Exam 27: Options Markets

________ grants the buyer the right to sell one designated futures contract to the writer at the exercise price. That is, the option buyer has the right to acquire a short position in the designated futures contract.

Options may be traded either on an organized exchange or in the over-the-counter market.

Futures contracts allow ________.

Suppose you purchase a call option on Asset XYZ that has an exercise price of $50. The option price is $2 per share. Suppose that on the expiration date, the current price is $50. What is your net profit or loss per share?

Suppose you purchase a put option on Asset XYZ that has an exercise price of $100. The option price is $3 per share. Suppose that on the expiration date, you exercise your option at the current price of $96. What is your net profit or loss per share?

There are options that may be exercised at any time up to and including the expiration date. Such options are referred to as ________ options. Other options may be exercised only at the expiration date; these are called ________ options.

Do call options allow investors to protect or hedge against a rise in the price of the underlying instrument? Explain using an illustration to show the hedge outcome.

If the buyer of the futures option exercises, the futures price for the futures contract will be set equal to the exercise price, but the position of the two parties is then immediately marked to market based on the then-current futures price.

The price at which the underlying (that is, the asset or commodity) may be bought or sold is called the ________.

Which of the below statements is FALSE?

An option cannot be used to alter the risk/reward relationship from that of a position in the underlying.

An American option, also referred to as an Atlantic option, can be exercised only on specified dates.

Which of the below statements is FALSE?

Do futures contracts allow investors to hedge the risks associated with adverse price movements? Explain.

In regards to FLEX options, which of the below statements is TRUE?

Hedging with options allows the option buyer to limit risk but not maintain the potential to benefit from a favorable price movement.

What is the dollar value of the S&P 100 contract if the multiple for the S&P 100 Stock Index is $100 and the cash index value for the S&P 100 is 620?

There has been decreased use by institutional investors of over-the-counter options on Treasury and mortgage-backed securities.

The buyer of a call option benefits if the price of the underlying is unchanged or falls.

There are three reasons why futures options on fixed-income securities have largely supplanted options on physicals as the options vehicle used by institutional investors. Which of the below is NOT one of these three reasons?