Exam 15: Options Markets

The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4. -How can you create a position involving a put,a call,and riskless lending that would have the same payoff structure as the stock at expiration?

Exercise prices for listed stock options usually occur in increments of ____,and bracket the current stock price.

The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4. -Suppose you write a strap and the stock price winds up to be $42 at contract expiration.What was your net profit on the strap?

a(n.______ option can only be exercised on the expiration date.

Exchange traded stock options expire on the _______________ of the expiration month.

__________ is the most risky transaction to undertake in the stock index option markets if the stock market is expected to fall substantially after the transaction is completed.

If you combine a long stock position with buying an at the money put option the resulting net payoff profile will resemble the payoff profile of a _______.

Which of the following strategies makes a profit if the stock price declines and loses money when the stock price increases?

An investor purchases a long call at a price of $2.50.The expiration price is $35.00.If the current stock price is $35.10,what is the break even point for the investor?

Which one of the following is the ticker symbol for the CBOE option contract on the S&P100 index?

You write a put option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,S_T is the stock price at contract expiration and P₀ is the original premium of the put option.

A call option on Brocklehurst Corp.has an exercise price of $30.The current stock price of Brocklehurst Corp.is $32.The call option is _________.

A down-and-out option _______________.

An American put option gives its holder the right to _________.

You buy a call option on Summit Corp.with an exercise price of $40 and an expiration date in September and write a call option on Summit Corp.with an exercise price of $40 and an expiration date in October.This strategy is called a _________.

A down-and-in option _______________.

Longer term American style options with maturities of up to three years are called __________.

You sell one Hewlett Packard August 50 call contract and sell one Hewlett Packard August 50 put contract.The call premium is $1.25 and the put premium is $4.50.Your strategy will pay off __________ in August.

An investor is bearish on a particular stock and decided to buy a put with a strike price of $25.Ignoring commissions,if the option was purchased for a price of $0.85,what is the break even point for the investor?

You buy one Hewlett Packard August 50 call contract and one Hewlett Packard August 50 put contract.The call premium is $1.25 and the put premium is $4.50.Your highest potential loss from this position is _________.