Exam 15: Put and Call Options

An option can be defined as the right,acquired for a consideration,to buy or sell something at a fixed price within a specified period of time.

The total premium for an option consists of an intrinsic value plus a speculative premium which declines to zero by the expiration date.

All of the following are advantages of buying call options instead of stock EXCEPT

Investors can buy put and call options on stock indexes such as the Dow Jones Industrial Average and the Standard & Poor's 500.

The leverage strategy of buying call options is based on the idea that

The difference between a put and a call option is that:

Which of the following is NOT a characteristic of put and call options?

Calculate the leverage from holding a call option with a closing price of 3 on February 18 and a closing price of 6.5 on April 6.The stock price on February 18 was 22 and closed at 27 on April 6.

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

IBM was trading at $100 when Mrs.Peterson bought a 100 call on IBM at a price of $10.Three months later,IBM common stock was trading at $130 and the call option was trading at $33.The leverage factor for this situation would be.

An investor who wishes to take advantage of a current stock price,but does not expect to have cash available until a specific date in the future,would probably use the _________ strategy to invest in options.

"In-the-money" and "out-of-the-money" generally mean the same thing regarding put and call options.

A call option selling for $8 with a $45 strike price on stock with a market price of $40 has a speculative premium of $3.

If the market price is above the strike price,a call is "in-the-money."

A major disadvantage of using call options to hedge a short position is

The total premium (option price)is a combination of a time premium and a speculative premium.

If a stock price increased by 76.5 percent and the leverage for the option was calculated to be 1.5,the option price increased by 25.5 percent.

Much of the liquidity and ease of operation of the option exchanges is due to the role of the Options Clearing Corporation.

If an option is traded on more than one exchange,it may be bought,sold,or closed out on any exchange.

The Options Clearing Corporation functions as a middleman or broker,bringing together writers and buyers of options.