Deck 15: Stock Options

Question 1

Which of the following has the obligation to sell a stock at the strike price when an option is exercised?

A) call holder
B) call writer
C) put holder
D) put writer
E) call holder and put writer

Answer 1

B

Question 2

A cash-settled option is defined as an option which does which one of the following?

A) requires a cash deposit upon purchase
B) has a foreign currency as its underlying asset
C) has the U.S. dollar at its underlying asset
D) entails a cash payment to the holder upon exercise
E) offers the option to either deliver the underlying asset or a cash payment

Answer 2

D

Question 3

Which one of the following is defined as an option that can only be exercised at expiration?

A) European style option
B) in-the-money option
C) out-of-the-money option
D) American style option
E) derivative option

Answer 3

A

Question 4

Which one of the following guarantees that the terms of an exchange-listed option contract are fulfilled when an option is exercised?

A) Securities and Exchange Commission
B) Federal Reserve
C) New York Options Exchange
D) Options Clearing Corporation
E) Securities Investors Protection Corporation

Question 5

Which one of the following refers to selling an option contract?

A) calling
B) writing
C) exercising
D) striking
E) spotting

Question 6

Which one of the following terms is defined as an option that would have a positive payoff if exercised now?

A) in-the-money option
B) out-of-the-money option
C) straddle
D) crossed option
E) cash-settled

Question 7

By definition,stock index options would include an option on which one of the following underlying assets?

A) gold
B) corn
C) U.S. dollar
D) S&P 500
E) U.S. Treasury bill

Question 8

Which of the following has the obligation to purchase stock at the strike price when an option is exercised?

A) call holder
B) call writer
C) put holder
D) put writer
E) call writer and put holder

Question 9

Which one of the following is defined as the price at which an option will be exercised?

A) straddle
B) spread
C) strike
D) market
E) underlying

Question 10

The value of an option is dependent upon the value of the underlying security.This relationship defines an option as which one of the following?

A) equity security
B) fixed income security
C) derivative security
D) transfer security
E) dependent security

Question 11

Which one of the following terms is defined as the payoff that would be received if an option were expiring immediately?

A) parity price
B) market price
C) time value
D) underlying value
E) intrinsic value

Question 12

By definition,a put option grants its owner which one of the following?

A) right to buy
B) obligation to buy
C) right to sell
D) obligation to sell
E) choice to either buy or sell

Question 13

Kathy implemented an option trading strategy consisting of two call options.This strategy is known as which one of the following?

A) spread
B) straddle
C) split
D) combination
E) counteraction

Question 14

An option that would not yield a positive payoff if exercised today is referred to by which one of the following terms?

A) hollow option
B) zero option
C) in-the-cellar option
D) out-of-the-money option
E) strike-out

Question 15

A list of available option contracts and their prices for a particular security listed in order of strike price and maturity date is referred to as which one of the following?

A) value chain
B) intrinsic list
C) option chain
D) strike list
E) exercise price display

Question 16

Selling a call option on stock which you own is referred to as which one of the following strategies?

A) covered call
B) naked call
C) protective put
D) underlying put
E) straddle

Question 17

A call option grants its owner which one of the following?

A) right to buy
B) obligation to buy
C) right to sell
D) obligation to sell
E) choice to either buy or sell

Question 18

You currently own 200 shares of Amazon stock.If you purchase options on this stock to protect against future declines in the price of the stock you are implementing which one of the following?

A) covered call
B) naked call
C) protective put
D) bear spread
E) straddle

Question 19

Which one of the following is equal to the option premium minus the intrinsic value?

A) parity value
B) payoff value
C) time value
D) strike value
E) profit

Question 20

Which one of the following distinguishes an option as an American style option?

A) option that grants its holder the right to purchase at the strike price
B) option that grants its holder the right to sell at the strike price
C) option that obligates its holder to sell at the strike price
D) option that can be exercised at any time prior to expiration
E) option that can only be exercised at expiration

Question 21

Which one of the following statements is correct?

A) Reduced Value index options are equal in size to one percent of the standard index option.
B) The holder of a stock index put option is betting that the underlying index will increase in value.
C) Most index options are traded on the New York Options Exchange.
D) The contract size for a call option on the S&P 500 is 10 times the index.
E) Some stock index options close in the morning while others close at the end of the trading day.

Question 22

The change in the option symbol quotation system was driven by which of the following?
I)Advances in technology
II)Increase in the number and type of option products
III)Difficulty in applying the old system to NASDAQ stocks
IV)Difficulty in applying the system to complicated option products

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

Question 23

At what price will a dealer sell the Jun $34 put on General Electric stock?

A) $1.64
B) $1.73
C) $1.77
D) $2.52
E) $2.56

Question 24

What is the maximum percentage loss you can incur if you buy a put option?

A) 0%
B) 10%
C) 100%
D) 1,000%
E) unlimited percentage

Question 25

Which of the following issue exchange-listed option contracts?
I)CBOE
II)SEC
III)OCC
IV)NASDAQ

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

Question 26

Which one of the following combinations creates an in-the-money option?

A) underlying stock price is less than the strike price of a call
B) underlying stock price is $18 and the put has an exercise price of $15
C) underlying stock price is $22 and the call has an exercise price of $25
D) put strike price exceeds the underlying stock price
E) put price is equal to the call price

Question 27

Which one of the following options is out-of-the-money?

A) call with a $20 strike and a stock price of $21
B) put with a $35 strike and a stock price of $33
C) call with a $45 strike and stock price of $46
D) put with a $75 strike and a stock price of $70
E) call with a $50 strike and a stock price of $49

Question 28

Which of the following characteristics are correct regarding the new style option quotation system?
I)The system is known as OPRA - the Options Price Reporting Authority code.
II)The system has 3 data elements.
III)The system has 21 characters.
IV)The system has 5 characters.
V)The system is known as the OCC Series Key.
VI)The root symbol is the underlying stock's ticker symbol.

A) I, II, III, and VI
B) II, III, IV, and V
C) I, II, and IV
D) II, III, V, and VI
E) III, V, and VI

Question 29

You bought a put with a strike price of $35.The current stock price is $33.What is the current payoff value of this option?

A) -$2
B) -$1
C) $0
D) $1
E) $2

Question 30

How much option premium per share will you receive if you sell a September $34 put on General Electric stock?

A) $1.64
B) $1.68
C) $1.77
D) $2.52
E) $2.56

Question 31

Laney just purchased 3 call option contracts on Microsoft stock.How many shares of stock can she buy at the strike price based on these contracts?

A) 3
B) 30
C) 300
D) 30,000
E) 300,000

Question 32

Consider both a European put and call that expire in December and have a strike price of $25.The no-arbitrage relationship between this put and call is referred to as which one of the following?

A) intrinsic equilibrium
B) Euro-match
C) bull-call spread
D) butterfly spread
E) put-call parity

Question 33

You wrote a $40 call option on a stock that has a market price of $43.Which one of the following statements must be correct if the option expires three months from now?

A) Your option currently has zero intrinsic value.
B) Your option currently has a negative payoff.
C) You have the right to purchase shares at $40 a share.
D) Your option payoff will increase if the market price of the stock increases.
E) If the market price remains stable, you will make the decision to exercise this option prior to expiration.

Question 34

A decrease in which one of the following will increase the intrinsic value of a put option?

A) strike price
B) exercise price
C) option premium
D) time value
E) underlying stock price

Question 35

An option trading strategy that utilizes both put and call options is referred to as which one of the following?

A) bull call spread
B) butterfly spread
C) split
D) combination
E) counteraction

Question 36

Which one of the following statements is true?

A) A call with a strike price of $25 and a stock price of $23 has positive intrinsic value.
B) A European style option is more valuable than an American style option.
C) An American style out-of-the-money call option can have a positive value.
D) A $40 put option has more intrinsic value than a $50 put option on the same underlying asset.
E) The time value of an option is equal to the intrinsic value minus the option premium.

Question 37

Which one of the following options is in-the-money?

A) call with a $45 strike and an underlying stock price of $42
B) put with a $35 strike and an underlying stock price of $36
C) call with a $15 strike and an underlying stock price of $15
D) put with a $45 strike and an underlying stock price of $42
E) call with a $30 strike and an underlying stock price of $29

Question 38

What is the current price per underlying share if you wish to buy a June $32.50 call option on General Electric stock?

A) $0.68
B) $0.70
C) $0.73
D) $1.60
E) $1.62

Question 39

Which of the following characteristics are correct regarding the old style option quotation system?
I)The system is known as OPRA - the Options Price Reporting Authority code.
II)The system has 3 data elements.
III)The system has 21 characters.
IV)The system has 5 characters.
V)The system is known as the OCC Series Key.
VI)The root symbol is the underlying stock's ticker symbol.

A) I, II, III, and VI
B) II, III, IV, and V
C) I, II, and IV
D) II, III, V, and VI
E) III, V, and VI

Question 40

You are buying the June call on General Electric stock at $0.19.What amount will you pay per share if you decide to exercise this option?

A) $32.50
B) $32.69
C) $33.81
D) $34.00
E) $34.19

Question 41

You bought a call option with a strike price of $40.What is your total payoff on this option contract if the underlying stock is selling for $42.70 on the option expiration date?

A) $3.00
B) $70.00
C) $133.00
D) $233.00
E) $270.00

Question 42

You wrote a covered call with a strike price of $35 and an option premium of $1.10.Assume the stock price is $34 a share currently and that it falls to $32 a share and remains at that price until the option expires.As a result,you will:

A) lose an amount equal to the option premium.
B) lose the option premium but get to keep the stock.
C) keep both your stock and the option premium.
D) keep the option premium but lose your shares of stock.
E) lose both your stock and the option premium.

Question 43

What is the total amount you will receive if you sell 10 June $27.50 puts on Texas Instruments?

A) unknown
B) $70
C) $100
D) $4,050
E) $4,300

Question 44

Which one of the following is the primary purpose of a protective put?

A) profit from an expected future increase in the underlying stock's value
B) guarantee a higher return than is possible from just owning the underlying security
C) offset the risk associated with a decrease in the value of the underlying asset
D) receipt of the option premium
E) increase in potential rate of return due to increase in risk

Question 45

Which one of the following applies to a naked call?

A) unlimited potential profits
B) unlimited potential losses
C) sale of a put on a stock you do not own
D) sale of a call on a stock you currently own
E) purchase of a call on a stock you do not own

Question 46

You own 200 shares of Allen Bros.stock.Which one of the following would allow you to receive an option premium in exchange for selling your shares in Allen Bros.at the strike price?

A) straddle
B) long spread
C) selling a put
D) buying a call
E) writing a covered call

Question 47

Which one of the following is a bear call spread?

A) buying a $30 call and selling a $35 call on the same stock
B) selling a $30 call and buying a $30 call on the same stock
C) buying a $30 call and selling a $25 call on the same stock
D) selling a $30 call and buying a $35 put
E) buying a $30 call and selling a $35 put

Question 48

The maximum option payoff from:

A) writing a put is $0.
B) buying a put is $0.
C) writing a call is an unlimited profit.
D) buying a call is the strike price.
E) writing a call is the stock price.

Question 49

How much will it cost to purchase 5 May $27.50 calls on Texas Instruments?

A) $21
B) $1,215
C) $1,245
D) $1,720
E) $2,075

Question 50

Which one of the following values is discounted in the put-call parity formula?

A) call price
B) put price
C) stock price
D) strike price
E) option premium

Question 51

What is the total option premium you will receive if you sell 4 May $27.50 calls on Texas Instruments?

A) $90
B) $850
C) $1,640
D) $2,170
E) $3,375

Question 52

A short straddle:

A) involves exercising two or more options simultaneously.
B) is the purchase of both a put and a call on the same underlying asset.
C) obtains its maximum profit when the underlying stock price is equal to the strike price.
D) involves writing a call on shares of stock you currently own.
E) is a highly bullish strategy.

Question 53

Which one of the following represents an arbitrage opportunity?

A) stock price of $18 and strike price of $20
B) call price of $0.40 and put price of $0.40
C) PCP-implied put price of $0.30 and call price of $0.28
D) PCP-implied put price of $0.30 and put market price of $0.31
E) PCP-implied call price of $0.20 and a put market price of $0.22

Question 54

Which one of the following is a bull call spread?

A) buying a $30 call and selling a $35 call on the same stock
B) selling a $30 call and buying a $35 call on the same stock
C) buying a $30 call and selling a $25 call on the same stock
D) selling a $30 call and buying a $35 put
E) buying a $30 call and selling a $35 put

Question 55

Which one of the following is the upper price bound for the intrinsic value of a European put option on a stock?

A) 0
B) strike price
C) stock price
D) Max (S - K, 0)
E) Max (K - S, 0)

Question 56

The maximum:

A) profit from buying a put is the stock price.
B) loss from writing a put is the option premium.
C) profit from writing a call is the strike price.
D) loss from buying a call is $0.
E) profit from writing a put is the option premium.

Question 57

Katie purchased 6 call options on Atlas Co.stock with a strike price of $40.00.On the expiration date,the stock was priced at $38.95 a share.What is the total payoff on the option contracts?

A) -$220.00
B) -$55.00
C) $0.00
D) $2.20
E) $55.00

Question 58

Which one of the following is the upper price bound for the intrinsic value of a European call option on a stock?

A) $0
B) strike price
C) stock price
D) Max (S - K, 0)
E) Max (K - S, 0)

Question 59

Which one of the following correctly defines the range of time values for a put option?

A) $0 to +$1
B) -$1 to +$1
C) ≤ $0
D) ≥ $0
E) ¹ $0

Question 60

Amy bought a $50 May call and a $50 May put on the same underlying stock.This strategy is referred to as which one of the following?

A) bull spread
B) bear spread
C) parity play
D) short straddle
E) long straddle

Question 61

You own 6 put option contracts on JL Industrial stock.You paid an option premium of $0.85 for a strike price of $37.50.On the option expiration date,the stock was selling for $35.00 a share.What is your percentage return?

A) -100 percent
B) -18.75 percent
C) 71.26 percent
D) 194.00 percent
E) 200.20 percent

Question 62

Jennifer purchased 3 put option contracts on Winslow Mfg.stock.The option premium was $0.75 and the strike price was $27.50.On the expiration date,the stock was selling for $27.75 a share.What is the total payoff on the option contracts?

A) -$100
B) -$50
C) $0
D) $50
E) $150

Question 63

Kim Lee purchased 6 put option contracts on Eastern Imports stock at a strike price of $47.50.The option premium was $0.65.At expiration,the stock was valued at $44.90 a share.What is her percentage return?

A) -100 percent
B) 0 percent
C) 5.47 percent
D) 32.82 percent
E) 300 percent

Question 64

You purchased 6 call options with a $40 strike price at a total cost of $150.On the expiration date,the underlying stock was priced at $39.20.What is the percentage return on your investment?

A) -420 percent
B) -100 percent
C) 68.75 percent
D) 2.02 percent
E) 220 percent

Question 65

Gerold purchased 3 put option contracts at an option premium of $0.95 and a strike price of $40.At expiration,the stock price was $42.25 per share.What is his percentage return?

A) -100 percent
B) 0 percent
C) 15.79 percent
D) 21.62 percent
E) 31.58 percent

Question 66

You purchased 7 put option contracts on Alto Industries.The strike price was $42.50 and the option premium was $1.30.On the expiration date,the stock was valued at $41.40 a share.What is the payoff on the option contracts?

A) -$140
B) $0
C) $110
D) $360
E) $770

Question 67

Russ paid a total of $75 to purchase 5 call options with a strike price of $17.50.What is the break-even stock price?

A) $0.15
B) $0.30
C) $17.35
D) $17.65
E) $32.50

Question 68

Rosalita purchased a put option with a strike price of $35.She paid a total of $140 for the contract.What is the break-even stock price?

A) $31.40
B) $33.60
C) $38.00
D) $41.60
E) $42.80

Question 69

You own two SPX put options with a strike of 1,600.What is the payoff at maturity for this option contract if the S&P 500 index is 1,622?

A) -$2,200
B) -$22
C) $0
D) $22
E) $2,200

Question 70

You purchased a call option with a $22.50 strike price and a call premium of $0.40.On the expiration date,the underlying stock was priced at $23.40 per share.What is the percentage return on your investment?

A) -100 percent
B) 0 percent
C) 50 percent
D) 125 percent
E) 200 percent

Question 71

You purchased one SPX put option with a strike of 1,400.You wrote one SPX put option with the same maturity date and a strike of 1,300.At maturity,what is your total payoff if the S&P 500 index is 1,320?

A) -$8,000
B) -$2,000
C) $2,000
D) $4,000
E) $8,000

Question 72

You own three SPX call options with a strike of 1,800.What is the payoff at maturity for this option contract if the S&P 500 index is 1,820?

A) $0
B) $20
C) $200
D) $1,200
E) $6,000

Question 73

You own 4 put option contracts on ALZ stock.The contracts have a $17.50 strike price and you paid an option premium of $0.40.What is the break-even stock price?

A) $17.10
B) $17.30
C) $17.50
D) $17.70
E) $17.90

Question 74

You purchased one SPX call option with a strike of 1,500.You wrote one SPX call option with the same maturity date and a strike of 1,450.At maturity,what is your payoff if the S&P 500 is at 1,475?

A) -$2,500
B) -$250
C) $25
D) $250
E) $2,500

Question 75

Callie purchased 3 call options with a $37.50 strike price and a call premium of $0.910.On the expiration date,the underlying stock was priced at $40.20 per share.What is her percentage return on this investment?

A) -100 percent
B) 70.45 percent
C) 181.82 percent
D) 200.00 percent
E) 909.10 percent

Question 76

Josh owns 2 call options on Foster Glass stock.The exercise price is $47.50 and the stock price at expiration is $49.01.What is the total payoff on the option contracts?

A) -$0.00
B) -$3.02
C) $3.02
D) $30.20
E) $302.00

Question 77

Jasmine purchased one call option with a strike price of $35 when the call premium was $1.10.What is the break-even stock price?

A) $0.00
B) $33.90
C) $34.45
D) $35.00
E) $36.10

Question 78

Tim purchased 5 put option contracts on Western Fields stock.The strike price was $35 and the option premium was $0.55.At expiration,the stock was selling for $35.75.What is the payoff on the option contracts?

A) -$60
B) -$30
C) $0
D) $30
E) $60

Question 79

Jeff paid a call premium of $0.60 when he purchased his call option with a strike price of $22.00.What is the break-even stock price?

A) $0.00
B) $0.25
C) $22.25
D) $22.60
E) $22.75

Question 80

You purchased 5 put option contracts on Mountain Builders stock at an option premium of $0.70.The strike price is $30.What is your break-even stock price?

A) $19.90
B) $24.35
C) $25.00
D) $29.30
E) $30.70