Exam 17: An Introduction to Options

Given the following information,finish the following sentences: a. The intrinsic value of the call is _____. b. The time premium paid for the call is . c. If an investor established a covered call position, the amount invested is _. d. The most the buyer of the call can lose is . e. The maximum amount the seller of the call naked can lose is ____.

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(Essay)

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Question 1

Correct Answer:

Verified

$50 - $45 = $5 a. The funds required to buy the stock minus the proceeds of the sale of the call: $50 - $9 = $41 b. $9 - $5 = $4 d. The price of the call: $9 e. The loss could be infinite (i.e., a very large loss is possible)

A covered call is constructed by buying the stock and selling the call.

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(True/False)

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Question 2

Correct Answer:

Verified

True

Because of arbitrage, an option should not sell forless than its intrinsic value.

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(True/False)

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Question 3

Correct Answer:

Verified

True

Investors and speculators rarely, if ever, have an opportunity to establish an arbitrage position.

(True/False)

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Question 4

Because of arbitrage, the price of an option

(Multiple Choice)

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Question 5

The intrinsic value of an option to buy stock (i.e., a call option) is the difference between the price of the stock and the per share exercise price of the option.

(True/False)

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Question 6

A put is an option to

(Multiple Choice)

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Question 7

There is no limit to the potential loss from buying a call option.

(True/False)

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Question 8

A three-month call option with a strike price of $30 iscurrently selling for $4 when the price of the underlying stock is selling for $32. a. What is the call's intrinsic value? b. What is the time premium? c. What is the maximum possible loss to the buyer of the call? d. What is the maximum possible profit to the seller of the option? e. Would you buy the call if you expected the price of the stock to fall? Three months later the stock is selling for $39.

(Essay)

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Question 9

The intrinsic value of a put is the price of the stockminus the put's strike price.

(True/False)

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Question 10

If the investor buys a stock index put, the individualwill profit if the market rises.

(True/False)

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Question 11

The CBOE is1. a secondary market in put and call options2. a division of the SEC that regulated option trading3. the first organized options exchange

(Multiple Choice)

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Question 12

The writer of a naked call option wants

(Multiple Choice)

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Question 13

Call options offer buyers

(Multiple Choice)

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Question 14

Which of the following is premised on lower stock prices

(Multiple Choice)

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Question 15

Options sell for a time premium over their intrinsicvalue because

(Multiple Choice)

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Question 16

The time premium paid for an option to buy stockis affected by

(Multiple Choice)

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Question 17

Calls are options to sell stock at a specified pricewithin a specified time period.

(True/False)

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Question 18

The value of a put rises as the price of

(Multiple Choice)

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Question 19

While individuals can write call options, they can onlybuy put options.

(True/False)

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Question 20

Showing 1 - 20 of 84

A covered call is constructed by buying the stock and selling the call.

Because of arbitrage, an option should not sell forless than its intrinsic value.

Investors and speculators rarely, if ever, have an opportunity to establish an arbitrage position.

Because of arbitrage, the price of an option

The intrinsic value of an option to buy stock (i.e., a call option) is the difference between the price of the stock and the per share exercise price of the option.

A put is an option to

There is no limit to the potential loss from buying a call option.

The intrinsic value of a put is the price of the stockminus the put's strike price.

If the investor buys a stock index put, the individualwill profit if the market rises.

The CBOE is1. a secondary market in put and call options2. a division of the SEC that regulated option trading3. the first organized options exchange

The writer of a naked call option wants

Call options offer buyers

Which of the following is premised on lower stock prices

Options sell for a time premium over their intrinsicvalue because

The time premium paid for an option to buy stockis affected by

Calls are options to sell stock at a specified pricewithin a specified time period.

The value of a put rises as the price of

While individuals can write call options, they can onlybuy put options.

An Introduction to Investments Private

Securities Markets

The Time Value of Money Private

Financial Planning, Taxation, and the Efficiency of Financial Markets

Risk and Portfolio Management

Investment Companies: Mutual Funds Private

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs Private

Stock Private

The Valuation of Stock Private

Investment Returns and Aggregate Measures of Stock Markets

The Macroeconomic Environment for Investment

Behavioral Finance and Technical Analysis

The Bond Market Private

The Valuation of Fixed Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

Option Valuation and Strategies Private

Commodity and Financial Futures Private

Financial Planning and Investing in an Efficient Market Context

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