Question 1

A person who sought to buy stock at a price below the current price might

Accepted Answer

A)  buy deep-in-the-money calls 
B)  buy deep-in-the-money puts 
C)  write deep-in-the-money calls 
D)  write deep-in-the-money puts 
A)  buy deep-in-the-money calls 
B)  buy deep-in-the-money puts 
C)  write deep-in-the-money calls 
D)  write deep-in-the-money puts D

Question 2

Index options have little ______ risk.

Accepted Answer

A)  unsystematic 
B)  systematic 
C)  market 
D)  total 
A)  unsystematic 
B)  systematic 
C)  market 
D)  total A

Question 3

Writing a covered call results in a position similar to a

Accepted Answer

A)  fiduciary put 
B)  long put 
C)  long call 
D)  long stock position 
A)  fiduciary put 
B)  long put 
C)  long call 
D)  long stock position A

Question 4

If someone writes an in-the-money naked call, they usually want the underlying asset to

Accepted Answer

A)  go up 
B)  go down 
C)  stay unchanged 
D)  fluctuate 
A)  go up 
B)  go down 
C)  stay unchanged 
D)  fluctuate

Question 5

Assume the stock price is $50, a call option on that stock has a premium of $5 and a put option on that stock has a premium of $3, and you presently hold no position in the three. Ignoring commissions, a covered call on 100 shares would require an investment of

Accepted Answer

A)  $4,500 
B)  $4,700 
C)  $5,300 
D)  $5,700 
A)  $4,500 
B)  $4,700 
C)  $5,300 
D)  $5,700

Question 6

Suppose a stock is currently priced at $40 per share, a February 35 call has a premium of $8, and a February 45 put has a premium of $7. If you wanted to buy this stock below the current market price using options, at what future stock price would a strategy of buying the stock using options just break even with simply buying the stock today? (Ignore brokerage commissions.)

Accepted Answer

A)  32 
B)  33 
C)  47 
D)  48 
A)  32 
B)  33 
C)  47 
D)  48

Question 7

Suppose you are managing a stock portfolio currently valued at $2 million that has a portfolio beta of 1.40 and you are interested in call option overwriting to raise additional funds. If the S&P 100 index recently closed at 541.86 and a February 580 OEX 100 call option contract has a premium of 7.30, what is the maximum amount of funds you could generate by writing calls on a cash account basis using the stock portfolio as collateral?

Accepted Answer

A)  $18,980 
B)  $26,280 
C)  $33,580 
D)  $40,880 
A)  $18,980 
B)  $26,280 
C)  $33,580 
D)  $40,880

Question 8

The most common motivation for option overwriting is

Accepted Answer

A)  risk management 
B)  tax reduction 
C)  leverage 
D)  income generation 
A)  risk management 
B)  tax reduction 
C)  leverage 
D)  income generation

Question 9

Which of the following is true for writing index calls?

Accepted Answer

A)  It always increases portfolio market risk 
B)  It need not involve borrowing any money 
C)  It is inappropriate for a tax-exempt investor 
D)  It lowers portfolio income 
A)  It always increases portfolio market risk 
B)  It need not involve borrowing any money 
C)  It is inappropriate for a tax-exempt investor 
D)  It lowers portfolio income

Question 10

Which of the following strategies has the highest possible loss?

Accepted Answer

A)  Buying a call 
B)  Writing a naked call 
C)  Writing a covered call 
D)  Buying a put 
A)  Buying a call 
B)  Writing a naked call 
C)  Writing a covered call 
D)  Buying a put

Question 11

Assume the stock price is $50, a call option on that stock has a premium of $5, a put option on that stock has a premium of $3, the strike price on both options is $50, and you presently hold no position in the three. Suppose you take one of the following positions and the stock price drops to $47 per share. Which position would have gained the most dollars?

Accepted Answer

A)  Writing a naked call 
B)  Writing a covered call 
C)  Writing a fiduciary put 
D)  Selling the stock short 
A)  Writing a naked call 
B)  Writing a covered call 
C)  Writing a fiduciary put 
D)  Selling the stock short

Question 12

Suppose a stock is currently priced at $65 per share, a July 60 call has a premium of $8, and a July 70 put has a premium of $7. If you wanted to buy this stock below the current market price using options, at what effective price could you buy the stock if the option is exercised? (Ignore brokerage commissions.)

Accepted Answer

A)  57 
B)  58 
C)  62 
D)  63 
A)  57 
B)  58 
C)  62 
D)  63

Question 13

Suppose you are managing a stock portfolio currently valued at $2 million that has a portfolio beta of 1.40 and you are interested in call option overwriting to raise additional funds. If the S&P 100 index recently closed at 541.86 and a February 580 OEX 100 call option contract has a premium of 7.30, what is the maximum number of contracts you could write on a margin account basis using the stock portfolio as collateral?

Accepted Answer

A)  99 
B)  149 
C)  198 
D)  396 
A)  99 
B)  149 
C)  198 
D)  396

Question 14

Fiduciary puts are also called

Accepted Answer

A)  regulatory puts 
B)  cash-secured puts 
C)  long puts 
D)  uncovered puts 
A)  regulatory puts 
B)  cash-secured puts 
C)  long puts 
D)  uncovered puts

Question 15

Suppose you are managing a stock portfolio currently valued at $2 million that has a portfolio beta of 1.60 and you are interested in call option overwriting to raise additional funds. If the S&P 100 index recently closed at 541.86 and a July 600 OEX 100 call option contract has a premium of 2.45, what is the maximum amount of funds you could generate by writing calls on a cash account basis using the stock portfolio as collateral?

Accepted Answer

A)  $47,775 
B)  $71,785 
C)  $95,550 
D)  $191,345 
A)  $47,775 
B)  $71,785 
C)  $95,550 
D)  $191,345

Question 16

Suppose you are managing a stock portfolio currently valued at $2 million that has a portfolio beta of 1.60 and you are interested in call option overwriting to raise additional funds. If the S&P 100 index recently closed at 541.86 and a July 600 OEX 100 call option contract has a premium of 2.45, what is the maximum amount of funds you could generate by writing calls on a cash account basis using the stock portfolio as collateral?

Accepted Answer

A)  $6,370 
B)  $8,820 
C)  $11,270 
D)  $13,720 
A)  $6,370 
B)  $8,820 
C)  $11,270 
D)  $13,720

Question 17

Suppose you are managing a stock portfolio currently valued at $2 million that has a portfolio beta of 1.40 and you are interested in call option overwriting to raise additional funds. If the S&P 100 index recently closed at 541.86 and a February 580 OEX 100 call option contract has a premium of 7.30, what is the maximum number of contracts you could write on a cash account basis using the stock portfolio as collateral?

Accepted Answer

A)  26 
B)  36 
C)  46 
D)  56 
A)  26 
B)  36 
C)  46 
D)  56

Question 18

Suppose a stock is currently priced at $65 per share, a July 60 call has a premium of $8, and a July 70 put has a premium of $7. If you wanted to sell this stock above the current market price using options, at what future stock price would a strategy of selling the stock using options just break even with simply selling the stock today? (Ignore brokerage commissions.)

Accepted Answer

A)  57 
B)  58 
C)  72 
D)  73 
A)  57 
B)  58 
C)  72 
D)  73

Question 19

Which of the following has the greatest possible dollar loss?

Accepted Answer

A)  Writing a covered call 
B)  Buying a call 
C)  Writing a fiduciary put 
D)  Put overwriting 
A)  Writing a covered call 
B)  Buying a call 
C)  Writing a fiduciary put 
D)  Put overwriting

Question 20

If stock is purchased at $50 and a $55 call is written for a premium of $2, the maximum possible gain per share is

Accepted Answer

A)  $2 
B)  $5 
C)  $7 
D)  $10 
A)  $2 
B)  $5 
C)  $7 
D)  $10

A person who sought to buy stock at a price below the current price might

Index options have little ______ risk.

Writing a covered call results in a position similar to a

If someone writes an in-the-money naked call, they usually want the underlying asset to

Assume the stock price is $50, a call option on that stock has a premium of $5 and a put option on that stock has a premium of $3, and you presently hold no position in the three. Ignoring commissions, a covered call on 100 shares would require an investment of

The most common motivation for option overwriting is

Which of the following is true for writing index calls?

Which of the following strategies has the highest possible loss?

Fiduciary puts are also called

Which of the following has the greatest possible dollar loss?

If stock is purchased at $50 and a $55 call is written for a premium of $2, the maximum possible gain per share is

The Process of Portfolio Management

Valuation, Risk, Return, and Uncertainty

Setting Portfolio Objectives

Investment Policy

The Mathematics of Diversification

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Principles of Options and Option Pricing

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Integrating Derivative Assets and Portfolio Management

Contemporary Issues in Portfolio Management

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Exam 18: Option Overwriting

A person who sought to buy stock at a price below the current price might

Index options have little ______ risk.

Writing a covered call results in a position similar to a

If someone writes an in-the-money naked call, they usually want the underlying asset to

Assume the stock price is $50, a call option on that stock has a premium of $5 and a put option on that stock has a premium of $3, and you presently hold no position in the three. Ignoring commissions, a covered call on 100 shares would require an investment of

The most common motivation for option overwriting is

Which of the following is true for writing index calls?

Which of the following strategies has the highest possible loss?

Fiduciary puts are also called

Which of the following has the greatest possible dollar loss?

If stock is purchased at $50 and a $55 call is written for a premium of $2, the maximum possible gain per share is

The Process of Portfolio Management

Valuation, Risk, Return, and Uncertainty

Setting Portfolio Objectives

Investment Policy

The Mathematics of Diversification

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Principles of Options and Option Pricing

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Integrating Derivative Assets and Portfolio Management

Contemporary Issues in Portfolio Management

Filters