All else equal, an american style option will be ____ valuable than a ____style option

more, european

At contract maturity the value of a call option is ____, where X equals the option's strike price and St is the stock price at the contract expiration

max (0, St - X)

at contract maturity the value of a put option is ____, where X equals the option's strike price and St is the stock price at contract expiration

max (0, X-St)

An american put option gives its holder the right to___.

sell the underlying asset at the exercise price on or before the expiration date

an asian call option gives its holder the right to ___.

buy the underlying asset at a price determined by the average stock price during some specified portion of the option's life

An asian put option gives its holder the right to ___

sell the underlying asset at a price determined by the avg stock price during some specified portion of the option's life

a time spread may be executed by

selling an option with one expiration date and buying a similar option with a different expiration date

which of the following about convertible bonds is true?
I. The conversion price does not change over time.
II. The associated stocks may not pay dividends as long as the bonds are outstanding.
III. Most convertibles are also callable at the discretion of

III and IV

a quanto provides its holder with the right to

exchange the payoff from a foreign investment for dollars at a fixed exchange rate

you purchase a call option on a stock. the profit at contract maturity of the option position is ____. where X equals the options strike price, St is the stock price at contract expiration, and C0 is the original purchase price of the option

max (-C0, St-X-C0)

strips and straps are variations of

straddles

you write a put option on a stock. the profit at contact maturity of the option position is ___ where X equals the option's strike price, St is the stock at contract expiration and P0 is the original premium of the put option

min (-P0, St-X+P0)

longer term american style options with maturities of up to 3 years are called

LEAPS

the initial maturities of most exchange traded options are generally

less than 1 year

a futures call option provides its holder with the right to

purchase a futures contract at a specified price for a specified period of time

exchange traded stock options expire on the ___of the expiration month

third friday

the writer of a put option ____

agrees to buy shares at a set price if the option holder desires

advantages of exchange traded options over OTC options include all but which one of the following

contracts that are tailored to meet the needs of market participants

each listed stock option contract gives the holder the right to buy or sell ___ shares of stock

100

exercise prices for listed stock options usually occur in increments of ___ and bracket the current stock price

$5

you buy a call option and a put option on general electric. Both the call option and the put option have the same exercise price and expiration date. This strategy is called

long straddle

in 1973 trading of standardized options on a national exchange started on the

CBOE

an American call option gives the buyer the right to

buy the underlying asset at the exercise price on or before the expiration date

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

in the money

30. You buy a call option on Merritt Corp. with an exercise price of $50 and an expiration date in July, and you write a call option on Merritt Corp. with an exercise price of $55 and an expiration date in July. This is called a ________.

money spread

a call option on Brocklehurst has an exercise price of $30 the current stock price is $32 the call option is

in the money

you invest in the stock of Rayliegh Corp. and write a call option. This strategy is

covered call

33. You buy a call option on Summit Corp. with an exercise price of $40 and an expiration date in September, and you write a call option on Summit Corp. with an exercise price of $40 and an expiration date in October. This strategy is called a _________.

time spread

a european call option gives the buyer the right to

buy the underlying asset at the exercise price only at expiration date

you invest in the stock of valleyview corp and purchase a put option. this strategy is

protective put

the value of a listed call option on a stock is lower when:
I. The exercise price is higher.
II. The contract approaches maturity.
III. The stock decreases in value.
IV. A stock split occurs.

I, II, III

the option clearing corporation is owned by

the exchanges on which stock options are traded

The value of a listed put option on a stock is lower when:
I. The exercise price is higher.
II. The contract approaches maturity.
III. The stock decreases in value.
IV. A stock split occurs.

II only

the max loss a buyer of a stock call option can suffer is the ___

call premium

which one of the statements about margin requirements on option positions is not correct

even if the writer of a call option owns the stock the writer will have to meet the margin requirement in cash

a european option gives the holder the right to

sell the underlying asset at the exercise price only at the expiration date

the potential loss for a writer of a naked call option on a stock is

unlimited

a writer of a call option will want the value of the underlying asset to ____ and a buyer of a put option will want the value of the underlying asset to ____

decrease, decrease

buyers of listed options ____ required to post margins and writers of naked listed options ___ required to post margins

are not, are

an option with a payoff that depends on the average price of the underlying asset during at least some portion of the life of the option is called

an asian

which of the following expressions represents the value of a call option to its holder on the exp date

St - X if St>X, 0 if St<=X

a bet option is also called

digital option

which one of the following is the ticker symbol for the CBOE option contract on the S&P 100 index

OEX

. __________ 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.

writing an uncovered put option

which is a correct statement

Exercise of warrants results in more outstanding shares of stock, while exercise of listed call options does not.

62. The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $40 is

sell a straddle

a covered call strategy benefits from what environemt

price stability

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

long call and short put

what combo of puts and calls can stimulate a long stock investment

long call and short put

which makes a profit if the stock price stays stable

short call and short put

Which of the following strategies makes a profit when the stock price declines and loses money when the stock price increases?

long call and long put

If you combine a long stock position with selling an at-the-money call option, the resulting net payoff profile will resemble the payoff profile of a _______.

short put

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

protective put

what strategy is designed to ensure value within the bounds of two different stock prices

collar

78. You are convinced that a stock's price will move by at least 15% over the next 3 months. You are not sure which way the price will move, but you believe that the results of a patent hearing are definitely going to have a major effect on the stock pric

buy a strap

when issued most convertible bonds are issued

deep out of the money

a convertible bond is deep in the money this means the bond price will closely track the

conversion value of the bond

. Warrants differ from listed options in that:
I. Exercise of warrants results in dilution of a firm's earnings per share.
II. When warrants are exercised, new shares of stock must be created.
III. Warrant exercise results in cash flows to the firm, where

I, II, and III

85. You own a stock portfolio worth $50,000. You are worried that stock prices may take a dip before you are ready to sell, so you are considering purchasing either at-the-money or out-of-the- money puts. If you decide to purchase the out-of-the-money put

greater, greater

If you anticipate dramatic decline in stock prices, which naked strategy will make you the most profit?

short call

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

exercise the option