Exam 16: Understanding Options

If the volatility of the underlying asset decreases, then the:

The writer (seller) of a regular exchange-listed put-option on the stock:

The value of a call option, beyond the stock price less the exercise price, is most likely to be realized when the option is:

For European options, the value of a call minus the value of a put is equal to:

The value of a put option is negatively related to: I. stock price II. risk-free rate III) exercise price

The writer (seller) of a regular exchange-listed call-option on the stock:

A call options gives its owner the right to buy stock at a fixed strike price during a specified period of time.

Buying the stock and the put option on the stock provides the same payoff as:

The higher the underlying stock price: (everything else remaining the same)

Buying a stock and a put option, and depositing the present value of the exercise price in a bank account and buying a call provide the same payoff.

An investor can get downside protection by buying a stock and a put option.

The two principal options exchanges in the U.S.A. are: I. International Securities Exchange II. New York Stock Exchange III. NASDAQ IV. Chicago Board of Options Exchange

Suppose you buy a call and lend the present value of its exercise price. You could match the payoffs of this strategy by:

The higher the underlying stock price: (everything else remaining the same)

Discuss the factors that determine the value of a call option.

Which of the following features increase(s) the value of a call option?

The value of a call option is positively related to the following: I. underlying stock price II. risk-free rate III. time to expiration IV. volatility of the underlying stock price

An investor, in practice, can buy: I. an option on a single share of stock II. options that are in multiples of 100 III. a minimum order of 100 options on a share of stock

Firms regularly use the following to reduce risk: I. Currency options II. Interest-rate options III. Commodity options

Buying a call option, investing the present value of the exercise price in T-bills, and short selling the underlying share is the same as: