Question 1

Which of the following strategies makes a profit if the stock price stays stable?

Accepted Answer

A)   long call and short put
B)   long call and long put
C)   short call and short put
D)   short call and long putE) A) and D)
F) B) and C)

Question 2

You purchase one MBI July 120 put contract (equaling 100 shares)  for a premium of $3. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a ________ on the investment.

Accepted Answer

A)   $300 profit
B)   $300 loss
C)   $500 loss
D)   $200 profitE) A) and D)
F) A) and C)

Question 3

You invest in the stock of Valleyview Corp. and purchase a put option on Valleyview Corp. This strategy is called a ________.

Accepted Answer

A)   long straddle
B)   naked put
C)   protective put
D)   short strollE) C) and D)
F) A) and C)

Question 4

Strips and straps are variations of ________.

Accepted Answer

A)   straddles
B)   collars
C)   money spreads
D)   time spreadsE) A) and B)
F) None of the above

Question 5

You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes:

To establish a bull money spread with puts, you would ________.

Accepted Answer

A)   sell the 55 put and buy the 45 put
B)   buy the 45 put and buy the 55 put
C)   buy the 55 put and sell the 45 put
D)   sell the 45 put and sell the 55 putE) A) and C)
F) B) and C)

Question 6

________ is the most risky transaction to undertake in the stock-index option markets if the stock market is expected to fall substantially after the transaction is completed.

Accepted Answer

A)   Writing an uncovered call option
B)   Writing an uncovered put option
C)   Buying a call option
D)   Buying a put optionE) None of the above
F) B) and C)

Question 7

When issued, most convertible bonds are issued ________.

Accepted Answer

A)   deep in the money
B)   deep out of the money
C)   slightly out of the money
D)   slightly in the moneyE) A) and B)
F) All of the above

Question 8

______ option can only be exercised on the expiration date.

Accepted Answer

A)   A Mexican
B)   An Asian
C)   An American
D)   A EuropeanE) A) and C)
F) None of the above

Question 9

You purchase one MBI July 120 call contract (equaling 100 shares)  for a premium of $5. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a ________ on the investment.

Accepted Answer

A)   $200 profit
B)   $200 loss
C)   $300 profit
D)   $300 lossE) A) and D)
F) B) and C) B

Question 10

What strategy could be considered insurance for an investment in a portfolio of stocks?

Accepted Answer

A)   covered call
B)   protective put
C)   short put
D)   straddleE) A) and B)
F) A) and C)

Question 11

A "bet" option is also called a ________ option.

Accepted Answer

A)   barrier
B)   lookback
C)   digital
D)   foreign exchangeE) None of the above
F) A) and D) C

Question 12

A put option on Dr. Pepper Snapple Group, Inc., has an exercise price of $45. The current stock price is $41. The put option is ________.

Accepted Answer

A)   at the money
B)   in the money
C)   out of the money
D)   knocked outE) B) and C)
F) All of the above

Question 13

Which one of the following is a correct statement?

Accepted Answer

A)   Exercise of warrants results in more outstanding shares of stock, while exercise of listed call options does not.
B)   A convertible bond consists of a straight bond plus a specified number of detachable warrants.
C)   Call options always have an initial maturity greater than 1 year, while warrants have an initial maturity less than 1 year.
D)   Call options may be convertible into the stock, while warrants are not convertible into the stock.E) None of the above
F) B) and C)

Question 14

You sell one MBI July 90 call contract for a premium of $4 and two puts for a premium of $3 each. You hold the position until the expiration date, when MBI stock sells for $95 per share. You will realize a ________ on this strip.

Accepted Answer

A)   $300 profit
B)   $100 loss
C)   $500 profit
D)   $200 profitE) C) and D)
F) B) and D)

Question 15

The potential loss for a writer of a naked call option on a stock is ________.

Accepted Answer

A)   equal to the call premium
B)   larger the lower the stock price
C)   limited
D)   unlimitedE) A) and C)
F) B) and D) D

Question 16

You write a put option on a stock. The profit at contract maturity of the option position is ________, where X equals the option's strike price, ST is the stock price at contract expiration, and P0 is the original premium of the put option.

Accepted Answer

A)   max (P0, X − ST − P0) 
B)   min (−P0, X − ST − P0) 
C)   min (P0, ST − X + P0) 
D)   max (0, ST − X − P0) E) A) and C)
F) A) and B)

Question 17

Which strategy benefits from upside price movement and has some protection should the price of the security fall?

Accepted Answer

A)   Bull spread
B)   Long put
C)   Short call
D)   StraddleE) A) and C)
F) A) and D)

Question 18

If the gross profit is positive and the net profit is negative, you will ________.

Accepted Answer

A)   let the option expire with no action
B)   not exercise the option
C)   exercise the option
D)   sell the option for less than the gross profitE) A) and C)
F) B) and D)

Question 19

The May 17, 2015, price quotation for a Boring call option with a strike price of $50 due to expire in November is $20.80, while the stock price of Boring is $69.80. The premium on one Boring November 50 call contract is ________.

Accepted Answer

A)   $1,980
B)   $4,900
C)   $5,000
D)   $2,080E) All of the above
F) None of the above

Question 20

You purchase one MBI March 120 put contract for a put premium of $10. The maximum profit that you could gain from this strategy is ________.

Accepted Answer

A)   $120
B)   $1,000
C)   $11,000
D)   $12,000E) C) and D)
F) A) and B)

Exam 15: Options Markets

Which of the following strategies makes a profit if the stock price stays stable?

Correct Answer
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You purchase one MBI July 120 put contract (equaling 100 shares) for a premium of $3. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a ________ on the investment.

Correct Answer
verified

You invest in the stock of Valleyview Corp. and purchase a put option on Valleyview Corp. This strategy is called a ________.

Correct Answer
verified

Strips and straps are variations of ________.

Correct Answer
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Correct Answer
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________ is the most risky transaction to undertake in the stock-index option markets if the stock market is expected to fall substantially after the transaction is completed.

Correct Answer
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When issued, most convertible bonds are issued ________.

Correct Answer
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______ option can only be exercised on the expiration date.

Correct Answer
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You purchase one MBI July 120 call contract (equaling 100 shares) for a premium of $5. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a ________ on the investment.

Correct Answer
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B

What strategy could be considered insurance for an investment in a portfolio of stocks?

Correct Answer
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A "bet" option is also called a ________ option.

Correct Answer
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C

A put option on Dr. Pepper Snapple Group, Inc., has an exercise price of $45. The current stock price is $41. The put option is ________.

Correct Answer
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Which one of the following is a correct statement?

Correct Answer
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You sell one MBI July 90 call contract for a premium of $4 and two puts for a premium of $3 each. You hold the position until the expiration date, when MBI stock sells for $95 per share. You will realize a ________ on this strip.

Correct Answer
verified

The potential loss for a writer of a naked call option on a stock is ________.

Correct Answer
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D

You write a put option on a stock. The profit at contract maturity of the option position is ________, where X equals the option's strike price, ST is the stock price at contract expiration, and P0 is the original premium of the put option.

Correct Answer
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Which strategy benefits from upside price movement and has some protection should the price of the security fall?

Correct Answer
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If the gross profit is positive and the net profit is negative, you will ________.

Correct Answer
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The May 17, 2015, price quotation for a Boring call option with a strike price of $50 due to expire in November is $20.80, while the stock price of Boring is $69.80. The premium on one Boring November 50 call contract is ________.

Correct Answer
verified

You purchase one MBI March 120 put contract for a put premium of $10. The maximum profit that you could gain from this strategy is ________.

Correct Answer
verified

Exam 15: Options Markets

Which of the following strategies makes a profit if the stock price stays stable?

Correct AnswerverifiedShow Answer

You purchase one MBI July 120 put contract (equaling 100 shares) for a premium of $3. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a ________ on the investment.

Correct AnswerverifiedShow Answer

You invest in the stock of Valleyview Corp. and purchase a put option on Valleyview Corp. This strategy is called a ________.

Correct AnswerverifiedShow Answer

Strips and straps are variations of ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

________ is the most risky transaction to undertake in the stock-index option markets if the stock market is expected to fall substantially after the transaction is completed.

Correct AnswerverifiedShow Answer

When issued, most convertible bonds are issued ________.

Correct AnswerverifiedShow Answer

______ option can only be exercised on the expiration date.

Correct AnswerverifiedShow Answer

You purchase one MBI July 120 call contract (equaling 100 shares) for a premium of $5. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a ________ on the investment.

Correct AnswerverifiedB

What strategy could be considered insurance for an investment in a portfolio of stocks?

Correct AnswerverifiedShow Answer

A "bet" option is also called a ________ option.

Correct AnswerverifiedC

A put option on Dr. Pepper Snapple Group, Inc., has an exercise price of $45. The current stock price is $41. The put option is ________.

Correct AnswerverifiedShow Answer

Which one of the following is a correct statement?

Correct AnswerverifiedShow Answer

You sell one MBI July 90 call contract for a premium of $4 and two puts for a premium of $3 each. You hold the position until the expiration date, when MBI stock sells for $95 per share. You will realize a ________ on this strip.

Correct AnswerverifiedShow Answer

The potential loss for a writer of a naked call option on a stock is ________.

Correct AnswerverifiedD

You write a put option on a stock. The profit at contract maturity of the option position is ________, where X equals the option's strike price, ST is the stock price at contract expiration, and P0 is the original premium of the put option.

Correct AnswerverifiedShow Answer

Which strategy benefits from upside price movement and has some protection should the price of the security fall?

Correct AnswerverifiedShow Answer

If the gross profit is positive and the net profit is negative, you will ________.

Correct AnswerverifiedShow Answer

The May 17, 2015, price quotation for a Boring call option with a strike price of $50 due to expire in November is $20.80, while the stock price of Boring is $69.80. The premium on one Boring November 50 call contract is ________.

Correct AnswerverifiedShow Answer

You purchase one MBI March 120 put contract for a put premium of $10. The maximum profit that you could gain from this strategy is ________.

Correct AnswerverifiedShow Answer

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B

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C

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D

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