Exam 19: An Introduction to Options

A portfolio manager with a position in many stocks may hedge the portfolio by purchasing a stock index call option.

Calls tend to sell for a time premium that exceeds the stock's price.

Warrants and calls do not have

Which of the following assumes higher stock prices? 1.buying a stock index call 2)buying a stock index put 3)selling a stock index call 4)selling a stock index put

Answer the questions given the following information:

If an investor anticipated that interest rates would rise,that individual should sell an option to buy Treasury bonds.

The writer of a naked call option wants

The price of a call option is often more volatile than the price of the underlying stock.

There is no limit to the potential loss from buying a call option.

Holders of calls do not receive the cash dividends paid to the company's stockholders.

There is no secondary market for rights.

Most investors rarely have an opportunity to establish an arbitrage position.

The intrinsic value of a call option is the strike price minus the stock's price.

In-the-money stock index options are not exercised.

If an investor is bearish,he or she should not buy a stock index call option.

The profits on options are exempt from federal income taxation.

A put is an option to

Calls are options to sell stock at a specified price within a specified time period.

The maximum potential profit on a covered call is the time premium paid for the stock.

As the price of a stock rises,the time premium paid for an option to buy stock increases.