Question 1

Which of the following "counts most" in the margin equivalents table?

Accepted Answer

A)  Cash 
B)  U.S. treasury securities 
C)  Corporate debt 
D)  Stock 
A)  Cash 
B)  U.S. treasury securities 
C)  Corporate debt 
D)  Stock

Question 2

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 number of contracts you could write on a margin account basis using the stock portfolio as collateral?

Accepted Answer

A)  195 
B)  293 
C)  390 
D)  781 
A)  195 
B)  293 
C)  390 
D)  781

Question 3

If someone writes a put, 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 4

If someone writes a call while owning the underlying asset, the call is

Accepted Answer

A)  covered 
B)  long 
C)  naked 
D)  cash-secured 
A)  covered 
B)  long 
C)  naked 
D)  cash-secured

Question 5

A covered call means the call was purchased

Accepted Answer

A)  with cash 
B)  from a fully funded margin account 
C)  while simultaneously holding a put on the same stock 
D)  while simultaneously holding a long position in the stock 
A)  with cash 
B)  from a fully funded margin account 
C)  while simultaneously holding a put on the same stock 
D)  while simultaneously holding a long position in the stock

Question 6

Assume the premium on a call option is $5 per share. Writing this call option when you already own 100 shares

Accepted Answer

A)  requires an immediate investment of $500 
B)  generates no cash flow because you already own the stock 
C)  initially generates a positive cash flow of $500 
D)  eventually will require an investment of $500 unless the stock price increases enough 
A)  requires an immediate investment of $500 
B)  generates no cash flow because you already own the stock 
C)  initially generates a positive cash flow of $500 
D)  eventually will require an investment of $500 unless the stock price increases enough

Question 7

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

Question 8

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)  $72,270 
B)  $108,770 
C)  $144,540 
D)  $289,080 
A)  $72,270 
B)  $108,770 
C)  $144,540 
D)  $289,080

Question 9

If a person writes a covered call with a striking price of $45 and receives $3 in premium, exercise will occur if the stock price is above ____ on expiration day.

Accepted Answer

A)  $42 
B)  $45 
C)  $48 
D)  $50 
A)  $42 
B)  $45 
C)  $48 
D)  $50

Question 10

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 effective price could you sell the stock if the option is exercised? (Ignore brokerage commissions.)

Accepted Answer

A)  68 
B)  72 
C)  73 
D)  77 
A)  68 
B)  72 
C)  73 
D)  77

Question 11

The systematic risk in a portfolio can be lowered by

Accepted Answer

A)  writing index call options 
B)  writing index put options 
C)  buying index call options 
D)  none of the above because index options cannot be used to lower systematic risk 
A)  writing index call options 
B)  writing index put options 
C)  buying index call options 
D)  none of the above because index options cannot be used to lower systematic risk

Question 12

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 effective price could you buy the stock if the option is exercised? (Ignore brokerage commissions.)

Accepted Answer

A)  35 
B)  37 
C)  38 
D)  39 
A)  35 
B)  37 
C)  38 
D)  39

Question 13

If you buy a call option with a striking price of $50 for $3 1/2, your maximum loss is

Accepted Answer

A)  $3 ½ 
B)  $46 ½ 
C)  $50 
D)  unlimited 
A)  $3 ½ 
B)  $46 ½ 
C)  $50 
D)  unlimited

Question 14

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 sell this stock above the current market price using options, at what effective price could you sell the stock if the option is exercised? (Ignore brokerage commissions.)

Accepted Answer

A)  41 
B)  42 
C)  43 
D)  45 
A)  41 
B)  42 
C)  43 
D)  45

Question 15

A long position is a(n)

Accepted Answer

A)  long-term investment 
B)  owned asset 
C)  borrowed asset 
D)  a position with a paper gain 
A)  long-term investment 
B)  owned asset 
C)  borrowed asset 
D)  a position with a paper gain

Question 16

If someone writes a 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 17

A person who sought to sell stock at a price above 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

Question 18

Which of the following terms is least common?

Accepted Answer

A)  Long call 
B)  Short call 
C)  Covered call 
D)  Covered put 
A)  Long call 
B)  Short call 
C)  Covered call 
D)  Covered put

Question 19

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 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 20

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

Which of the following "counts most" in the margin equivalents table?

If someone writes a put, they usually want the underlying asset to

If someone writes a call while owning the underlying asset, the call is

A covered call means the call was purchased

Assume the premium on a call option is $5 per share. Writing this call option when you already own 100 shares

If a person writes a covered call with a striking price of $45 and receives $3 in premium, exercise will occur if the stock price is above ____ on expiration day.

The systematic risk in a portfolio can be lowered by

If you buy a call option with a striking price of $50 for $3 1/2, your maximum loss is

A long position is a(n)

If someone writes a naked call, they usually want the underlying asset to

A person who sought to sell stock at a price above the current price might

Which of the following terms is least common?

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

Exam 18: Option Overwriting

Which of the following "counts most" in the margin equivalents table?

If someone writes a put, they usually want the underlying asset to

If someone writes a call while owning the underlying asset, the call is

A covered call means the call was purchased

Assume the premium on a call option is $5 per share. Writing this call option when you already own 100 shares

If a person writes a covered call with a striking price of $45 and receives $3 in premium, exercise will occur if the stock price is above ____ on expiration day.

The systematic risk in a portfolio can be lowered by

If you buy a call option with a striking price of $50 for $3 1/2, your maximum loss is

A long position is a(n)

If someone writes a naked call, they usually want the underlying asset to

A person who sought to sell stock at a price above the current price might

Which of the following terms is least common?

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