Exam 15: Options Markets

An investor purchases a long call at a price of $2.50. The strike price at expiration is $35. If the current stock price is $35.10, what is the break-even point for the investor?

An Asian call option gives its holder the right to ________.

A futures call option provides its holder with the right to ________.

Suppose you purchase one Texas Insurance August 75 call contract quoted at $8.50 and write one Texas Insurance August 80 call contract quoted at $6. If, at expiration, the price of a share of Texas Instruments stock is $79, your profit would be ________.

What combination of puts and calls can simulate a long stock investment?

A European put option gives its holder the right to ________.

A convertible bond is deep in the money. This means the bond price will closely track the ________.

Suppose you find two bonds identical in all respects except that bond A is convertible to common stock and bond B is not. Bond A is priced at $1,245, and bond B is priced at $1,120. Bond A has a promised yield to maturity of 5.6%, and bond B has a promised yield to maturity of 6.7%. The stock of bond A is trading at $49.80 per share. Which of the following statements is (are) correct? I. The value of the conversion option for bond A is $125. II. The lower promised yield to maturity of bond A indicates that the bond is priced according to its straight debt value rather than its conversion value. III. If bond A can be converted into 25 shares of stock, the investor would break even at the current prices.

The value of a listed call option on a stock is lower when: I. The exercise price is higher. II. The contract approaches maturity. III. The stock decreases in value. IV. A stock split occurs.

You invest in the stock of Rayleigh Corp. and write a call option on Rayleigh Corp. This strategy is called a ________.

You buy a call option on Merritt Corp. with an exercise price of $50 and an expiration date in July, and you write a call option on Merritt Corp. with an exercise price of $55 and an expiration date in July. This is called a ________.