  at the money. 
D)  out of the money. 
E)  theoretically impossible.

Question 6

The maximum loss the writer of a stock put option can suffer is equal to

Accepted Answer

A)  the put premium. 
B)  the striking price. 
C)  the stock price minus the put premium. 
D)  the striking price minus the put premium. 
E)  none of these. 
A)  the put premium. 
B)  the striking price. 
C)  the stock price minus the put premium. 
D)  the striking price minus the put premium. 
E)  none of these.

Question 7

Suppose you purchase one IBM May 100 call contract at $5 and write one IBM May 105 call contract at $2.The maximum potential profit of your strategy is

Accepted Answer

A)  $600. 
B)  $500. 
C)  $200. 
D)  $300. 
E)  $100. 
A)  $600. 
B)  $500. 
C)  $200. 
D)  $300. 
E)  $100.

Question 8

You purchase one IBM 70 call option for a premium of $6.Ignoring transaction costs,the break-even price of the position is

Accepted Answer

A)  $98 
B)  $64 
C)  $76 
D)  $70 
E)  none of these 
A)  $98 
B)  $64 
C)  $76 
D)  $70 
E)  none of these

Question 9

A put option on a stock is said to be out of the money if

Accepted Answer

A)  the exercise price is higher than the stock price. 
B)  the exercise price is less than the stock price. 
C)  the exercise price is equal to the stock price. 
D)  the price of the put is higher than the price of the call. 
E)  the price of the call is higher than the price of the put. 
A)  the exercise price is higher than the stock price. 
B)  the exercise price is less than the stock price. 
C)  the exercise price is equal to the stock price. 
D)  the price of the put is higher than the price of the call. 
E)  the price of the call is higher than the price of the put.

Question 10

Protective puts offer an advantage over stop-loss orders in that

Accepted Answer

A)  the stop-loss order will be executed as soon as the stock price reaches the trigger point,without allowing for a subsequent rebound,while the put allows the holder to wait. 
B)  the stop-loss order is costless to place. 
C)  the stop-loss order may actually be executed at a price below the trigger price. 
D)  both a and b are true. 
E)  both a and c are true. 
A)  the stop-loss order will be executed as soon as the stock price reaches the trigger point,without allowing for a subsequent rebound,while the put allows the holder to wait. 
B)  the stop-loss order is costless to place. 
C)  the stop-loss order may actually be executed at a price below the trigger price. 
D)  both a and b are true. 
E)  both a and c are true.

Question 11

What is the Option Clearing Corporation (OCC)and how does this organization facilitate option trading?

Accepted Answer

The OCC is the other side of e

Question 12

HighFlyer Stock currently sells for $48.A one-year call option with strike price of $55 sells for $9,and the risk free interest rate is 6%.What is the price of a one-year put with strike price of $55?

Accepted Answer

A)  $9.00 
B)  $12.89 
C)  $16.00 
D)  $18.72 
E)  $15.60 
A)  $9.00 
B)  $12.89 
C)  $16.00 
D)  $18.72 
E)  $15.60

Question 13

You buy one Xerox June 60 call contract and one June 60 put contract.The call premium is $5 and the put premium is $3.At expiration,you break even if the stock price is equal to

Accepted Answer

A)  $52. 
B)  $60. 
C)  $68. 
D)  both a and c. 
E)  none of these. 
A)  $52. 
B)  $60. 
C)  $68. 
D)  both a and c. 
E)  none of these.

Question 14

You buy one Xerox June 60 call contract and one June 60 put contract.The call premium is $5 and the put premium is $3.Your strategy is called

Accepted Answer

A)  a short straddle. 
B)  a long straddle. 
C)  a horizontal straddle. 
D)  a covered call. 
E)  none of these. 
A)  a short straddle. 
B)  a long straddle. 
C)  a horizontal straddle. 
D)  a covered call. 
E)  none of these.

Question 15

You buy one Xerox June 60 call contract and one June 60 put contract.The call premium is $5 and the put premium is $3.Your maximum loss from this position could be

Accepted Answer

A)  $500. 
B)  $300. 
C)  $800. 
D)  $200. 
E)  none of these. 
A)  $500. 
B)  $300. 
C)  $800. 
D)  $200. 
E)  none of these.

Question 16

The trading volume on the Chicago Board Options Exchange is dominated by

Accepted Answer

A)  the S&P 100 index option. 
B)  the S&P 500 index option. 
C)  the Russell 2000 index option. 
D)  all of these. 
E)  both a and b. 
A)  the S&P 100 index option. 
B)  the S&P 500 index option. 
C)  the Russell 2000 index option. 
D)  all of these. 
E)  both a and b.

Question 17

A protective put strategy is

Accepted Answer

A)  a long put plus a long position in the underlying asset. 
B)  a long put plus a long call on the same underlying asset. 
C)  a long call plus a short put on the same underlying asset. 
D)  a long put plus a short call on the same underlying asset. 
E)  none of these. 
A)  a long put plus a long position in the underlying asset. 
B)  a long put plus a long call on the same underlying asset. 
C)  a long call plus a short put on the same underlying asset. 
D)  a long put plus a short call on the same underlying asset. 
E)  none of these.

Question 18

Suppose you purchase one IBM May 100 call contract at $5 and write one IBM May 105 call contract at $2.The maximum loss you could suffer from your strategy is

Accepted Answer

A)  $200. 
B)  $300. 
C)  zero. 
D)  $500. 
E)  none of these. 
A)  $200. 
B)  $300. 
C)  zero. 
D)  $500. 
E)  none of these.

Question 19

An American put option can be exercised

Accepted Answer

A)  any time on or before the expiration date. 
B)  only on the expiration date. 
C)  any time in the indefinite future. 
D)  only after dividends are paid. 
E)  none of these. 
A)  any time on or before the expiration date. 
B)  only on the expiration date. 
C)  any time in the indefinite future. 
D)  only after dividends are paid. 
E)  none of these.

Question 20

A callable bond should be priced the same as

Accepted Answer

A)  a convertible bond. 
B)  a straight bond plus a put option. 
C)  a straight bond plus a call option. 
D)  a straight bond plus warrants. 
E)  a straight bond. 
A)  a convertible bond. 
B)  a straight bond plus a put option. 
C)  a straight bond plus a call option. 
D)  a straight bond plus warrants. 
E)  a straight bond.

Exam 17: Futures Markets and Risk Management

List two types of exotic options and describe their characteristics.

Describe the protective put.What are the advantages of such a strategy?

A covered call position is

You purchase one IBM March 100 put contract for a put premium of $6.What is the maximum profit that you could gain from this strategy?

An option with an exercise price equal to the underlying asset's price is

The maximum loss the writer of a stock put option can suffer is equal to

Suppose you purchase one IBM May 100 call contract at $5 and write one IBM May 105 call contract at $2.The maximum potential profit of your strategy is

You purchase one IBM 70 call option for a premium of $6.Ignoring transaction costs,the break-even price of the position is

A put option on a stock is said to be out of the money if

Protective puts offer an advantage over stop-loss orders in that

What is the Option Clearing Corporation (OCC)and how does this organization facilitate option trading?

HighFlyer Stock currently sells for $48.A one-year call option with strike price of $55 sells for $9,and the risk free interest rate is 6%.What is the price of a one-year put with strike price of $55?

You buy one Xerox June 60 call contract and one June 60 put contract.The call premium is $5 and the put premium is $3.At expiration,you break even if the stock price is equal to

You buy one Xerox June 60 call contract and one June 60 put contract.The call premium is $5 and the put premium is $3.Your strategy is called

You buy one Xerox June 60 call contract and one June 60 put contract.The call premium is $5 and the put premium is $3.Your maximum loss from this position could be

The trading volume on the Chicago Board Options Exchange is dominated by

A protective put strategy is

Suppose you purchase one IBM May 100 call contract at $5 and write one IBM May 105 call contract at $2.The maximum loss you could suffer from your strategy is

An American put option can be exercised

A callable bond should be priced the same as

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