Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

At the expiration of a box spread,at most there will be only one option exercised.

Accepted Answer

A) True 
 B)False

Question 3

The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices.
   Use this information to answer questions 1 through 20. Assume that each transaction consists of one contract (100 options) unless otherwise indicated.
For questions 1 through 6, consider a bull money spread using the March 45/50 calls.
-What is the maximum profit on the spread?

Accepted Answer

A) $500 
B) $802 
C) $198 
D) $302 
E) none of the above 
A) $500 
B) $802 
C) $198 
D) $302 
E) none of the above

Question 4

The risk of early exercise is of no concern to the holder of a long straddle.

Accepted Answer

A) True 
 B)False

Question 5

Answer questions about a long straddle constructed using the June 50 options.
-What is the profit if the stock price at expiration is at $64.75?

Accepted Answer

A) -$971 
B) $1,475 
C) -$3,525 
D) $500 
E) none of the above 
A) -$971 
B) $1,475 
C) -$3,525 
D) $500 
E) none of the above

Question 6

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

Question 7

A call money spread that is closed prior to expiration has lower losses but higher profits for each stock price than if held to expiration.

Accepted Answer

A) True 
 B)False

Question 8

The holder of a straddle does not care which way the market moves as long as it makes a significant move.

Accepted Answer

A) True 
 B)False

Question 9

Answer questions about a long straddle constructed using the June 50 options.
-Suppose a put is added to a straddle.This overall transaction is called a strip.Determine the profit at expiration on a strip if the stock price at expiration is $36.

Accepted Answer

A) -$129 
B) $1,416 
C) $429 
D) $1,384 
E) none of the above 
A) -$129 
B) $1,416 
C) $429 
D) $1,384 
E) none of the above

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

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

At the expiration of a box spread,at most there will be only one option exercised.

The risk of early exercise is of no concern to the holder of a long straddle.

Answer questions about a long straddle constructed using the June 50 options. -What is the profit if the stock price at expiration is at $64.75?

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.

A call money spread that is closed prior to expiration has lower losses but higher profits for each stock price than if held to expiration.

The holder of a straddle does not care which way the market moves as long as it makes a significant move.

Answer questions about a long straddle constructed using the June 50 options. -Suppose a put is added to a straddle.This overall transaction is called a strip.Determine the profit at expiration on a strip if the stock price at expiration is $36.

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

The 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 Applications

Managing Risk in an Organization

Filters

Exam 7: Advanced Option Strategies

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

At the expiration of a box spread,at most there will be only one option exercised.

The risk of early exercise is of no concern to the holder of a long straddle.

Answer questions about a long straddle constructed using the June 50 options. -What is the profit if the stock price at expiration is at $64.75?

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.

A call money spread that is closed prior to expiration has lower losses but higher profits for each stock price than if held to expiration.

The holder of a straddle does not care which way the market moves as long as it makes a significant move.

Answer questions about a long straddle constructed using the June 50 options. -Suppose a put is added to a straddle.This overall transaction is called a strip.Determine the profit at expiration on a strip if the stock price at expiration is $36.

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

The 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 Applications

Managing Risk in an Organization

Filters