Exam 19: An Introduction to Options

The owner of a call option does not receive any dividends paid by the firm.

One reason for writing and selling a covered call option is

The intrinsic value of an option to buy stock (i.e.,a call option)is the difference between the price of the stock and the per share exercise price of the option.

The value of a put rises as the price of

Warrants are issued by

If the price of a stock rises substantially,the investor who wrote a covered call 1)earns a modest profit 2)sustains a modest loss 3)lost an opportunity for a large profit

The intrinsic value of an option sets

A writer of a naked call option will lose money if the price of the stock declines.

Given the following information, finish the following sentences. a.The intrinsic value of the call is _________. b.The intrinsic value of the put is _________. c.The time premium paid for the call is _________. d.The time premium paid for the put is _________. At the expiration of the options (i.e.,after six months have lapsed),the price of the stock is $45. e.The profit (loss)from buying the call is _______. f.The profit (loss)from writing the call covered (i.e.,buying the stock and selling the call)is ________. g.The profit (loss)from buying the put is _______. h.The profit (loss)from selling the stock short is ______. i.The maximum possible loss from buying the put is ______. j.At expiration,the time premium paid for a put or a call is _______.

The time premium paid for an option to buy stock is affected by

A call is an option to

Since options offer potential leverage,they tend to sell for a time premium.

If the price of an option to buy stock were to sell for less than its strike price,an opportunity for arbitrage exists.

The value of a put is inversely related to the value of the underlying stock.

Options sell for a time premium over their intrinsic value because

Given the following information, finish the following sentences. a.The intrinsic value of the call is _______. b.The time premium paid for the call is _______. c.If an investor established a covered call position,the amount invested is _______. d.The most the buyer of the call can lose is _______. e.The maximum amount the seller of the call naked can lose is _______. f.Which call is "in" or "out" of the money? After six months (i.e.,at the expiration date of the call),the price of the stock is $52. g.The profit (loss)from buying the call is _______. h.The price (loss)from selling the call naked is _______. i.The profit (loss)from selling the call covered is _______. j.The profit (loss)from selling the stock short six months earlier is _______.

In addition to put and call options on individual stocks,there are also options on the market as a whole.

If the price of a stock rises,the writer of a put option profits.

The buyer of a call option wants the price of the stock to rise.

If an investor constructs a covered call,