Question 1

A call butterfly spread is a bullish strategy that is profitable if stock prices increase.

Accepted Answer

A) True 
 B)False  False

Question 2

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 (for 100 shares)unless otherwise indicated.
Answer questions 18 through 20 about a long box spread using the June 50 and 55 options.
-What is the net present value of the box spread?

Accepted Answer

A) $9.84 
B) $5.00 
C) $16.00 
D) $1.84 
E) none of the above 
A) $9.84 
B) $5.00 
C) $16.00 
D) $1.84 
E) none of the above D

Question 3

Early exercise is a disadvantage in which of the following transactions?

Accepted Answer

A) short box spread 
B) put bear spread 
C) long strip (2 puts and 1 call) 
D) long strap (2 calls and 1 put) 
E) none of the above 
A) short box spread 
B) put bear spread 
C) long strip (2 puts and 1 call) 
D) long strap (2 calls and 1 put) 
E) none of the above A

Question 4

The payoffs form a straddle are more like the payoffs from a money spread than a calendar spread.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is the best strategy for an expected fall in the market?

Accepted Answer

A) long strip (2 puts and 1 call) 
B) put bull spread 
C) calendar spread 
D) butterfly spread 
E) none of the above 
A) long strip (2 puts and 1 call) 
B) put bull spread 
C) calendar spread 
D) butterfly spread 
E) none of the above

Question 6

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 (for 100 shares)unless otherwise indicated.
Answer questions 12 through 17 about a long straddle constructed using the June 50 options.
-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 7

The profit from a put bear spread strategy when both options are out of the money is

Accepted Answer

A) -X1 + ST + P1 + X2 - ST - P2 
B) -X1 + ST + P1 - P2 
C) X1 - ST - P1 - X2 + ST + P2 
D) P1 + X2 - ST - P2 
E) P1 - P2 
A) -X1 + ST + P1 + X2 - ST - P2 
B) -X1 + ST + P1 - P2 
C) X1 - ST - P1 - X2 + ST + P2 
D) P1 + X2 - ST - P2 
E) P1 - P2

Question 8

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 9

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 10

Buying a put money spread is a bearish strategy.

Accepted Answer

A) True 
 B)False

Question 11

The option strategy where the holder of a long position in a stock buys a put with an exercise price lower than the current stock price and sells a call with an exercise price higher than the current stock price is known as

Accepted Answer

A) box 
B) bear strategy 
C) bull strategy 
D) collar 
E) spread 
A) box 
B) bear strategy 
C) bull strategy 
D) collar 
E) spread

Question 12

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 (for 100 shares)unless otherwise indicated.
For questions 1 through 6,consider a bull money spread using the March 45/50 calls.
-What is the profit if the stock price at expiration is $47?

Accepted Answer

A) -$102 
B) $398 
C) -$302 
D) $500 
E) none of the above 
A) -$102 
B) $398 
C) -$302 
D) $500 
E) none of the above

Question 13

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 14

A call bear spread is a strategy for investors who expect stock prices to increase.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 (for 100 shares)unless otherwise indicated.
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.
-What will be the profit if the spread is held 90 days and the stock price is $45?

Accepted Answer

A) $36 
B) $20 
C) $558 
D) -$20 
E) none of the above 
A) $36 
B) $20 
C) $558 
D) -$20 
E) none of the above

Question 17

There are three breakeven stock prices in a butterfly spread.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following have similar profit graphs?

Accepted Answer

A) call bull spread and long box spread 
B) put bear spread and short box spread 
C) butterfly spread and ratio spread 
D) calendar spread and call bear spread 
E) none of the above 
A) call bull spread and long box spread 
B) put bear spread and short box spread 
C) butterfly spread and ratio spread 
D) calendar spread and call bear spread 
E) none of the above

Question 19

A collar gives downside protection,leaving the upside open.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

A call butterfly spread is a bullish strategy that is profitable if stock prices increase.

Early exercise is a disadvantage in which of the following transactions?

The payoffs form a straddle are more like the payoffs from a money spread than a calendar spread.

Which of the following is the best strategy for an expected fall in the market?

The profit from a put bear spread strategy when both options are out of the money is

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

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.

Buying a put money spread is a bearish strategy.

The option strategy where the holder of a long position in a stock buys a put with an exercise price lower than the current stock price and sells a call with an exercise price higher than the current stock price is known as

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

A call bear spread is a strategy for investors who expect stock prices to increase.

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

There are three breakeven stock prices in a butterfly spread.

Which of the following have similar profit graphs?

A collar gives downside protection,leaving the upside open.

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

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

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 call butterfly spread is a bullish strategy that is profitable if stock prices increase.

Early exercise is a disadvantage in which of the following transactions?

The payoffs form a straddle are more like the payoffs from a money spread than a calendar spread.

Which of the following is the best strategy for an expected fall in the market?

The profit from a put bear spread strategy when both options are out of the money is

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

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.

Buying a put money spread is a bearish strategy.

The option strategy where the holder of a long position in a stock buys a put with an exercise price lower than the current stock price and sells a call with an exercise price higher than the current stock price is known as

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

A call bear spread is a strategy for investors who expect stock prices to increase.

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

There are three breakeven stock prices in a butterfly spread.

Which of the following have similar profit graphs?

A collar gives downside protection,leaving the upside open.

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

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

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