Question 1

A straddle is a combination of a put and call on the same stock with the same strike price and expiration date.

Accepted Answer

A) True 
 B)False  True

Question 2

A naked option write is a conservative strategy.

Accepted Answer

A) True 
 B)False  False

Question 3

The International Securities Exchange:

Accepted Answer

A) is an electronic communication network dealing in options. 
B) has taken significant market share from the Chicago Board Options Exchange. 
C) started trading options in 2000. 
D) All of the above are true 
A) is an electronic communication network dealing in options. 
B) has taken significant market share from the Chicago Board Options Exchange. 
C) started trading options in 2000. 
D) All of the above are true D

Question 4

A call option with a speculative premium of $3 and a strike price of $55 with an intrinsic value of $3 may be related to a stock that is selling for $58 per share.

Accepted Answer

A) True 
 B)False

Question 5

Investors can buy put and call options on stock indexes, such as the Dow Jones Industrial Average and the Standard & Poor's 500.

Accepted Answer

A) True 
 B)False

Question 6

The maximum possible loss on a strategy of buying put options is limited to the options premium under all circumstances.

Accepted Answer

A) True 
 B)False

Question 7

If a stock price increased by 76.5% and the leverage for the option was calculated to be 1.5, the option price increased by 25.5%.

Accepted Answer

A) True 
 B)False

Question 8

A stock is selling for $45.75 with a call option available at a $40 strike that has a premium of $7.50. What percentage of the common stock price does the speculative premium represent?

Accepted Answer

A) 16.39% 
B) 14.375% 
C) 12.57% 
D) 4.38% 
E) 3.83% 
A) 16.39% 
B) 14.375% 
C) 12.57% 
D) 4.38% 
E) 3.83%

Question 9

_______ was the first organized exchange to trade options, in 1973.

Accepted Answer

A) The New York Stock Exchange 
B) The American Exchange 
C) The Chicago Board Option Exchange 
D) The International Securities Exchange 
E) None of the above 
A) The New York Stock Exchange 
B) The American Exchange 
C) The Chicago Board Option Exchange 
D) The International Securities Exchange 
E) None of the above

Question 10

Assume that a stock is selling for $47 with options available at 20, 30, and 40 strike prices. The 40 call option is at 7 1/2. Calculate the following:
(a) The intrinsic value of the $40 call
(b) Is the call in-the-money?
(c) The speculative premium on the 40 call option
(d) The percent the speculative premium represents of the common stock price

Accepted Answer

(a) $7
(b) Yes, because the strike price

Question 11

A stock is selling for $45.75, with a call option available at a $40 strike that has a premium of $7.50. What is the speculative premium of the call?

Accepted Answer

A) $.75 
B) $1.75 
C) $5.00 
D) $5.75 
E) $7.50 
A) $.75 
B) $1.75 
C) $5.00 
D) $5.75 
E) $7.50

Question 12

If an option is traded on more than one exchange, it may be bought, sold, or closed out on any exchange.

Accepted Answer

A) True 
 B)False

Question 13

A put is an option to buy 100 shares of common stock at a specified price for a given period of time.

Accepted Answer

A) True 
 B)False

Question 14

Standardized strike prices and expiration dates in the option market:

Accepted Answer

A) allows for more efficient trading strategies. 
B) lowers the time premiums. 
C) allows hedgers, speculators, and arbitrageurs to all operate together. 
D) A and C 
A) allows for more efficient trading strategies. 
B) lowers the time premiums. 
C) allows hedgers, speculators, and arbitrageurs to all operate together. 
D) A and C

Question 15

The difference between a put and a call option is that:

Accepted Answer

A) a put is an option to sell common stock at a specified price while a call is an option to buy common stock at a specified price. 
B) a call is an option to sell common stock at a specified price while a put is an option to buy common stock at a specified price. 
C) a call is an option to buy common stock at a specified price while a put is the option to buy preferred stock at a specified price. 
D) a call is an option to sell common stock at a specified price while a put is the option to sell preferred stock at a specified price. 
A) a put is an option to sell common stock at a specified price while a call is an option to buy common stock at a specified price. 
B) a call is an option to sell common stock at a specified price while a put is an option to buy common stock at a specified price. 
C) a call is an option to buy common stock at a specified price while a put is the option to buy preferred stock at a specified price. 
D) a call is an option to sell common stock at a specified price while a put is the option to sell preferred stock at a specified price.

Question 16

The intrinsic value of a put option is equal to the strike price minus the market price of the option.

Accepted Answer

A) True 
 B)False

Question 17

The intrinsic value of a call option equals the market price minus the strike price of the option.

Accepted Answer

A) True 
 B)False

Question 18

IBM was trading at $100 when Mrs. Peterson bought a 100 call on IBM at a price of $10. Three months later, IBM common stock was trading at $130, and the call option was trading at $33. The leverage factor for this situation would be:

Accepted Answer

A) 11x. 
B) 3.3x. 
C) 7.66x. 
D) 25.38x. 
A) 11x. 
B) 3.3x. 
C) 7.66x. 
D) 25.38x.

Question 19

A stock is selling for $45.75, with a put option available at a $50 strike that has a premium of $7.50. What is the intrinsic value of the put?

Accepted Answer

A) $4.25 
B) $1.25 
C) $3.25 
D) $5.25 
E) $7.50 
A) $4.25 
B) $1.25 
C) $3.25 
D) $5.25 
E) $7.50

Question 20

Which of the following is NOT a characteristic of put and call options?

Accepted Answer

A) They are contracts to buy or sell 100 shares of common stock 
B) There is always a specified price 
C) There is always a specified time period to exercise options 
D) All of the above are characteristics 
A) They are contracts to buy or sell 100 shares of common stock 
B) There is always a specified price 
C) There is always a specified time period to exercise options 
D) All of the above are characteristics

Exam 14: Put and Call Options

A straddle is a combination of a put and call on the same stock with the same strike price and expiration date.

A naked option write is a conservative strategy.

The International Securities Exchange:

A call option with a speculative premium of $3 and a strike price of $55 with an intrinsic value of $3 may be related to a stock that is selling for $58 per share.

Investors can buy put and call options on stock indexes, such as the Dow Jones Industrial Average and the Standard & Poor's 500.

The maximum possible loss on a strategy of buying put options is limited to the options premium under all circumstances.

If a stock price increased by 76.5% and the leverage for the option was calculated to be 1.5, the option price increased by 25.5%.

A stock is selling for $45.75 with a call option available at a $40 strike that has a premium of $7.50. What percentage of the common stock price does the speculative premium represent?

_______ was the first organized exchange to trade options, in 1973.

A stock is selling for $45.75, with a call option available at a $40 strike that has a premium of $7.50. What is the speculative premium of the call?

If an option is traded on more than one exchange, it may be bought, sold, or closed out on any exchange.

A put is an option to buy 100 shares of common stock at a specified price for a given period of time.

Standardized strike prices and expiration dates in the option market:

The difference between a put and a call option is that:

The intrinsic value of a put option is equal to the strike price minus the market price of the option.

The intrinsic value of a call option equals the market price minus the strike price of the option.

IBM was trading at $100 when Mrs. Peterson bought a 100 call on IBM at a price of $10. Three months later, IBM common stock was trading at $130, and the call option was trading at $33. The leverage factor for this situation would be:

A stock is selling for $45.75, with a put option available at a $50 strike that has a premium of $7.50. What is the intrinsic value of the put?

Which of the following is NOT a characteristic of put and call options?

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

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