Question 1

How much option premium per share will you receive if you sell a September $34 put on General Electric stock?

Accepted Answer

A)  $1.64 
B)  $1.68 
C)  $1.77 
D)  $2.52 
E)  $2.56

Question 2

Which one of the following is the primary purpose of a protective put?

Accepted Answer

A)  profit from an expected future increase in the underlying stock's value 
B)  guarantee a higher return than is possible from just owning the underlying security 
C)  offset the risk associated with a decrease in the value of the underlying asset 
D)  receipt of the option premium 
E)  increase in potential rate of return due to increase in risk

Question 3

Which one of the following applies to a naked call?

Accepted Answer

A)  unlimited potential profits 
B)  unlimited potential losses 
C)  sale of a put on a stock you do not own 
D)  sale of a call on a stock you currently own 
E)  purchase of a call on a stock you do not own

Question 4

What is the total option premium you will receive if you sell 4 May $27.50 calls on Texas Instruments?

Accepted Answer

A)  $90 
B)  $850 
C)  $1,640 
D)  $2,170 
E)  $3,375

Question 5

What is the maximum percentage loss you can incur if you buy a put option?

Accepted Answer

A)  0% 
B)  10% 
C)  100% 
D)  1,000% 
E)  unlimited percentage

Question 6

A European 3-month call has a strike price of $35.The stock price is currently $34.30.What is the lower price bound on this call?

Accepted Answer

A)  $0.00 
B)  $0.30 
C)  $0.70 
D)  $1.00 
E)  $1.30

Question 7

You wrote a covered call with a strike price of $35 and an option premium of $1.10.Assume the stock price is $34 a share currently and that it falls to $32 a share and remains at that price until the option expires.As a result,you will:

Accepted Answer

A)  lose an amount equal to the option premium. 
B)  lose the option premium but get to keep the stock. 
C)  keep both your stock and the option premium. 
D)  keep the option premium but lose your shares of stock. 
E)  lose both your stock and the option premium.

Question 8

Which one of the following is the upper price bound for the intrinsic value of a European put option on a stock?

Accepted Answer

A)  0 
B)  strike price 
C)  stock price 
D)  Max (S - K, 0) 
E)  Max (K - S, 0)

Question 9

A 3-month put has a strike price of $45.00 and an option premium of $1.10.The underlying stock is selling for $45.80 per share.What is the time value of the put?

Accepted Answer

A)  $0.00 
B)  $0.60 
C)  $0.90 
D)  $1.60 
E)  $1.90

Question 10

Which one of the following is a bear call spread?

Accepted Answer

A)  buying a $30 call and selling a $35 call on the same stock 
B)  selling a $30 call and buying a $30 call on the same stock 
C)  buying a $30 call and selling a $25 call on the same stock 
D)  selling a $30 call and buying a $35 put 
E)  buying a $30 call and selling a $35 put

Question 11

A 6-month put has a strike price of $32.50.The underlying stock's price is $31.10.What is intrinsic value of this put?

Accepted Answer

A)  $0.00 
B)  $0.70 
C)  $1.40 
D)  $2.10 
E)  $2.80

Question 12

A stock is currently selling for $20.65.A 3-month call option with a strike price of $20 has an option premium of $1.30.The risk-free rate is 2 percent and the market rate is 8 percent.What is the option premium on a 3-month put with a $20 strike price? Assume the options are European style.

Accepted Answer

A)  $0.00 
B)  $0.15 
C)  $0.35 
D)  $0.55 
E)  $0.75

Question 13

You bought a put with a strike price of $35.The current stock price is $33.What is the current payoff value of this option?

Accepted Answer

A)  -$2 
B)  -$1 
C)  $0 
D)  $1 
E)  $2

Question 14

An option trading strategy that utilizes both put and call options is referred to as which one of the following?

Accepted Answer

A)  bull call spread 
B)  butterfly spread 
C)  split 
D)  combination 
E)  counteraction

Question 15

Selling a call option on stock which you own is referred to as which one of the following strategies?

Accepted Answer

A)  covered call 
B)  naked call 
C)  protective put 
D)  underlying put 
E)  straddle

Question 16

What is the current price per underlying share if you wish to buy a June $32.50 call option on General Electric stock?

Accepted Answer

A)  $0.68 
B)  $0.70 
C)  $0.73 
D)  $1.60 
E)  $1.62

Question 17

Gerold purchased 3 put option contracts at an option premium of $0.95 and a strike price of $40.At expiration,the stock price was $42.25 per share.What is his percentage return?

Accepted Answer

A)  -100 percent 
B)  0 percent 
C)  15.79 percent 
D)  21.62 percent 
E)  31.58 percent

Question 18

You own two SPX put options with a strike of 1,600.What is the payoff at maturity for this option contract if the S&P 500 index is 1,622?

Accepted Answer

A)  -$2,200 
B)  -$22 
C)  $0 
D)  $22 
E)  $2,200

Question 19

Which one of the following combinations creates an in-the-money option?

Accepted Answer

A)  underlying stock price is less than the strike price of a call 
B)  underlying stock price is $18 and the put has an exercise price of $15 
C)  underlying stock price is $22 and the call has an exercise price of $25 
D)  put strike price exceeds the underlying stock price 
E)  put price is equal to the call price

Question 20

Which of the following issue exchange-listed option contracts?
I.CBOE
II.SEC
III.OCC
IV.NASDAQ

Accepted Answer

A)  III only 
B)  IV only 
C)  I and III only 
D)  II and IV only 
E)  I, II, and III only

Exam 15: Stock Options