Exam 7: Options Markets

You sell an IBM call option for $4.The strike price of the option is $120,and the maturity is one year.At maturity,the price of the IBM stock is $126.Your profit/loss over the entire transaction is:

The writer of a put option on a stock

If your directional view is that stock prices are going to fall,you should

You have a long position in a stock that you purchased for $100,a short position in a call and a long position in a put,both at strike K = 100.At maturity the stock price is S_T,and you liquidate your stock and option positions.Your gross payoff (cash flow)is

You sold a call option at strike 105 for a price of $3 and sold a put option at strike 95 for a price of $2,both options with the same maturity.In what range of stock prices at maturity will you make money or not lose (on your net payoff)?

If you expect the price of a stock to decrease and its volatility to increase,then the most appropriate strategy to use is a

You have a portfolio with long positions in both puts and calls.The volatility in the market rises.

Which of the following statements is true of an option's payoff?

If you believe that stock prices are going to fall for sure,then given a fixed amount of capital,you should

For a call and a put written on the same underlying but at at possibly different strike prices,

The largest markets for derivatives based on notional outstandings are

You have $100 to invest.You can invest it in one of two alternatives.The first is to invest it in a stock that is trading for $100.The second is to buy three-month 100-strike calls on the stock that are currently trading at $4 each.You expect the stock price to appreciate with a maximum price after three months of $110.What is the maximum return on investment you can generate using stock and options?

The premium of an option is

A call option with a strike of K = 100 is purchased at a premium of $4.The stock price at maturity is $105.The net payoff of the option is

An investor who holds a short call option on IBM stock is implicitly

I hold a long position in a call option on IBM stock.If the price of IBM goes down and its volatility goes up,then the value of my call option

You anticipate that volatility will increase sharply and the stock price will fall.Select the most profitable of the following portfolios to hold,given your views:

Which of the following is a valid completion of the sentence-"An American option ..."?

A seller of a naked put option will want the value of the underlying asset to _______ and a buyer of a naked call option will want the value of the underlying asset to ______.

You have a long position in a stock that you purchased for $100,and a short position in a put option on the same stock at strike K = 100.At maturity the stock price is $95,and you liquidate your stock and option positions.Your gross payoff (cash flow)is