45) 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 ________ option.
A) an American
B) a European
C) an Asian
D) an Australian
46) Which of the following expressions represents the value of a call option to its holder on the
expiration date?
A) ST − X if ST > X, 0 if ST ≤ X
B) − (ST − X) if ST > X, 0 if ST ≤ X
C) 0 if ST ≥ X, X − ST if ST < X
D) 0 if ST ≥ X, − (X − ST) if ST < X
47) A “bet” option is also called a ________ option.
A) barrier
B) lookback
C) digital
D) foreign exchange
48) Which one of the following is the ticker symbol for the CBOE option contract on the S&P
100 Index?
A) SPX
B) DJX
C) CME
D) OEX
49) The May 17, 2015, price quotation for a Boring call option with a strike price of $50 due to
expire in November is $20.80, while the stock price of Boring is $69.80. The premium on one
Boring November 50 call contract is ________.
A) $1,980
B) $4,900
C) $5,000
D) $2,080
50) You purchase one MBI March 120 put contract for a put premium of $10. The maximum
profit that you could gain from this strategy is ________.
A) $120
B) $1,000
C) $11,000
D) $12,000
51) You buy one Huge-Packing August 50 call contract and one Huge-Packing August 50 put
contract. The call premium is $1.25, and the put premium is $4.50. Your highest potential loss
from this position is ________.
A) $125
B) $450
C) $575
D) unlimited
52) You sell one Huge-Packing August 50 call contract and sell one Huge-Packing August 50
put contract. The call premium is $1.25 and the put premium is $4.50. Your strategy will pay off
only if the stock price is ________ in August.
A) either lower than $44.25 or higher than $55.75
B) between $44.25 and $55.75
C) higher than $55.75
D) lower than $44.25
53) Suppose you purchase one Texas Insurance August 75 call contract quoted at $8.50 and write
one Texas Insurance August 80 call contract quoted at $6. If, at expiration, the price of a share of
Texas Instruments stock is $79, your profit would be ________.
A) $150
B) $400
C) $600
D) $1,850
54) ________ 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.
A) Writing an uncovered call option
B) Writing an uncovered put option
C) Buying a call option
D) Buying a put option
55) Which one of the following is a correct statement?
A) Exercise of warrants results in more outstanding shares of stock, while exercise of listed call
options does not.
B) A convertible bond consists of a straight bond plus a specified number of detachable warrants.
C) Call options always have an initial maturity greater than 1 year, while warrants have an initial
maturity less than 1 year.
D) Call options may be convertible into the stock, while warrants are not convertible into the
stock.
56) A put on Sanders stock with a strike price of $35 is priced at $2 per share, while a call with a
strike price of $35 is priced at $3.50. The maximum per-share loss to the writer of an uncovered
put is ________, and the maximum per-share gain to the writer of an uncovered call is
________.
A) $33; $3.50
B) $33; $31.50
C) $35; $3.50
D) $35; $35
57) You are cautiously bullish on the common stock of the Wildwood Corporation over the next
several months. The current price of the stock is $50 per share. You want to establish a bullish
money spread to help limit the cost of your option position. You find the following option
quotes:
Wildwood Corp
Underlying Stock price: $50.00
Expiration
Strike
Call
Put
June
45.00
8.50
2.00
June
50.00
4.50
3.00
June
55.00
2.00
7.50
To establish a bull money spread with calls, you would ________.
A) buy the 55 call and sell the 45 call
B) buy the 45 call and buy the 55 call
C) buy the 45 call and sell the 55 call
D) sell the 45 call and sell the 55 call
58) You are cautiously bullish on the common stock of the Wildwood Corporation over the next
several months. The current price of the stock is $50 per share. You want to establish a bullish
money spread to help limit the cost of your option position. You find the following option
quotes:
Wildwood Corp
Underlying Stock price: $50.00
Expiration
Strike
Call
Put
June
45.00
8.50
2.00
June
50.00
4.50
3.00
June
55.00
2.00
7.50
Ignoring commissions, the cost to establish the bull money spread with calls would be ________.
A) $1,050
B) $650
C) $400
D) $400 income rather than cost
59) You are cautiously bullish on the common stock of the Wildwood Corporation over the next
several months. The current price of the stock is $50 per share. You want to establish a bullish
money spread to help limit the cost of your option position. You find the following option
quotes:
Wildwood Corp
Underlying Stock price: $50.00
Expiration
Strike
Call
Put
June
45.00
8.50
2.00
June
50.00
4.50
3.00
June
55.00
2.00
7.50
If in June the stock price is $53, your net profit on the bull money spread (buy the 45 call and sell
the 55 call) would be ________.
A) $300
B) −$400
C) $150
D) $50
60) You are cautiously bullish on the common stock of the Wildwood Corporation over the next
several months. The current price of the stock is $50 per share. You want to establish a bullish
money spread to help limit the cost of your option position. You find the following option
quotes:
Wildwood Corp
Underlying Stock price: $50.00
Expiration
Strike
Call
Put
June
45.00
8.50
2.00
June
50.00
4.50
3.00
June
55.00
2.00
7.50
To establish a bull money spread with puts, you would ________.
A) sell the 55 put and buy the 45 put
B) buy the 45 put and buy the 55 put
C) buy the 55 put and sell the 45 put
D) sell the 45 put and sell the 55 put
61) You are cautiously bullish on the common stock of the Wildwood Corporation over the next
several months. The current price of the stock is $50 per share. You want to establish a bullish
money spread to help limit the cost of your option position. You find the following option
quotes:
Wildwood Corp
Underlying Stock price: $50.00
Expiration
Strike
Call
Put
June
45.00
8.50
2.00
June
50.00
4.50
3.00
June
55.00
2.00
7.50
Suppose you establish a bullish money spread with the puts. In June the stock’s price turns out to
be $52. Ignoring commissions, the net profit on your position is ________.
A) $500
B) $700
C) $200
D) $250
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 $3, and a call with the same
expiration date and exercise price sells for $4.
What would be a simple options strategy using a put and a call to exploit your conviction about
the stock price’s future movement?
A) sell a call
B) purchase a put
C) sell a straddle
D) buy a straddle
63) 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 $3, and a call with the same
expiration date and exercise price sells for $4.
Selling a straddle would generate total premium income of ________.
A) $300
B) $400
C) $500
D) $700
64) 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 $3, and a call with the same
expiration date and exercise price sells for $4.
Suppose you write a strap and the stock price winds up to be $42 at contract expiration. What
was your net profit on the strap?
A) $200
B) $300
C) $700
D) $400
65) 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 $3, and a call with the same
expiration date and exercise price sells for $4.
How can you create a position involving a put, a call, and riskless lending that would have the
same payoff structure as the stock at expiration?
A) Buy the call, sell the put; lend the present value of $40.
B) Sell the call, buy the put; lend the present value of $40.
C) Buy the call, sell the put; borrow the present value of $40.
D) Sell the call, buy the put; borrow the present value of $40.
66) A stock is trading at $50. You believe there is a 60% chance the price of the stock will
increase by 10% over the next 3 months. You believe there is a 30% chance the stock will drop
by 5%, and you think there is only a 10% chance of a major drop in price of 20%. At-the-money
3-month puts are available at a cost of $650 per contract. What is the expected dollar profit for a
writer of a naked put at the end of 3 months?
A) $300
B) $200
C) $475
D) $0
67) A covered call strategy benefits from what environment?
A) Falling interest rates
B) Price stability
C) Price volatility
D) Unexpected events