Question 1

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 intrinsic value 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 2

Writers of naked call options generally expect stock prices to decline or remain stable.

Accepted Answer

A) True 
 B)False

Question 3

The longer the time to expiration the higher the speculative premium per day.

Accepted Answer

A) True 
 B)False

Question 4

Assume you purchase 200 shares of stock at $80 per share and wish to hedge part of your position by writing a 100 share option.The option has a strike price of 75 and a premium of $6.If at the time of expiration,the stock is selling at the following prices ($75,$80,$90)what will be your overall gain or loss?

Accepted Answer

None

Question 5

Which of the following is NOT an advantage of listed options markets over the previous method of over-the-counter trading?

Accepted Answer

A) Direct contact between buyers and sellers of options 
B) Standardized contract periods and exercise price 
C) More certainty and more efficient trading strategies 
D) All of the above are advantages 
A) Direct contact between buyers and sellers of options 
B) Standardized contract periods and exercise price 
C) More certainty and more efficient trading strategies 
D) All of the above are advantages

Question 6

All of the following are characteristics of LEAPS,except:

Accepted Answer

A) Leaps have up to two years of expiration 
B) Leaps have generally been limited to "blue chip" stocks such as Coca-Cola,Dow Chemical,General Electric,IBM,and others 
C) Leaps have the same characteristics as the short-term options,in general 
D) Leaps generally have lower premiums because of their length 
A) Leaps have up to two years of expiration 
B) Leaps have generally been limited to "blue chip" stocks such as Coca-Cola,Dow Chemical,General Electric,IBM,and others 
C) Leaps have the same characteristics as the short-term options,in general 
D) Leaps generally have lower premiums because of their length

Question 7

The maximum possible loss on a strategy of buying put options is limited to the options premium under all circumstances.

Accepted Answer

A) True 
 B)False

Question 8

A call can be used to cover a long position against the risk of rising stock prices.

Accepted Answer

A) True 
 B)False

Question 9

The International Securities Exchange

Accepted Answer

A) Is an electronic communication network dealing in options 
B) Has taken significant market share from the Chicago Board Options Exchange 
C) Started trading options in 2000 
D) All of the above are true 
A) Is an electronic communication network dealing in options 
B) Has taken significant market share from the Chicago Board Options Exchange 
C) Started trading options in 2000 
D) All of the above are true

Question 10

_______ was the first organized exchange to trade options,in 1973.

Accepted Answer

A) The New York Stock Exchange 
B) The American Exchange 
C) The Chicago Board Option Exchange 
D) The International Securities Exchange 
E) None of the above 
A) The New York Stock Exchange 
B) The American Exchange 
C) The Chicago Board Option Exchange 
D) The International Securities Exchange 
E) None of the above

Question 11

If you buy one option and write one option on the same underlying stock,you are creating a "spread"

Accepted Answer

A) True 
 B)False

Question 12

Dividends on the underlying common stock will affect the option price.

Accepted Answer

A) True 
 B)False

Question 13

An Arthur Corp.25 put option is selling for $3 when the stock is trading at $22

Accepted Answer

A) The intrinsic value is $3 and the speculative premium is 0 
B) The intrinsic value is $3 and the speculative premium is $3 
C) The time to expiration must be very close 
D) 
A) and 
C)  
A) The intrinsic value is $3 and the speculative premium is 0 
B) The intrinsic value is $3 and the speculative premium is $3 
C) The time to expiration must be very close 
D) 
A) and 
C)

Question 14

Beltran Industries common stock trades at $42 per share.The 40 call option trades at $4.This option would be

Accepted Answer

A) In-the-money by $2 
B) In-the-money by $4 
C) Out-of-the money by $2 
D) Out of-the-money by $4 
A) In-the-money by $2 
B) In-the-money by $4 
C) Out-of-the money by $2 
D) Out of-the-money by $4

Question 15

The writer of a put agrees to sell stock at the strike price.

Accepted Answer

A) True 
 B)False

Question 16

LEAPS

Accepted Answer

A) Are long-term equity anticipation securities 
B) Have higher speculative premiums than regular options 
C) Are limited to a maximum of 2 year 
D) All of the above are true 
A) Are long-term equity anticipation securities 
B) Have higher speculative premiums than regular options 
C) Are limited to a maximum of 2 year 
D) All of the above are true

Question 17

The International Securities Market is an ECN (electronic communication network)trading options and has not been a major factor in its competition with the Chicago Board Options Exchange.

Accepted Answer

A) True 
 B)False

Question 18

The popularity of options is due to the likelihood of an average investor earning superior returns.

Accepted Answer

A) True 
 B)False

Question 19

If an investor buys an option assuming a stock has bottomed out,but the stock continues to fall,the most he or she can lose is the price of the option,including commissions.

Accepted Answer

A) True 
 B)False

Question 20

Generally,the higher the beta,the greater the speculative premium.

Accepted Answer

A) True 
 B)False

Exam 15: Put and Call Options

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 intrinsic value of the put?

Writers of naked call options generally expect stock prices to decline or remain stable.

The longer the time to expiration the higher the speculative premium per day.

Which of the following is NOT an advantage of listed options markets over the previous method of over-the-counter trading?

All of the following are characteristics of LEAPS,except:

The maximum possible loss on a strategy of buying put options is limited to the options premium under all circumstances.

A call can be used to cover a long position against the risk of rising stock prices.

The International Securities Exchange

_______ was the first organized exchange to trade options,in 1973.

If you buy one option and write one option on the same underlying stock,you are creating a "spread"

Dividends on the underlying common stock will affect the option price.

An Arthur Corp.25 put option is selling for $3 when the stock is trading at $22

Beltran Industries common stock trades at $42 per share.The 40 call option trades at $4.This option would be

The writer of a put agrees to sell stock at the strike price.

LEAPS

The International Securities Market is an ECN (electronic communication network)trading options and has not been a major factor in its competition with the Chicago Board Options Exchange.

The popularity of options is due to the likelihood of an average investor earning superior returns.

If an investor buys an option assuming a stock has bottomed out,but the stock continues to fall,the most he or she can lose is the price of the option,including commissions.

Generally,the higher the beta,the greater the speculative premium.

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

Filters