Exam 17: An Introduction to Options

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

Arbitrage determines the maximum price of an option.

The intrinsic value of a put depends on 1) the strike price 2) the price of the stock 3) the term on the put

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

The writer of a call option does not receive any dividends paid by the firm.

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

If the price of an option to buy stock were to sell for less than its strike price, an opportunity for arbitrage exists.

Call options, unlike warrants, may be written by individuals.

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

A put is an option to sell stock at a specified price within a specified time period.

While individuals can write call options, they can only buy put options.

The most the investor who sells a naked stock index option can lose is the cost of the option.

The profits (gains) on option trading are exempt from federal income taxation.

The time period to expiration for call options is usually for less than a year.

Call options offer buyers

Arbitrage is the act of simultaneously buying and selling in two markets to take advantage of price differentials.

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

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.

Warrants and calls do not have