Use the table for the question(s) below.
Consider the following information on options from the CBOE for Rackspace.
RAX 30.09 +0.48
12/3/2010 Bid 30.07
Ask
30.09
Calls Last Sale Net Bid Ask Vol
Open
Int
RAX 10 Dec 29 1.25 0 1.5 1.7 0 1436
RAX 10 Dec 30 1.05 0.27 0.95 1.1 5 2245
RAX 10 Dec 31 0.6 0.15 0.55 0.7 13 485
RAX 10 Dec 32 0.45 0 0.3 0.4 0 74
RAX 11 Jan 29 1.7 0 2.25 2.5 0 872
RAX 11 Jan 30 1.87 0.02 1.75 2 30 523
RAX 11 Jan 31 1.41 0.06 1.3 1.5 3 85
RAX 11 Jan 32 1.2 0 0.95 1.1 0 117
Puts Last Sale Net Bid Ask Vol
Open
Int
RAX 10 Dec 29 0.6 -0.2 0.5 0.7 1 750
RAX 10 Dec 30 1.19 0 0.95 1.1 0 521
RAX 10 Dec 31 2.05 0 1.55 1.7 0 31
RAX 10 Dec 32 0 0 2.15 2.5 0 0
RAX 11 Jan 29 1.85 0 1.45 1.7 0 1205
RAX 11 Jan 30 0 0 1.95 2.2 0 150
RAX 11 Jan 31 0 0 2.55 2.7 0 100
RAX 11 Jan 32 0 0 3.1 3.4 0 0
30) Assume you want to buy ive call option contracts that with an exercise price closest to
being at-the-money and that expires December 2010. The current price that you would
have to pay for such a contract is ________.
A) $550
B) $110
C) $475
D) $300
AACSB Objective: Analytic Skills
Author: WC
Question Status: Previous Edition
11
31) How many of the December 2010 put options are in-the-money?
A) 1
B) 2
C) 3
D) 4
AACSB Objective: Analytic Skills
Author: WC
Question Status: Previous Edition
32) The open interest for a January 2011 call option that is closest to being at-the-money is
________.
A) 1436
B) 2245
C) 872
D) 523
AACSB Objective: Analytic Skills
Author: WC
Question Status: Previous Edition
33) What are American options?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
34) What are European options?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
12
35) What is a call option?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
36) What is a put option?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
37) When is an option at-the-money?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
38) When is an option in-the-money?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
39) When is an option out-the-money?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
13
21.2 Option Payofs at Expiration
1) Although the payouts on a long position in an options contract are never negative, the
proit from purchasing and holding it could be negative.
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
2) When a stock price appreciates by a certain percentage, a call option on the same stock
appreciates by a lower percentage amount.
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
3) Suppose that a stock sells at a price of $40 on the expiration date. Compute the price of
a call option if the option strike price is $20.
A) $20
B) $30
C) $40
D) $50
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
14
4) Suppose that a stock sells at a price of $10 on the expiration date. Compute the price of
a call option if the option strike price is $20.
A) $20
B) $30
C) $40
D) $0
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
5) Suppose that a stock sells at a price of $60 on the expiration date. Compute the price of
a call option if the option strike price is $20.
A) $20
B) $30
C) $40
D) $50
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
15
6) Suppose that a stock sells at a price of $40 on the expiration date. Compute the price of
a put option if the option strike price is $60.
A) $20
B) $30
C) $40
D) $50
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
7) Suppose that a stock sells at a price of $50 on the expiration date. Compute the price of
a put option if the option strike price is $80.
A) $20
B) $30
C) $40
D) $50
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
16
8) Suppose that a stock sells at a price of $40 on the expiration date. Compute the price of
a put option if the option strike price is $20.
A) $0
B) $10
C) $20
D) $30
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
9) Suppose that a stock sells at a price of $40 on the expiration date. Compute the payof to
the seller of a call option if the option strike price is $20.
A) -$20
B) -$30
C) -$40
D) -$50
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
10) Suppose that a stock sells at a price of $40 on the expiration date. Compute the payof
to the seller of a call option if the option strike price is $50.
A) -$20
B) -$10
C) 0
D) $20
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
17
11) Suppose that a stock sells at a price of $60 on the expiration date. Compute the payof
to the seller of a call option if the option strike price is $20.
A) -$20
B) -$30
C) -$40
D) -$50
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
12) Suppose that a stock sells at a price of $60 on the expiration date. Compute the payof
to the seller of a put option if the option strike price is $20.
A) -$20
B) -$10
C) 0
D) $40
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
13) Suppose that a stock sells at a price of $40 on the expiration date. Compute the payof
to the seller of a put option if the option strike price is $50.
A) -$20
B) -$10
C) 0
D) $40
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
18
14) Suppose that a stock sells at a price of $60 on the expiration date. Compute the payof
to the seller of a put option if the option strike price is $80.
A) -$20
B) -$10
C) 0
D) $40
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
15) Suppose you purchase a call option for $5 and a strike price of $20. On the expiration
day, the price of the stock is $30. What is the return on the call option if you hold your
position until maturity?
A) 25%
B) 50%
C) 75%
D) 100%
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
19
16) Suppose you purchase a call option for $4 and a strike price of $30. On the expiration
day, the price of the stock is $40. What is the return on the call option if you hold your
position until maturity?
A) 125%
B) 130%
C) 150%
D) 170%
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
17) Suppose you purchase a call option for $5 and a strike price of $40. On the expiration
day, the price of the stock is $55. What is the return on the call option if you hold your
position until maturity?
A) 125%
B) 200%
C) 275%
D) 300%
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
20