Question 1

Which one of the following terms is defined as an option that would have a positive payoff if exercised now?

Accepted Answer

A) in-the-money option 
B) out-of-the-money option 
C) straddle 
D) crossed option 
E) cash-settled

Question 2

Which one of the following refers to selling an option contract?

Accepted Answer

A) calling 
B) writing 
C) exercising 
D) striking 
E) spotting

Question 3

A call option with 1 month to expiration currently sells for $0.70.A put option with the same expiration sells for $1.10.The options are European style.The risk-free rate is 3 percent and the strike price of both options is $18.00.What is the current stock price?

Accepted Answer

A) $16.87 
B) $17.06 
C) $17.29 
D) $17.56 
E) $17.86

Question 4

Which one of the following is defined as an option that can only be exercised at expiration?

Accepted Answer

A) European style option 
B) in-the-money option 
C) out-of-the-money option 
D) American style option 
E) derivative option

Question 5

Jennifer purchased 4 put option contracts on Winslow Mfg.stock.The option premium was $0.25 and the strike price was $17.50.On the expiration date,the stock was selling for $17.75 a share.What is the total payoff on the option contracts?

Accepted Answer

A) -$100 
B) -$50 
C) $0 
D) $50 
E) $150

Question 6

Kris implemented an option trading strategy consisting of two call options.This strategy is known as which one of the following?

Accepted Answer

A) spread 
B) straddle 
C) split 
D) combination 
E) counteraction

Question 7

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 8

You purchased one SPX put option with a strike of 1,400.You wrote one SPX put option with the same maturity date and a strike of 1,300.At maturity,what is your total payoff if the S&P 500 index is 1,320?

Accepted Answer

A) -$8,000 
B) -$2,000 
C) $2,000 
D) $4,000 
E) $8,000

Question 9

You purchased 6 call options with a $40 strike price at a total cost of $150.On the expiration date,the underlying stock was priced at $39.20.What is the percentage return on your investment?

Accepted Answer

A) -420 percent 
B) -100 percent 
C) 68.75 percent 
D) 2.02 percent 
E) 220 percent

Question 10

You purchased 5 put option contracts on Mountain Builders stock at an option premium of $0.65.The strike price is $25.What is your break-even stock price?

Accepted Answer

A) $19.90 
B) $24.35 
C) $25.00 
D) $25.75 
E) $30.10

Question 11

A short straddle:

Accepted Answer

A) involves exercising two or more options simultaneously. 
B) is the purchase of both a put and a call on the same underlying asset. 
C) obtains its maximum profit when the underlying stock price is equal to the strike price. 
D) involves writing a call on shares of stock you currently own. 
E) is a highly bullish strategy.

Question 12

Which one of the following statements is correct?

Accepted Answer

A) Reduced Value index options are equal in size to one percent of the standard index option. 
B) The holder of a stock index put option is betting that the underlying index will increase in value. 
C) Most index options are traded on the New York Options Exchange. 
D) The contract size for a call option on the S&P 500 is 10 times the index. 
E) Some stock index options close in the morning while others close at the end of the trading day.

Question 13

A stock is valued at $25.75 a share.A European 6-month call option has a strike price of $25 and an option premium of $1.50.The market rate is 9.5 percent and the risk-free rate is 2.5 percent.What is the price of a European 6-month put option with a $25 strike price?

Accepted Answer

A) $0.00 
B) $0.09 
C) $0.44 
D) $1.48 
E) $1.61

Question 14

An option that would NOT yield a positive payoff if exercised today is referred to by which one of the following terms?

Accepted Answer

A) hollow option 
B) zero option 
C) in-the-cellar option 
D) out-of-the-money option 
E) strike-out

Question 15

Which one of the following is equal to the option premium minus the intrinsic value?

Accepted Answer

A) parity value 
B) payoff value 
C) time value 
D) strike value 
E) profit

Question 16

Consider both a European put and call that expire in June and have a strike price of $30.The no-arbitrage relationship between this put and call is referred to as which one of the following?

Accepted Answer

A) intrinsic equilibrium 
B) Euro-match 
C) bull-call spread 
D) butterfly spread 
E) put-call parity

Question 17

Jeff paid a call premium of $0.60 when he purchased his call option with a strike price of $22.00.What is the break-even stock price?

Accepted Answer

A) $0.00 
B) $0.25 
C) $22.25 
D) $22.60 
E) $22.75

Question 18

Which of the following has the obligation to sell a stock at the strike price when an option is exercised?

Accepted Answer

A) call holder 
B) call writer 
C) put holder 
D) put writer 
E) call holder and put writer

Question 19

Which one of the following statements is true?

Accepted Answer

A) A call with a strike price of $25 and a stock price of $23 has positive intrinsic value. 
B) A European style option is more valuable than an American style option. 
C) An American style out-of-the-money call option can have a positive value. 
D) A $40 put option has more intrinsic value than a $50 put option on the same underlying asset. 
E) The time value of an option is equal to the intrinsic value minus the option premium.

Question 20

A stock is currently selling for $40.85.A 3-month call option with a strike price of $40 has an option premium of $1.30.The risk-free rate is 2 percent and the market rate is 9.5 percent.What is the option premium on a 3-month put with a $40 strike price? Assume the options are European style.

Accepted Answer

A) $0.00 
B) $0.05 
C) $0.15 
D) $0.25 
E) $0.35

Exam 15: Stock Options