Question 1

A straddle is a combination of a put and call on:

Accepted Answer

A) The same stock with the same strike price and expiration date 
B) Different stocks with the same strike price and expiration date 
C) Different stocks with different strike price and expirations dates 
D) The same stock with same the strike price and different expiration dates 
A) The same stock with the same strike price and expiration date 
B) Different stocks with the same strike price and expiration date 
C) Different stocks with different strike price and expirations dates 
D) The same stock with same the strike price and different expiration dates A

Question 2

A straddle is a combination of a put and call on the same stock with the same strike price and expiration date.

Accepted Answer

A) True 
 B)False  True

Question 3

Long-term equity anticipation securities (LEAPS)are nothing more than a long-term option.

Accepted Answer

A) True 
 B)False  False

Question 4

A call is said to be "in-the-money" when the strike price is __________ the market price.

Accepted Answer

A) Equal to 
B) Greater than 
C) Less than 
D) May be more than one of the above depending on the option premium 
A) Equal to 
B) Greater than 
C) Less than 
D) May be more than one of the above depending on the option premium

Question 5

The speculative premium of a put as a percent of stock price represents the percent decline in the stock price necessary to break even.

Accepted Answer

A) True 
 B)False

Question 6

Under what circumstances can the writer of a call option expect to profit?

Accepted Answer

A) Stock price declines 
B) Stock prices remain the same 
C) The increase in stock price is less than the speculative premium 
D) All of the above 
A) Stock price declines 
B) Stock prices remain the same 
C) The increase in stock price is less than the speculative premium 
D) All of the above

Question 7

Tom Smith purchases 100 shares of DOUBLE Systems stock for $63 per share and wishes to hedge his position by writing a 100-share call option on his holdings.The option has a $65 strike price and a premium of $8.75.If the stock is selling at $64 at the time of expiration,what will be the overall dollar gain or loss on this covered option play? (Consider the change in stock value as well as the gain or loss on the option.)

Accepted Answer

A) $975.00 
B) $875.00 
C) $775.00 
D) $100.00 
E) $87.50 
A) $975.00 
B) $875.00 
C) $775.00 
D) $100.00 
E) $87.50

Question 8

A put is an option to buy 100 shares of common stock at a specified price for a given period of time.

Accepted Answer

A) True 
 B)False

Question 9

Option contracts expire on the last Friday of the month

Accepted Answer

A) True 
 B)False

Question 10

Calls used to cover a short sale guarantee that no loss can occur.

Accepted Answer

A) True 
 B)False

Question 11

A stock is selling for $45.75 with a put option available at a $50 strike that has a premium of $7.50.What is the speculative premium of the put?

Accepted Answer

A) $4.25 
B) $1.25 
C) $3.25 
D) $5.25 
E) $7.50 
A) $4.25 
B) $1.25 
C) $3.25 
D) $5.25 
E) $7.50

Question 12

The strike price refers to the premium paid by the option buyer for the right to exercise the option.

Accepted Answer

A) True 
 B)False

Question 13

A stock is selling for $45.75 with a call option available at a $40 strike that has a premium of $7.50.What is the speculative premium of the call?

Accepted Answer

A) $.75 
B) $1.75 
C) $5.00 
D) $5.75 
E) $7.50 
A) $.75 
B) $1.75 
C) $5.00 
D) $5.75 
E) $7.50

Question 14

Unlike a covered call writer,a naked call writer will always lose if

Accepted Answer

A) The stock price rises above the strike price plus the speculative premium 
B) The stock price declines 
C) A closing transaction is executed 
D) None of the above 
A) The stock price rises above the strike price plus the speculative premium 
B) The stock price declines 
C) A closing transaction is executed 
D) None of the above

Question 15

The difference between selling short and buying a put is that the short seller can lose more that the initial investment.

Accepted Answer

A) True 
 B)False

Question 16

In general,the speculative premiums (in percent)are higher for:

Accepted Answer

A) High-beta,low-dividend yield stocks 
B) Low-beta,high-dividend yield stocks 
C) High-beta,high-dividend yield stocks 
D) Low-beta,low-dividend yield stocks 
A) High-beta,low-dividend yield stocks 
B) Low-beta,high-dividend yield stocks 
C) High-beta,high-dividend yield stocks 
D) Low-beta,low-dividend yield stocks

Question 17

The intrinsic value of an option is solely a function of market price and strike price,without any consideration of risk,dividend yield,leverage,or any other factor.

Accepted Answer

A) True 
 B)False

Question 18

A stock is selling for $45.75 with a call option available at a $40 strike that has a premium of $7.50.What percentage of the common stock price does the speculative premium represent?

Accepted Answer

A) 16.39% 
B) 14.375% 
C) 12.57% 
D) 4.38% 
E) 3.83% 
A) 16.39% 
B) 14.375% 
C) 12.57% 
D) 4.38% 
E) 3.83%

Question 19

A call option with a speculative premium of $3 and a strike price of $55 with an intrinsic value of $3 may be related to a stock that is selling for $58 per share.

Accepted Answer

A) True 
 B)False

Question 20

The Options Clearing Corporation is equally owned by its major trading exchanges.

Accepted Answer

A) True 
 B)False

Exam 15: Put and Call Options

A straddle is a combination of a put and call on:

A straddle is a combination of a put and call on the same stock with the same strike price and expiration date.

Long-term equity anticipation securities (LEAPS)are nothing more than a long-term option.

A call is said to be "in-the-money" when the strike price is __________ the market price.

The speculative premium of a put as a percent of stock price represents the percent decline in the stock price necessary to break even.

Under what circumstances can the writer of a call option expect to profit?

A put is an option to buy 100 shares of common stock at a specified price for a given period of time.

Option contracts expire on the last Friday of the month

Calls used to cover a short sale guarantee that no loss can occur.

A stock is selling for $45.75 with a put option available at a $50 strike that has a premium of $7.50.What is the speculative premium of the put?

The strike price refers to the premium paid by the option buyer for the right to exercise the option.

A stock is selling for $45.75 with a call option available at a $40 strike that has a premium of $7.50.What is the speculative premium of the call?

Unlike a covered call writer,a naked call writer will always lose if

The difference between selling short and buying a put is that the short seller can lose more that the initial investment.

In general,the speculative premiums (in percent)are higher for:

The intrinsic value of an option is solely a function of market price and strike price,without any consideration of risk,dividend yield,leverage,or any other factor.

A stock is selling for $45.75 with a call option available at a $40 strike that has a premium of $7.50.What percentage of the common stock price does the speculative premium represent?

A call option with a speculative premium of $3 and a strike price of $55 with an intrinsic value of $3 may be related to a stock that is selling for $58 per share.

The Options Clearing Corporation is equally owned by its major trading exchanges.

The Investment Setting

Security Markets: Present and Future

Participating in the Market

Sources of Investment Information

Economic and Industry Analysis

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

A Basic View of Technical Analysis and Market Efficiency

Investment in Special Situations and Anomalies

Bond and Fixed Income Fundamentals

Principles of Bond Valuation and Investment

Duration and Reinvestment Concepts

Convertible Securities and Warrants

Commodities and Financial Futures

Stock Index Futures and Options

Mutual Funds

International Securities Markets

Investment in Real Assets

A Basic Look at Portfolio Management and Capital Market Theory

Measuring Risks and Returns of Portfolio Managers

Sustainable Growth Model

a Black Scholes Option Pricing Model

A Comprehensive Analysis for Real Estate Investment Decisions

Unit Investment Trusts Uits

The Makeup of Institutional Investors

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