Question 1

What is the fundamental value of a put contract with a strike price of $25 when the option price is $1.50 and the underlying common stock sells for $26?

Accepted Answer

A) $150 
B) $100 
C) $0.00 
D) -$100 
A) $150 
B) $100 
C) $0.00 
D) -$100 C

Question 2

While stock index options can be used to play the market as a whole, they are also effective in protecting equity portfolios against falling markets.

Accepted Answer

A) True 
 B)False  True

Question 3

One could temporarily protect profits on a highly diversified portfolio of large company stocks by
I.selling S&P 500 Index put options.
II.buying S&P 500 Index put options.
III.buying S&P 500 Index call options.
IV.selling S&P 500 Index call options.

Accepted Answer

A) I and III only 
B) I, II and III only 
C) II and IV only 
D) I, II and IV only 
A) I and III only 
B) I, II and III only 
C) II and IV only 
D) I, II and IV only C

Question 4

Stocks options that trade in the January cycle will have contracts available that expire in

Accepted Answer

A) January, February, April, and July. 
B) March, June, September, December. 
C) January, February, March, and April. 
D) each of the next 12 months. 
A) January, February, April, and July. 
B) March, June, September, December. 
C) January, February, March, and April. 
D) each of the next 12 months.

Question 5

An option straddle is the simultaneous purchase (or sale)of both a put and a call option on the same underlying security.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following statements concerning options is correct?

Accepted Answer

A) One option covers 1,000 shares of stock. 
B) A put gives the option holder the right to buy a stated amount of securities. 
C) The owner of a call is entitled to the dividends paid on the underlying shares of stock. 
D) Option holders can profit on movements of the price of the underlying security. 
A) One option covers 1,000 shares of stock. 
B) A put gives the option holder the right to buy a stated amount of securities. 
C) The owner of a call is entitled to the dividends paid on the underlying shares of stock. 
D) Option holders can profit on movements of the price of the underlying security.

Question 7

The value of a put increases as the price of the underlying security rises.

Accepted Answer

A) True 
 B)False

Question 8

A listed option's ask price is always higher than its bid price.

Accepted Answer

A) True 
 B)False

Question 9

If the S&P 500 index is at 2,082, then the cash value of an S&P 500 index option is

Accepted Answer

A) $20.82. 
B) $2,082. 
C) $20,820 
D) $208,200. 
A) $20.82. 
B) $2,082. 
C) $20,820 
D) $208,200.

Question 10

Which one of the following was the first listed exchange for stock options in the United States?

Accepted Answer

A) Stock Index Board 
B) Philadelphia Board of Trade 
C) New York Stock Exchange 
D) Chicago Board Options Exchange 
A) Stock Index Board 
B) Philadelphia Board of Trade 
C) New York Stock Exchange 
D) Chicago Board Options Exchange

Question 11

Stock index options can be used for which of the following investment purposes?
I.protect a portfolio from market declines
II.speculate on the price appreciation of a particular common stock
III.take advantage of a leverage opportunity
IV.create a portfolio hedge

Accepted Answer

A) I and IV only 
B) II and IV only 
C) I and III only 
D) I, III and IV only 
A) I and IV only 
B) II and IV only 
C) I and III only 
D) I, III and IV only

Question 12

The ability to obtain a given equity position at a reduced capital investment, and therefore magnify returns, is known as

Accepted Answer

A) leverage. 
B) straddling. 
C) hedging. 
D) triple witching. 
A) leverage. 
B) straddling. 
C) hedging. 
D) triple witching.

Question 13

A naked option is a conservative investment with limited risk.

Accepted Answer

A) True 
 B)False

Question 14

Warrants

Accepted Answer

A) provide substantially less capital appreciation potential than the underlying stock. 
B) tend to be quite costly. 
C) have a stipulated price and an expiration date. 
D) are not traded in the secondary markets because of their low unit costs. 
A) provide substantially less capital appreciation potential than the underlying stock. 
B) tend to be quite costly. 
C) have a stipulated price and an expiration date. 
D) are not traded in the secondary markets because of their low unit costs.

Question 15

Which of the following affect the value of puts and calls written on shares of common stock?
I.price volatility of the underlying stock
II.current market price of the underlying stock
III.length of time until the option expiration date
IV.current market interest rate

Accepted Answer

A) I and II only 
B) I, II and III only 
C) II, III and IV only 
D) I, II, III and IV 
A) I and II only 
B) I, II and III only 
C) II, III and IV only 
D) I, II, III and IV

Question 16

Which of the following is true about rights?

Accepted Answer

A) They are usually attached to bonds as a "sweetener." 
B) The owner has several years in which to exercise the option. 
C) They are a type of short-lived call option. 
D) They are a type of short-lived put option. 
A) They are usually attached to bonds as a "sweetener." 
B) The owner has several years in which to exercise the option. 
C) They are a type of short-lived call option. 
D) They are a type of short-lived put option.

Question 17

Writing covered calls protects the writer from losses if the price of the underlying stock declines.

Accepted Answer

A) True 
 B)False

Question 18

The majority of today's options are stock options traded primarily on the CBOE and on AMEX.

Accepted Answer

A) True 
 B)False

Question 19

The buyer of a listed American option has which of the following rights?
I.the right to change the expiration date
II.the right to change the strike price
III.the right to resell the option
IV.the right to let the option expire unexercised

Accepted Answer

A) I and III only 
B) III and IV only 
C) I, III and IV only 
D) II, III and IV only 
A) I and III only 
B) III and IV only 
C) I, III and IV only 
D) II, III and IV only

Question 20

The longer the time to expiration, the lower the option time premium tends to be.

Accepted Answer

A) True 
 B)False

What is the fundamental value of a put contract with a strike price of $25 when the option price is $1.50 and the underlying common stock sells for $26?

While stock index options can be used to play the market as a whole, they are also effective in protecting equity portfolios against falling markets.

One could temporarily protect profits on a highly diversified portfolio of large company stocks by I.selling S&P 500 Index put options. II.buying S&P 500 Index put options. III.buying S&P 500 Index call options. IV.selling S&P 500 Index call options.

Stocks options that trade in the January cycle will have contracts available that expire in

An option straddle is the simultaneous purchase (or sale)of both a put and a call option on the same underlying security.

Which one of the following statements concerning options is correct?

The value of a put increases as the price of the underlying security rises.

A listed option's ask price is always higher than its bid price.

If the S&P 500 index is at 2,082, then the cash value of an S&P 500 index option is

Which one of the following was the first listed exchange for stock options in the United States?

Stock index options can be used for which of the following investment purposes? I.protect a portfolio from market declines II.speculate on the price appreciation of a particular common stock III.take advantage of a leverage opportunity IV.create a portfolio hedge

The ability to obtain a given equity position at a reduced capital investment, and therefore magnify returns, is known as

A naked option is a conservative investment with limited risk.

Warrants

Which of the following affect the value of puts and calls written on shares of common stock? I.price volatility of the underlying stock II.current market price of the underlying stock III.length of time until the option expiration date IV.current market interest rate

Which of the following is true about rights?

Writing covered calls protects the writer from losses if the price of the underlying stock declines.

The majority of today's options are stock options traded primarily on the CBOE and on AMEX.

The buyer of a listed American option has which of the following rights? I.the right to change the expiration date II.the right to change the strike price III.the right to resell the option IV.the right to let the option expire unexercised

The longer the time to expiration, the lower the option time premium tends to be.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Futures Markets and Securities

Filters

Exam 14: Options: Puts and Calls

What is the fundamental value of a put contract with a strike price of $25 when the option price is $1.50 and the underlying common stock sells for $26?

While stock index options can be used to play the market as a whole, they are also effective in protecting equity portfolios against falling markets.

One could temporarily protect profits on a highly diversified portfolio of large company stocks by I.selling S&P 500 Index put options. II.buying S&P 500 Index put options. III.buying S&P 500 Index call options. IV.selling S&P 500 Index call options.

Stocks options that trade in the January cycle will have contracts available that expire in

An option straddle is the simultaneous purchase (or sale)of both a put and a call option on the same underlying security.

Which one of the following statements concerning options is correct?

The value of a put increases as the price of the underlying security rises.

A listed option's ask price is always higher than its bid price.

If the S&P 500 index is at 2,082, then the cash value of an S&P 500 index option is

Which one of the following was the first listed exchange for stock options in the United States?

Stock index options can be used for which of the following investment purposes? I.protect a portfolio from market declines II.speculate on the price appreciation of a particular common stock III.take advantage of a leverage opportunity IV.create a portfolio hedge

The ability to obtain a given equity position at a reduced capital investment, and therefore magnify returns, is known as

A naked option is a conservative investment with limited risk.

Warrants

Which of the following affect the value of puts and calls written on shares of common stock? I.price volatility of the underlying stock II.current market price of the underlying stock III.length of time until the option expiration date IV.current market interest rate

Which of the following is true about rights?

Writing covered calls protects the writer from losses if the price of the underlying stock declines.

The majority of today's options are stock options traded primarily on the CBOE and on AMEX.

The buyer of a listed American option has which of the following rights? I.the right to change the expiration date II.the right to change the strike price III.the right to resell the option IV.the right to let the option expire unexercised

The longer the time to expiration, the lower the option time premium tends to be.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Futures Markets and Securities

Filters