Question 1

The price that the buyer of a call option pays for the underlying asset if she executes her option is called the

Accepted Answer

A) strike price. 
B) exercise price. 
C) execution price. 
D) strike price or execution price. 
E) strike price or exercise price. 
A) strike price. 
B) exercise price. 
C) execution price. 
D) strike price or execution price. 
E) strike price or exercise price.

Question 2

The current market price of a share of Disney stock is $60.If a call option on this stock has a strike price of $65, the call

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) can be exercised profitably. 
D) is out of the money and can be exercised profitably. 
E) is in the money and can be exercised profitably. 
A) is out of the money. 
B) is in the money. 
C) can be exercised profitably. 
D) is out of the money and can be exercised profitably. 
E) is in the money and can be exercised profitably.

Question 3

The price that the buyer of a put option pays to acquire the option is called the

Accepted Answer

A) strike price. 
B) exercise price. 
C) execution price. 
D) acquisition price. 
E) premium. 
A) strike price. 
B) exercise price. 
C) execution price. 
D) acquisition price. 
E) premium.

Question 4

You purchased one AT&T March 50 put and sold one AT&T April 50 put.Your strategy is known as

Accepted Answer

A) a vertical spread. 
B) a straddle. 
C) a time spread. 
D) a collar. 
A) a vertical spread. 
B) a straddle. 
C) a time spread. 
D) a collar.

Question 5

The following price quotations on WFM were taken from the Wall Street Journal.   The premium on one WFM February 90 call contract is

Accepted Answer

A) $4.1250. 
B) $418.00. 
C) $412.50. 
D) $158.00. 
A) $4.1250. 
B) $418.00. 
C) $412.50. 
D) $158.00.

Question 6

Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. The maximum potential profit of your strategy is ________ if both options are exercised.

Accepted Answer

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

Question 7

A call option on a stock is said to be at 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 8

A European call option can be exercised

Accepted Answer

A) any time in the future. 
B) only on the expiration date. 
C) if the price of the underlying asset declines below the exercise price. 
D) immediately after dividends are paid. 
A) any time in the future. 
B) only on the expiration date. 
C) if the price of the underlying asset declines below the exercise price. 
D) immediately after dividends are paid.

Question 9

The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the

Accepted Answer

A) strike price. 
B) exercise price. 
C) execution price. 
D) strike price or exercise price. 
E) strike price or execution price. 
A) strike price. 
B) exercise price. 
C) execution price. 
D) strike price or exercise price. 
E) strike price or execution price.

Question 10

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 11

The current market price of a share of CSCO stock is $22.If a call option on this stock has a strike price of $20, the call

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) sells for a higher price than if the market price of CSCO stock is $21. 
D) is out of the money and sells for a higher price than if the market price of CSCO stock is $21. 
E) is in the money and sells for a higher price than if the market price of CSCO stock is $21. 
A) is out of the money. 
B) is in the money. 
C) sells for a higher price than if the market price of CSCO stock is $21. 
D) is out of the money and sells for a higher price than if the market price of CSCO stock is $21. 
E) is in the money and sells for a higher price than if the market price of CSCO stock is $21.

Question 12

Some more "traditional" assets have optionlike features; some of these instruments include

Accepted Answer

A) callable bonds. 
B) convertible bonds. 
C) warrants. 
D) callable bonds and convertible bonds. 
E) All of the options 
A) callable bonds. 
B) convertible bonds. 
C) warrants. 
D) callable bonds and convertible bonds. 
E) All of the options

Question 13

The current market price of a share of CSCO stock is $22.If a put option on this stock has a strike price of $20, the put

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) sells for a higher price than if the strike price of the put option was $25. 
D) is out of the money and sells for a higher price than if the strike price of the put option was $25. 
E) is in the money and sells for a higher price than if the strike price of the put option was $25. 
A) is out of the money. 
B) is in the money. 
C) sells for a higher price than if the strike price of the put option was $25. 
D) is out of the money and sells for a higher price than if the strike price of the put option was $25. 
E) is in the money and sells for a higher price than if the strike price of the put option was $25.

Question 14

Suppose you purchase one WFM May 100 call contract at $5 and write one WFM 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. 
A) $200. 
B) $300. 
C) zero. 
D) $500.

Question 15

The potential loss for a writer of a naked call option on a stock is

Accepted Answer

A) limited. 
B) unlimited. 
C) larger the lower the stock price. 
D) equal to the call premium. 
E) None of the options 
A) limited. 
B) unlimited. 
C) larger the lower the stock price. 
D) equal to the call premium. 
E) None of the options

Question 16

Binary options

Accepted Answer

A) are based on two possible outcomes-yes or no. 
B) may make a payoff of a fixed amount if a specified event happens. 
C) may make a payoff of a fixed amount if a specified event does not happen. 
D) may make a payoff of a fixed amount if a specified event happens and are based on two possible outcomes-yes or no. 
E) All of the options 
A) are based on two possible outcomes-yes or no. 
B) may make a payoff of a fixed amount if a specified event happens. 
C) may make a payoff of a fixed amount if a specified event does not happen. 
D) may make a payoff of a fixed amount if a specified event happens and are based on two possible outcomes-yes or no. 
E) All of the options

Question 17

The Option Clearing Corporation is owned by

Accepted Answer

A) the Federal Reserve System. 
B) the exchanges on which stock options are traded. 
C) the major U.S.banks. 
D) the Federal Deposit Insurance Corporation. 
A) the Federal Reserve System. 
B) the exchanges on which stock options are traded. 
C) the major U.S.banks. 
D) the Federal Deposit Insurance Corporation.

Question 18

The current market price of a share of AT&T stock is $50.If a put option on this stock has a strike price of $45, the put

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) sells for a lower price than if the market price of AT&T stock is $40. 
D) is out of the money and sells for a lower price than if the market price of AT&T stock is $40. 
E) is in the money and sells for a lower price than if the market price of AT&T stock is $40. 
A) is out of the money. 
B) is in the money. 
C) sells for a lower price than if the market price of AT&T stock is $40. 
D) is out of the money and sells for a lower price than if the market price of AT&T stock is $40. 
E) is in the money and sells for a lower price than if the market price of AT&T stock is $40.

Question 19

The current market price of a share of Boeing stock is $75.If a call option on this stock has a strike price of $70, the call

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) sells for a higher price than if the market price of Boeing stock is $70. 
D) is out of the money and sells for a higher price than if the market price of Boeing stock is $70. 
E) is in the money and sells for a higher price than if the market price of Boeing stock is $70. 
A) is out of the money. 
B) is in the money. 
C) sells for a higher price than if the market price of Boeing stock is $70. 
D) is out of the money and sells for a higher price than if the market price of Boeing stock is $70. 
E) is in the money and sells for a higher price than if the market price of Boeing stock is $70.

Question 20

The following price quotations on WFM were taken from the Wall Street Journal.   The premium on one WFM February 85 call contract is

Accepted Answer

A) $8.875. 
B) $887.50. 
C) $412.50. 
D) $158.00. 
A) $8.875. 
B) $887.50. 
C) $412.50. 
D) $158.00.

Exam 20: Options Markets: Introduction

The price that the buyer of a call option pays for the underlying asset if she executes her option is called the

The current market price of a share of Disney stock is $60.If a call option on this stock has a strike price of $65, the call

The price that the buyer of a put option pays to acquire the option is called the

You purchased one AT&T March 50 put and sold one AT&T April 50 put.Your strategy is known as

The following price quotations on WFM were taken from the Wall Street Journal. The premium on one WFM February 90 call contract is

Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. The maximum potential profit of your strategy is ________ if both options are exercised.

A call option on a stock is said to be at the money if

A European call option can be exercised

The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the

A covered call position is

The current market price of a share of CSCO stock is $22.If a call option on this stock has a strike price of $20, the call

Some more "traditional" assets have optionlike features; some of these instruments include

The current market price of a share of CSCO stock is $22.If a put option on this stock has a strike price of $20, the put

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

The potential loss for a writer of a naked call option on a stock is

Binary options

The Option Clearing Corporation is owned by

The current market price of a share of AT&T stock is $50.If a put option on this stock has a strike price of $45, the put

The current market price of a share of Boeing stock is $75.If a call option on this stock has a strike price of $70, the call

The following price quotations on WFM were taken from the Wall Street Journal. The premium on one WFM February 85 call contract is

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