A ______ grants the owner the right to purchase a specified financial instrument for a specified price within a speci�fied period of time.
A) call option
B) put option
C) sale of a futures contract
D) purchase of a futures contract
A
A ______ requires a premium above and beyond the price to be paid for the financial instrument.
A) futures contract
B) call option
C) put option
D) B and C
D
A call option is "in the money" when the
A) market price of the underlying security exceeds the exercise price.
B) market price of the underlying security equals the exercise price.
C) market price of the underlying security is less than the exercise pric
A
A put option is "out of the money" when the
A) market price of the security exceeds the exercise price.
B) market price of the security equals the exercise price.
C) market price of the security is less than the exercise price.
D) premium on the option is
A
When the market price of the underlying security exceeds the exercise price, the
A) call option is in the money.
B) put option is in the money.
C) call option is at the money.
D) call option is out of the money.
A
When the exercise price exceeds the market price of the underlying security, the
A) call option is in the money.
B) put option is in the money.
C) call option is at the money.
D) put option is out of the money.
B
Sellers (writers) of call options can offset their position at any point in time by
A) selling a put option on the same stock.
B) buying identical call options.
C) selling additional call options on the same stock.
D) A and B
E) all of the above
B
The _______________ is the most important exchange for trading options.
A) New York Stock Exchange (NYSE)
B) Chicago Board of Options Exchange (CBOE)
C) Chicago Mercantile Exchange (CME)
D) Philadelphia Stock Exchange
B
___________ execute transactions desired by investors and trade stock options for their own account.
A) Floor brokers
B) Specialists
C) Market-makers
D) none of the above
C
A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. The speculator will exercise the option on the expiration date (if it is feasible to do so). What is the
C
A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. What is the stock price at which the speculator would break even?
A) $50
B) $58
C) $52
D) $53
E) $49
D
A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. What is the stock price at which the speculator would break even?
A) $50
B) $58
C) $52
D) $53
E) $49
B
A speculator purchases a put option for a premium of $4, with an exercise price of $30. The stock is presently priced at $29, and rises to $32 before the expiration date. What is the stock price at which the speculator would break even?
A) $26
B) $34
C) $
A
The ________, the higher the call option premium, other things being equal.
A) lower the existing price of the security relative to the exercise price
B) lower the variability of the security's market price
C) longer the maturity of the option
D) A and B
C
The ________, the lower the premium on a put option, other things being equal.
A) higher the existing price of the security relative to the exercise price
B) greater the variability of the security's market value
C) longer the maturity of the option
D) A
A
The longer the time to maturity, the ___________ the call option premium and the _________ the put option premium.
A) higher; lower
B) lower; higher
C) higher; higher
D) lower; lower
C
The greater the volatility of the underlying stock, the ___________ the call option premium and the _________ the put option premium.
A) higher; lower
B) lower; higher
C) higher; higher
D) lower; lower
C
The sale of a call option on a stock the seller already owns is referred to as
A) a covered call.
B) a naked call.
C) call on futures.
D) futures on options.
A
Assume a pension fund purchased stock at $53. Call options at a $50 exercise price presently have a $4 premium per share. The pension fund sells a call option on the stock it owns. If the call option is exercised when the price of the stock is $56, what i
D
Covered call writing ______ the upside potential return and ______ the risk of an investment in stock.
A) increases; increases
B) increases; decreases
C) limits; increases
D) limits; decreases
D
Put options are typically used to hedge
A) when portfolio managers are mainly concerned with a permanent decline in a stock's value.
B) when portfolio managers are mainly concerned with a permanent increase in a stock's value.
C) when portfolio managers a
C
A savings and loan association has long term fixed rate mortgages supported by short term funds. A put option on Treasury bond futures could be used to (ignore the premium paid for the option when you answer this question)
A) maintain its interest rate sp
A
A speculator purchases a put option on Treasury bond futures with a September delivery date with a strike price of 85 00. The option has a premium of 2 00. Assume that the price of the futures contract decreases to 82 00 on the expiration date and the opt
E
Assume an insurance company purchases a call option on an S&P 500 Index futures contract for a premium of 14, with an exercise price of 1800. The value of an S&P 500 futures contract is 250 times the index. If the index on the futures contract increases t
D
Corporations involved in international business trans�actions can ______ to hedge future ______.
A) sell currency call options; payables
B) purchase currency put options; receivables
C) purchase currency call options, receivables
D) purchase currency put
B
If a corporation hedges payables with currency call options, it will ______ if the value of the foreign currency is ______ than the exer�cise price when the payables are due.
A) exercise the option; greater
B) exercise the option; less
C) let the option e
E
Speculators purchase currency ______ on currencies they expect to ______ against the dollar.
A) call options; weaken
B) put options; strengthen
C) futures; weaken
D) put options; weaken
D
Speculators may be willing to write ______ options on foreign currencies they expect to ______ against the dollar.
A) put; strengthen
B) put; weaken
C) call; strengthen
D) call; weaken
E) A and D
E
European-style stock options
A) are long-term options (at least one year until expiration at the time they are created).
B) can be exercised after the expiration date.
C) can be exercised any time until the expiration date.
D) none of the above
D
A speculator purchased a call option with an exercise price of $31 for a premium of $4. The option was exercised a few days later when the stock price was $34. What was the return to the speculator?
A) 25 percent
B) 25 percent
C) 3.2 percent
D) 2.9 percen
B