Q&A Hero

Q: Jennifer purchased 4 put option contracts on Winslow Mfg. stock. The option premium was $0.25 and the strike price was $17.50. On the expiration date, the stock was selling for $17.75 a share. What is the total payoff on the option contracts? A. -$100 B. -$50 C. $0 D. $50 E. $150

Q: 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

Q: 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 B. -$55 C. $0 D. $2.20 E. $55

Q: You bought a call option with a strike price of $35. What is your total payoff on this option contract if the underlying stock is selling for $36.70 on the option expiration date? A. $.00 B. $30.00 C. $33.00 D. $133.00 E. $170.00

Q: How much will it cost to purchase 5 May $27.50 calls on Texas Instruments?A. $21B. $1,215C. $1,245D. $1,720E. $2,075

Q: What is the total amount you will receive if you sell 10 June $27.50 puts on Texas Instruments?A. unknownB. $70C. $100D. $4,050E. $4,300

Q: What is the total option premium you will receive if you sell 6 October $25 calls on Texas Instruments?A. $80B. $350C. $695D. $4,170E. $4,375

Q: 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

Q: 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

Q: Which one of the following correctly defines the range of time values for a put option?A. $0 to +$1B. -$1 to +$1C. $0D. $0E. $0

Q: 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)

Q: 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)

Q: 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.

Q: Anna bought a $40 April call and a $40 April 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

Q: Which one of the following is a bear call spread? A. buying a $20 call and selling a $25 call on the same stock B. selling a $20 call and buying a $20 call on the same stock C. buying a $20 call and selling a $15 call on the same stock D. selling a $20 call and buying a $25 put E. buying a $20 call and selling a $25 put

Q: Which one of the following is a bull call spread? A. buying a $20 call and selling a $25 call on the same stock B. selling a $20 call and buying a $25 call on the same stock C. buying a $20 call and selling a $15 call on the same stock D. selling a $20 call and buying a $25 put E. buying a $20 call and selling a $25 put

Q: 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

Q: You wrote a covered call with a strike price of $45 and an option premium of $1.10. Assume the stock price is $44 a share currently and that it falls to $42 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.

Q: You own 300 shares of ABC stock. Which one of the following would allow you to receive an option premium in exchange for selling your shares in ABC at the strike price? A. straddle B. long spread C. selling a put D. buying a call E. writing a covered call

Q: 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

Q: 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.

Q: 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.

Q: You bought a put with a strike price of $25. The current stock price is $23. What is the current payoff value of this option? A. -$2 B. -$1 C. $0 D. $1 E. $2

Q: 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.

Q: 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

Q: 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.

Q: 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

Q: 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

Q: 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

Q: 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.

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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. $32.50B. $32.69C. $33.81D. $34.00E. $34.19

Q: At what price will a dealer sell the Jun $34 put on General Electric stock?A. $1.64B. $1.73C. $1.77D. $2.52E. $2.56

Q: What is the current price per underlying share if you wish to buy a June $32.50 call option on General Electric stock?A. $0.68B. $0.70C. $0.73D. $1.60E. $1.62

Q: How much option premium per share will you receive if you sell a September $34 put on General Electric stock?A. $1.64B. $1.68C. $1.77D. $2.52E. $2.56

Q: Louise just purchased 3 call option contracts on GE 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

Q: Consider both a European put and call that expire in June and have a strike price of $30. 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

Q: 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

Q: Kris 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

Q: 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

Q: You currently own 300 shares of Microsoft 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

Q: 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

Q: 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

Q: Which one of the following refers to selling an option contract? A. calling B. writing C. exercising D. striking E. spotting

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: You currently have a long position in the 3-month futures market. Which one of the following would be a reverse trade to this position? A. short spot B. long spot C. short 3-month futures D. long 3-month futures E. short 6-month futures

Q: You can withdraw funds from your margin account without closing your futures contract given which two of the following? I. marking-to-market deducts funds from your margin account II. marking-to-market adds funds to your margin account III. margin balance after the withdrawal will exceed the maintenance margin requirement IV. margin balance after the withdrawal will exceed the initial margin requirement A. I and III only B. I and IV only C. II and III only D. II and IV only E. Funds cannot be withdrawn as long as the futures contract is outstanding.

Q: Which one of the following describes the typical initial margin requirements for a futures contract? A. 2 to 5 percent of contract value on short positions only B. 2 to 5 percent of contract value on both long and short positions C. 4 to 8 percent of contract value on long positions only D. 4 to 8 percent of contract value on short positions only E. 5 to 15 percent of contract value on both long and short positions

Q: You are a baker and need to purchase a substantial amount of wheat flour three months from now in preparation for your busy season. Your concern is that the price of wheat will increase substantially before you make your purchase. Which one of the following positions in wheat would be an effective hedge for you? A. long position in spot market B. short position in spot market C. long position in futures market D. short position in futures market E. none of these

Q: You have 50,000 pounds of cotton in storage. You don't want to sell the cotton today as you believe the price of cotton will be higher six months from now than what the markets currently predict. However, you also realize that the price could decline. Which one of the following would hedge your risk of owning the cotton for the next few months? A. short futures position B. long futures position C. short spot position D. long spot position E. long futures position combined with a short spot position

Q: Lucas owns a large farming operation which encompasses over 5,000 acres of corn. The crop this year is abundant and will be ready for harvesting next month. Lucas likes the market prices today but expects the prices to decline over the next month as the supply of corn increases. Which one of the following positions should Lucas take to hedge his corn crop? A. sell in the spot market today B. buy in the spot market today C. take a long futures position D. take a short futures position E. sell in the spot today and take a long position in the futures market

Q: Sugar is currently selling for $0.201 a pound while the 6-month futures price is $0.208. You take a long position in the 6-month sugar futures. Which one of the following prices would cause you the greatest loss if that price turns out to be the actual price of sugar per pound 6 months from now? A. $0.198 B. $0.201 C. $0.205 D. $0.208 E. $0.211

Q: Corn is currently selling for $6.15 a bushel while the 3-month futures price is $6.20. Carlos believes that corn will actually sell for $6.45 a bushel 3 months from now. Which one of the following positions in corn should he take today, given this belief? A. sell in the spot market B. sell in the futures market C. take a long position in the futures market D. take a short position in the futures market E. take a short position in the spot market

Q: In which city does the largest volume of futures trading in the United States occur? A. Boston B. New York C. Chicago D. Kansas City E. Minneapolis

Q: What price will be used for this day for the mark-to-market per pound on December cotton?A. $0.7885B. $0.8063C. $78.85D. $80.59E. $80.63

Q: What is the highest price at which the May coffee futures contract traded during this day?A. $1.3715B. $1.3800C. $137.15D. $138.00E. $140.20

Q: What was the price per pound of December cotton at the end of this trading day?A. $0.7885B. $0.8036C. $0.8059D. $0.8063E. $0.8090

Q: What is the normal means of delivery on a Treasury note futures contract? A. delivery in cash B. change in registered ownership C. direct deposit of cash into the seller's bank account D. wire transfer of funds from the buyer's bank to the seller's bank E. payment by certified check on the maturity date

Q: Which one of the following statements is true regarding futures contracts? A. Futures prices are generally set equal to the spot price on the delivery date. B. Futures contracts generally grant the buyer the option to accept only a portion of the contract. C. Cost and convenience are the two key considerations when establishing the settlement procedures. D. The seller of a futures contract has the option to deliver cash in an amount equal to the contract value in lieu of the underlying asset. E. The buyer and seller of the contract negotiate the price on the maturity date.

Q: Which one of the following statements related to futures contracts is correct? A. The buyer of the contract has a short position. B. The buyer of the contract has the right to either accept delivery or cancel the contract. C. Futures contracts can be cancelled by either the buyer or the seller with 10 days notice to the other party. D. Both the buyer and the seller of the contract are obligated to fulfill their duties as outlined in the futures contract. E. The buyer of the contract must deliver the underlying asset on the settlement date.

Q: Which of the following features apply to a futures contract?I. zero-sum gameII. derivative securityIII. maturity dateIV. settlement procedureA. I and II onlyB. I and III onlyC. II and III onlyD. II, III, and IV onlyE. I, II, III, and IV

Q: Futures contracts exist for which of the following? I. pork bellies II. S&P 500 index III. Eurodollars IV. cocoa A. I and IV only B. II and III only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV

Q: In 2007, the Chicago Mercantile Exchange merged with which one of the following exchanges? A. Intercontinental Exchange B. New York Board of Trade C. Chicago Board of Trade D. Coffee, Sugar, and Cocoa Exchange E. New York Futures Exchange