Question 1

Which of the following describes LEAPS?

Accepted Answer

A)  Options which are partly American and partly European 
B)  Options where the strike price changes through time 
C)  Exchange-traded stock options with longer lives than regular exchange-traded stock options 
D)  Options on the average stock price during a period of time 
A)  Options which are partly American and partly European 
B)  Options where the strike price changes through time 
C)  Exchange-traded stock options with longer lives than regular exchange-traded stock options 
D)  Options on the average stock price during a period of time C

Question 2

The price of a stock is $64.A trader buys 1 put option contract on the stock with a strike price of $60 when the option price is $10.When does the trader make a profit?

Accepted Answer

A)  When the stock price is below $60 
B)  When the stock price is below $64 
C)  When the stock price is below $54 
D)  When the stock price is below $50 
A)  When the stock price is below $60 
B)  When the stock price is below $64 
C)  When the stock price is below $54 
D)  When the stock price is below $50 D

Question 3

Which of the following describes a call option?

Accepted Answer

A)  The right to buy an asset for a certain price 
B)  The obligation to buy an asset for a certain price 
C)  The right to sell an asset for a certain price 
D)  The obligation to sell an asset for a certain price 
A)  The right to buy an asset for a certain price 
B)  The obligation to buy an asset for a certain price 
C)  The right to sell an asset for a certain price 
D)  The obligation to sell an asset for a certain price A

Question 4

Consider a put option and a call option with the same strike price and time to maturity.Which of the following is true?

Accepted Answer

A)  It is possible for both options to be in the money 
B)  It is possible for both options to be out of the money 
C)  One of the options must be in the money 
D)  One of the options must be either in the money or at the money 
A)  It is possible for both options to be in the money 
B)  It is possible for both options to be out of the money 
C)  One of the options must be in the money 
D)  One of the options must be either in the money or at the money

Question 5

Which of the following is an example of an option class?

Accepted Answer

A)  All calls on a certain stock 
B)  All calls with a particular strike price on a certain stock 
C)  All calls with a particular time to maturity on a certain stock 
D)  All calls with a particular time to maturity and strike price on a certain stock 
A)  All calls on a certain stock 
B)  All calls with a particular strike price on a certain stock 
C)  All calls with a particular time to maturity on a certain stock 
D)  All calls with a particular time to maturity and strike price on a certain stock

Question 6

A trader buys a call and sells a put with the same strike price and maturity date.What is the position equivalent to?

Accepted Answer

A)  A long forward 
B)  A short forward 
C)  Buying the asset 
D)  None of the above 
A)  A long forward 
B)  A short forward 
C)  Buying the asset 
D)  None of the above

Question 7

The price of a stock is $67.A trader sells 5 put option contracts on the stock with a strike price of $70 when the option price is $4.The options are exercised when the stock price is $69.What is the trader's net profit or loss?

Accepted Answer

A)  Loss of $1,500 
B)  Loss of $500 
C)  Gain of $1,500 
D)  Loss of $1,000 
A)  Loss of $1,500 
B)  Loss of $500 
C)  Gain of $1,500 
D)  Loss of $1,000

Question 8

When a six-month option is purchased

Accepted Answer

A)  The price must be paid in full 
B)  Up to 25% of the option price can be borrowed using a margin account 
C)  Up to 50% of the option price can be borrowed using a margin account 
D)  Up to 75% of the option price can be borrowed using a margin account 
A)  The price must be paid in full 
B)  Up to 25% of the option price can be borrowed using a margin account 
C)  Up to 50% of the option price can be borrowed using a margin account 
D)  Up to 75% of the option price can be borrowed using a margin account

Question 9

An investor has exchange-traded put options to sell 100 shares for $20.There is a $1 cash dividend.Which of the following is then the position of the investor?

Accepted Answer

A)  The investor has put options to sell 100 shares for $20 
B)  The investor has put options to sell 100 shares for $19 
C)  The investor has put options to sell 105 shares for $19 
D)  The investor has put options to sell 105 shares for $19.05 
A)  The investor has put options to sell 100 shares for $20 
B)  The investor has put options to sell 100 shares for $19 
C)  The investor has put options to sell 105 shares for $19 
D)  The investor has put options to sell 105 shares for $19.05

Question 10

Which of the following is true?

Accepted Answer

A)  A long call is the same as a short put 
B)  A short call is the same as a long put 
C)  A call on a stock plus a stock is the same as a put 
D)  None of the above 
A)  A long call is the same as a short put 
B)  A short call is the same as a long put 
C)  A call on a stock plus a stock is the same as a put 
D)  None of the above

Question 11

Which of the following is an example of an option series?

Accepted Answer

A)  All calls on a certain stock 
B)  All calls with a particular strike price on a certain stock 
C)  All calls with a particular time to maturity on a certain stock 
D)  All calls with a particular time to maturity and strike price on a certain stock 
A)  All calls on a certain stock 
B)  All calls with a particular strike price on a certain stock 
C)  All calls with a particular time to maturity on a certain stock 
D)  All calls with a particular time to maturity and strike price on a certain stock

Question 12

Which of the following are true for CBOE stock options?

Accepted Answer

A)  There are no margin requirements 
B)  The initial margin and maintenance margin are determined by formulas and are equal 
C)  The initial margin and maintenance margin are determined by formulas and are different 
D)  The maintenance margin is usually about 75% of the initial margin 
A)  There are no margin requirements 
B)  The initial margin and maintenance margin are determined by formulas and are equal 
C)  The initial margin and maintenance margin are determined by formulas and are different 
D)  The maintenance margin is usually about 75% of the initial margin

Question 13

Which of the following describes a difference between a warrant and an exchange-traded stock option?

Accepted Answer

A)  In a warrant issue, someone has guaranteed the performance of the option seller in the event that the option is exercised 
B)  The number of warrants is fixed whereas the number of exchange-traded options in existence depends on trading 
C)  Exchange-traded stock options have a strike price 
D)  Warrants cannot be traded after they have been purchased 
A)  In a warrant issue, someone has guaranteed the performance of the option seller in the event that the option is exercised 
B)  The number of warrants is fixed whereas the number of exchange-traded options in existence depends on trading 
C)  Exchange-traded stock options have a strike price 
D)  Warrants cannot be traded after they have been purchased

Question 14

An investor has exchange-traded put options to sell 100 shares for $20.There is a 2 for 1 stock split.Which of the following is the position of the investor after the stock split?

Accepted Answer

A)  Put options to sell 100 shares for $20 
B)  Put options to sell 100 shares for $10 
C)  Put options to sell 200 shares for $10 
D)  Put options to sell 200 shares for $20 
A)  Put options to sell 100 shares for $20 
B)  Put options to sell 100 shares for $10 
C)  Put options to sell 200 shares for $10 
D)  Put options to sell 200 shares for $20

Question 15

Which of the following describes a short position in an option?

Accepted Answer

A)  A position in an option lasting less than one month 
B)  A position in an option lasting less than three months 
C)  A position in an option lasting less than six months 
D)  A position where an option has been sold 
A)  A position in an option lasting less than one month 
B)  A position in an option lasting less than three months 
C)  A position in an option lasting less than six months 
D)  A position where an option has been sold

Question 16

Which of the following describes a long position in an option?

Accepted Answer

A)  A position where there is more than one year to maturity 
B)  A position where there is more than five years to maturity 
C)  A position where an option has been purchased 
D)  A position that has been held for a long time 
A)  A position where there is more than one year to maturity 
B)  A position where there is more than five years to maturity 
C)  A position where an option has been purchased 
D)  A position that has been held for a long time

Question 17

Which of the following must post margin?

Accepted Answer

A)  The seller of an option 
B)  The buyer of an option 
C)  The seller and the buyer of an option 
D)  Neither the seller nor the buyer of an option 
A)  The seller of an option 
B)  The buyer of an option 
C)  The seller and the buyer of an option 
D)  Neither the seller nor the buyer of an option

Question 18

In which of the following cases is an asset NOT considered constructively sold?

Accepted Answer

A)  The owner shorts the asset 
B)  The owner buys an in-the-money put option on the asset 
C)  The owner shorts a forward contract on the asset 
D)  The owner shorts a futures contract on the stock 
A)  The owner shorts the asset 
B)  The owner buys an in-the-money put option on the asset 
C)  The owner shorts a forward contract on the asset 
D)  The owner shorts a futures contract on the stock

Question 19

An investor has exchange-traded put options to sell 100 shares for $20.There is 25% stock dividend.Which of the following is the position of the investor after the stock dividend?

Accepted Answer

A)  Put options to sell 100 shares for $20 
B)  Put options to sell 75 shares for $25 
C)  Put options to sell 125 shares for $15 
D)  Put options to sell 125 shares for $16 
A)  Put options to sell 100 shares for $20 
B)  Put options to sell 75 shares for $25 
C)  Put options to sell 125 shares for $15 
D)  Put options to sell 125 shares for $16

Question 20

Which of the following is NOT traded by the CBOE?

Accepted Answer

A)  Weeklys 
B)  Monthlys 
C)  Binary options 
D)  DOOM options 
A)  Weeklys 
B)  Monthlys 
C)  Binary options 
D)  DOOM options

Exam 10: Mechanics of Options Markets

Which of the following describes LEAPS?

The price of a stock is $64.A trader buys 1 put option contract on the stock with a strike price of $60 when the option price is $10.When does the trader make a profit?

Which of the following describes a call option?

Consider a put option and a call option with the same strike price and time to maturity.Which of the following is true?

Which of the following is an example of an option class?

A trader buys a call and sells a put with the same strike price and maturity date.What is the position equivalent to?

The price of a stock is $67.A trader sells 5 put option contracts on the stock with a strike price of $70 when the option price is $4.The options are exercised when the stock price is $69.What is the trader's net profit or loss?

When a six-month option is purchased

An investor has exchange-traded put options to sell 100 shares for $20.There is a $1 cash dividend.Which of the following is then the position of the investor?

Which of the following is true?

Which of the following is an example of an option series?

Which of the following are true for CBOE stock options?

Which of the following describes a difference between a warrant and an exchange-traded stock option?

An investor has exchange-traded put options to sell 100 shares for $20.There is a 2 for 1 stock split.Which of the following is the position of the investor after the stock split?

Which of the following describes a short position in an option?

Which of the following describes a long position in an option?

Which of the following must post margin?

In which of the following cases is an asset NOT considered constructively sold?

An investor has exchange-traded put options to sell 100 shares for $20.There is 25% stock dividend.Which of the following is the position of the investor after the stock dividend?

Which of the following is NOT traded by the CBOE?

Introduction

Futures Markets and Central Counterparties

Hedging Strategies Using Futures

Interest Rates

Determination of Forward and Futures Prices

Interest Rate Futures

Swaps

Securitization and the Credit Crisis of 2007

Xvas

Properties of Stock Options

Trading Strategies Involving Options

Binomial Trees

Wiener Processes and Itos Lemma

The Black-Scholes-Merton Model

Employee Stock Options

Options on Stock Indices and Currencies

Futures Options and Blacks Model

The Greek Letters

Volatility Smiles

Basic Numerical Procedures

Value at Risk and Expected Shortfall

Estimating Volatilities and Correlations

Credit Risk

Credit Derivatives

Exotic Options

Filters