Exam 19: Understanding Derivative Securities: Options

You buy 1,000 shares of Sunbeam at 11 1/8 and write 10 calls at a premium of 4 3/8 with a strike price of 7 1/2. The stock goes to 20 in 6 months. You receive a 8 cent dividend per share. If the calls are exercised (which is the likely assumption), what is your percentage return?

How can the owner of a large stock portfolio use options on individual stocks to enhance the income from the portfolio?

The standard option contract is for:

Stock market index options are available on all of the following EXCEPT

How could an investor create 100 shares of artificial stock (i.e., a portfolio with the same payoffs as 100 shares of common stock)?

A stock investor wants to hedge the Microsoft stock in his portfolio. How can he use a protective put to do this?

Which of the following statements is true regarding the writer of a call contract?

Options traded on organized exchanges are protected against cash dividends.

The Options Clearing Corporation does not ensure fulfillment of option obligations.

Writing a naked call is potentially riskier than writing a naked put.