Question 1

A strip (2 puts and one call) would cost more than a straddle but would pay off more if the stock falls.

Accepted Answer

A) True 
 B)False  True

Question 2

The profit from a zero-cost collar option strategy when the terminal stock price ends up in between the two strike prices is ST - S0 where X2 > X1.

Accepted Answer

A) True 
 B)False  True

Question 3

If a straddle is closed prior to expiration, the investor can recover some of the time value of either the call or the put but not both.

Accepted Answer

A) True 
 B)False  False

Question 4

The delta of a straddle would be the call delta plus the put delta.

Accepted Answer

A) True 
 B)False

Question 5

What will be the cost of the butterfly spread?

Accepted Answer

A)  $1,195 
B)  $637 
C)  $79 
D)  $1,045 
E)  none of the above 
A)  $1,195 
B)  $637 
C)  $79 
D)  $1,045 
E)  none of the above

Question 6

A strap is a less expensive bullish strategy than a straddle.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following transactions can have an unlimited loss?

Accepted Answer

A)  long straddle 
B)  calendar spread 
C)  butterfly spread 
D)  reverse box spread 
E)  none of the above 
A)  long straddle 
B)  calendar spread 
C)  butterfly spread 
D)  reverse box spread 
E)  none of the above

Question 8

In a calendar spread the time value of the nearby option will decay more rapidly.

Accepted Answer

A) True 
 B)False

Question 9

To truly gain from a straddle, an investor must have a better estimate of volatility than everyone else.

Accepted Answer

A) True 
 B)False

Question 10

A spread that is profitable if the options are in-the-money is called a money spread.

Accepted Answer

A) True 
 B)False

Question 11

What are the two breakeven stock prices at expiration?

Accepted Answer

A)  $55.58 and $45.87 
B)  $54.13 and $45.87 
C)  $55.58 and $44.42 
D)  $59.71 and $40.29 
E)  none of the above 
A)  $55.58 and $45.87 
B)  $54.13 and $45.87 
C)  $55.58 and $44.42 
D)  $59.71 and $40.29 
E)  none of the above

Question 12

The longer an investor holds a long call butterfly spread position, everything else the same, the greater the distance between the breakeven stock prices.

Accepted Answer

A) True 
 B)False

Question 13

What is the profit if the stock price at expiration is $52.50?

Accepted Answer

A)  $16 
B)  $500 
C)  -$234 
D)  $250 
E)  none of the above 
A)  $16 
B)  $500 
C)  -$234 
D)  $250 
E)  none of the above

Question 14

A call butterfly spread combines a call bull spread with a call bear spread.

Accepted Answer

A) True 
 B)False

Question 15

What is the maximum loss on the spread?

Accepted Answer

A)  $500 
B)  $698 
C)  $198 
D)  $802 
E)  none of the above 
A)  $500 
B)  $698 
C)  $198 
D)  $802 
E)  none of the above

Question 16

An investor who holds a strap (2 calls and 1 put) believes the market is more likely to go up than down.

Accepted Answer

A) True 
 B)False

Question 17

Suppose you wish to construct a ratio spread using the March and June 50 calls. You want to buy 100 June 50 call contracts. How many March 50 calls would you sell?

Accepted Answer

A)  105 
B)  95 
C)  100 
D)  57 
E)  none of the above
Answer questions 10 and 11 about a calendar spread based on the assumption that stock prices are expected to remain fairly constant. Use the June/March 50 call spread. Assume one contract of each. 
A)  105 
B)  95 
C)  100 
D)  57 
E)  none of the above
Answer questions 10 and 11 about a calendar spread based on the assumption that stock prices are expected to remain fairly constant. Use the June/March 50 call spread. Assume one contract of each.

Question 18

Which of the following strategies does not profit in a rising market?

Accepted Answer

A)  put bull spread 
B)  long straddle 
C)  collar 
D)  call bull spread 
E)  none of the above 
A)  put bull spread 
B)  long straddle 
C)  collar 
D)  call bull spread 
E)  none of the above

Question 19

The breakeven points for a long straddle strategy are equidistant from the current stock price regardless of the chosen strike price.

Accepted Answer

A) True 
 B)False

Question 20

There are three breakeven stock prices in a butterfly spread.

Accepted Answer

A) True 
 B)False

A strip (2 puts and one call) would cost more than a straddle but would pay off more if the stock falls.

The profit from a zero-cost collar option strategy when the terminal stock price ends up in between the two strike prices is S_T - S₀ where X₂ > X₁.

If a straddle is closed prior to expiration, the investor can recover some of the time value of either the call or the put but not both.

The delta of a straddle would be the call delta plus the put delta.

What will be the cost of the butterfly spread?

A strap is a less expensive bullish strategy than a straddle.

Which of the following transactions can have an unlimited loss?

In a calendar spread the time value of the nearby option will decay more rapidly.

To truly gain from a straddle, an investor must have a better estimate of volatility than everyone else.

A spread that is profitable if the options are in-the-money is called a money spread.

What are the two breakeven stock prices at expiration?

The longer an investor holds a long call butterfly spread position, everything else the same, the greater the distance between the breakeven stock prices.

What is the profit if the stock price at expiration is $52.50?

A call butterfly spread combines a call bull spread with a call bear spread.

What is the maximum loss on the spread?

An investor who holds a strap (2 calls and 1 put) believes the market is more likely to go up than down.

Suppose you wish to construct a ratio spread using the March and June 50 calls. You want to buy 100 June 50 call contracts. How many March 50 calls would you sell?

Which of the following strategies does not profit in a rising market?

The breakeven points for a long straddle strategy are equidistant from the current stock price regardless of the chosen strike price.

There are three breakeven stock prices in a butterfly spread.

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: The Binomial Model

Option Pricing Models: The Black-Scholes-Merton Model

Basic Option Strategies

Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Appplications

Managing Risk in an Organization

Filters

Exam 7: Advanced Option Strategies

A strip (2 puts and one call) would cost more than a straddle but would pay off more if the stock falls.

The profit from a zero-cost collar option strategy when the terminal stock price ends up in between the two strike prices is ST - S0 where X2 > X1.

If a straddle is closed prior to expiration, the investor can recover some of the time value of either the call or the put but not both.

The delta of a straddle would be the call delta plus the put delta.

What will be the cost of the butterfly spread?

A strap is a less expensive bullish strategy than a straddle.

Which of the following transactions can have an unlimited loss?

In a calendar spread the time value of the nearby option will decay more rapidly.

To truly gain from a straddle, an investor must have a better estimate of volatility than everyone else.

A spread that is profitable if the options are in-the-money is called a money spread.

What are the two breakeven stock prices at expiration?

The longer an investor holds a long call butterfly spread position, everything else the same, the greater the distance between the breakeven stock prices.

What is the profit if the stock price at expiration is $52.50?

A call butterfly spread combines a call bull spread with a call bear spread.

What is the maximum loss on the spread?

An investor who holds a strap (2 calls and 1 put) believes the market is more likely to go up than down.

Suppose you wish to construct a ratio spread using the March and June 50 calls. You want to buy 100 June 50 call contracts. How many March 50 calls would you sell?

Which of the following strategies does not profit in a rising market?

The breakeven points for a long straddle strategy are equidistant from the current stock price regardless of the chosen strike price.

There are three breakeven stock prices in a butterfly spread.

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: The Binomial Model

Option Pricing Models: The Black-Scholes-Merton Model

Basic Option Strategies

Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Appplications

Managing Risk in an Organization

Filters

The profit from a zero-cost collar option strategy when the terminal stock price ends up in between the two strike prices is S_T - S₀ where X₂ > X₁.