Options Markets

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Question 1
Free
Multiple Choice

A ____ grants the owner the right to purchase a specified financial instrument for a specified price within a specified period of time.

Choose correct answer/s
A

call option

B

put option

C

sale of a futures contract

D

purchase of a futures contract

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Question 2
Free
Multiple Choice

A ____ requires a premium above and beyond the price to be paid for the financial instrument.

Choose correct answer/s
A

futures contract

B

call option

C

put option

D

B and C

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Question 3
Free
Multiple Choice

A put option is "out of the money" when the

Choose correct answer/s
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 less than the exercise price.

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Question 4
Free
Multiple Choice

When the market price of the underlying security exceeds the exercise price, a

Choose correct answer/s
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.

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Question 5
Free
Multiple Choice

Sellers (writers) of call options can offset their position at any point in time by

Choose correct answer/s
A

selling a put option on the same stock.

B

buying identical call options.

C

selling additional call options on the same stock.

D

all of the above

E

A and B

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Question 6
Multiple Choice

The ____ is the most important exchange for trading options.

Choose correct answer/s
A
New York Stock Exchange (NYSE)
B
Chicago Board Options Exchange (CBOE)
C
Boston Options Exchange
D
NYSE MKT
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Question 7
Multiple Choice

____ execute transactions desired by investors and trade stock options for their own account.

Choose correct answer/s
A
Floor brokers
B
Discount brokers
C
Market makers
D
none of the above
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Question 8
Multiple Choice

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?

Choose correct answer/s
A
$50
B
$58
C
$52
D
$53
E
$49
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Question 9
Multiple Choice

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 maximum profit per unit to the speculator who owned the put option assuming he or she exercises the option at the ideal time?

Choose correct answer/s
A
-$4
B
-$3
C
-$2
D
$2
E
$3
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Question 10
Multiple Choice

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 priceat which the speculator would break even?

Choose correct answer/s
A
$26
B
$34
C
$28
D
$29
E
$32
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Question 11
Multiple Choice

The ____ , the higher the call option premium, other things being equal.

Choose correct answer/s
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
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Question 12
Multiple Choice

The longer the time to maturity, the ____ the call option premium and the ____ the put option premium.

Choose correct answer/s
A
higher; lower
B
lower; higher
C
higher; higher
D
lower; lower
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Question 13
Multiple Choice

The greater the volatility of the underlying stock, the ____ the call option premium and the ____ the put option premium.

Choose correct answer/s
A
higher; lower
B
lower; higher
C
higher; higher
D
lower; lower
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Question 14
Multiple Choice

The sale of a call option on a stock the seller already owns is referred to as

Choose correct answer/s
A
a covered call.
B
a naked call.
C
call on futures.
D
futures on options.
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Question 15
Multiple Choice

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 calloption is exercised when the price of the stock is $56, what is the gain or loss per share to the pension fund (including its gain from holding the stock as well)?

Choose correct answer/s
A
$4 gain
B
$6 loss
C
$2 loss
D
$1 gain
E
$0
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Question 16
Multiple Choice

Covered call writing ____ the upside potential return and ____ the risk of an investment in stock.

Choose correct answer/s
A
increases; increases
B
increases; decreases
C
limits; increases
D
limits; decreases
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Question 17
Multiple Choice

Put options are typically used to hedge when portfolio managers are mainly concerned about

Choose correct answer/s
A
a permanent decline in a stock's value.
B
a permanent increase in a stock's value.
C
a temporary decline in a stock's value.
D
a temporary increase in a stock's value.
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Question 18
Multiple Choice

A speculator purchases a put option on Treasury bond futures with a September delivery date with an exercise price of 85-00. The option has a premium of 2-00. Assume that the price of the futurescontract decreases to 82-00 on the expiration date and the option is exercised at that point (if it is feasible). What is the net gain?

Choose correct answer/s
A
$1,968.75
B
$3,750.00
C
$3,000.00
D
-$2,000.00
E
$1,000.00
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Question 19
Multiple Choice

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 timesthe index. If the index on the futures contract increases to 1830, what is the gain on the sale of the futures contract?

Choose correct answer/s
A
$15,000
B
$7,500
C
$3,300
D
$4,000
E
$1,500
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Question 20
Multiple Choice

Corporations involved in international business transactions can ____ to hedge future ____ .

Choose correct answer/s
A
sell currency call options; payables
B
purchase currency put options; receivables
C
purchase currency call options, receivables
D
purchase currency put options, payables
E
A and B
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