Fundamentals of Investments, 8e (Jordan)
Chapter 15 Stock Options
1) The value of an option is dependent upon the value of the underlying security. This
relationship defines an option as which one of the following?
A) equity security
B) fixed income security
C) derivative security
D) transfer security
E) dependent security
2) A call option grants its owner which one of the following?
A) right to buy
B) obligation to buy
C) right to sell
D) obligation to sell
E) choice to either buy or sell
3) By definition, a put option grants its owner which one of the following?
A) right to buy
B) obligation to buy
C) right to sell
D) obligation to sell
E) choice to either buy or sell
4) Which one of the following is defined as the price at which an option will be exercised?
A) straddle
B) spread
C) strike
D) market
E) underlying
5) Which one of the following distinguishes an option as an American style option?
A) option that grants its holder the right to purchase at the strike price
B) option that grants its holder the right to sell at the strike price
C) option that obligates its holder to sell at the strike price
D) option that can be exercised at any time prior to expiration
E) option that can only be exercised at expiration
6) Which one of the following is defined as an option that can only be exercised at expiration?
A) European style option
B) in-the-money option
C) out-of-the-money option
D) American style option
E) derivative option
7) A list of available option contracts and their prices for a particular security listed in order of
strike price and maturity date is referred to as which one of the following?
A) value chain
B) intrinsic list
C) option chain
D) strike list
E) exercise price display
8) Which one of the following guarantees that the terms of an exchange-listed option contract are
fulfilled when an option is exercised?
A) Securities and Exchange Commission
B) Federal Reserve
C) New York Options Exchange
D) Options Clearing Corporation
E) Securities Investors Protection Corporation
9) By definition, stock index options would include an option on which one of the following
underlying assets?
A) gold
B) corn
C) U.S. dollar
D) S&P 500
E) U.S. Treasury bill
10) A cash-settled option is defined as an option which does which one of the following?
A) requires a cash deposit upon purchase
B) has a foreign currency as its underlying asset
C) has the U.S. dollar at its underlying asset
D) entails a cash payment to the holder upon exercise
E) offers the option to either deliver the underlying asset or a cash payment
11) Which one of the following terms is defined as an option that would have a positive payoff if
exercised now?
A) in-the-money option
B) out-of-the-money option
C) straddle
D) crossed option
E) cash-settled
12) An option that would not yield a positive payoff if exercised today is referred to by which
one of the following terms?
A) hollow option
B) zero option
C) in-the-cellar option
D) out-of-the-money option
E) strike-out
13) Which one of the following terms is defined as the payoff that would be received if an option
were expiring immediately?
A) parity price
B) market price
C) time value
D) underlying value
E) intrinsic value
14) Which one of the following is equal to the option premium minus the intrinsic value?
A) parity value
B) payoff value
C) time value
D) strike value
E) profit
15) Which one of the following refers to selling an option contract?
A) calling
B) writing
C) exercising
D) striking
E) spotting
16) Which of the following has the obligation to sell a stock at the strike price when an option is
exercised?
A) call holder
B) call writer
C) put holder
D) put writer
E) call holder and put writer
17) Which of the following has the obligation to purchase stock at the strike price when an
option is exercised?
A) call holder
B) call writer
C) put holder
D) put writer
E) call writer and put holder
18) You currently own 200 shares of Amazon stock. If you purchase options on this stock to
protect against future declines in the price of the stock you are implementing which one of the
following?
A) covered call
B) naked call
C) protective put
D) bear spread
E) straddle
19) Selling a call option on stock which you own is referred to as which one of the following
strategies?
A) covered call
B) naked call
C) protective put
D) underlying put
E) straddle
20) Kathy implemented an option trading strategy consisting of two call options. This strategy is
known as which one of the following?
A) spread
B) straddle
C) split
D) combination
E) counteraction
21) An option trading strategy that utilizes both put and call options is referred to as which one
of the following?
A) bull call spread
B) butterfly spread
C) split
D) combination
E) counteraction
22) Consider both a European put and call that expire in December and have a strike price of
$25. The no-arbitrage relationship between this put and call is referred to as which one of the
following?
A) intrinsic equilibrium
B) Euro-match
C) bull-call spread
D) butterfly spread
E) put-call parity
23) Laney just purchased 3 call option contracts on Microsoft stock. How many shares of stock
can she buy at the strike price based on these contracts?
A) 3
B) 30
C) 300
D) 30,000
E) 300,000
24) How much option premium per share will you receive if you sell a September $34 put on
General Electric stock?
General Electric
CALL
PUT
Exp
Strike
Bid
Ask
Bid
Ask
Jun
32.50
0.68
0.70
0.70
0.73
Sep
32.50
1.60
1.62
1.64
1.68
Jun
34.00
0.18
0.19
1.73
1.77
Sep
34.00
0.93
0.95
2.52
2.56
A) $1.64
B) $1.68
C) $1.77
D) $2.52
E) $2.56
25) What is the current price per underlying share if you wish to buy a June $32.50 call option on
General Electric stock?
General Electric
CALL
PUT
Exp
Strike
Bid
Ask
Bid
Ask
Jun
32.50
0.68
0.70
0.70
0.73
Sep
32.50
1.60
1.62
1.64
1.68
Jun
34.00
0.18
0.19
1.73
1.77
Sep
34.00
0.93
0.95
2.52
2.56
A) $0.68
B) $0.70
C) $0.73
D) $1.60
E) $1.62
26) At what price will a dealer sell the Jun $34 put on General Electric stock?
General Electric
CALL
PUT
Exp
Strike
Bid
Ask
Bid
Ask
Jun
32.50
0.68
0.70
0.70
0.73
Sep
32.50
1.60
1.62
1.64
1.68
Jun
34.00
0.18
0.19
1.73
1.77
Sep
34.00
0.93
0.95
2.52
2.56
A) $1.64
B) $1.73
C) $1.77
D) $2.52
E) $2.56
27) You are buying the June call on General Electric stock at $0.19. What amount will you pay
per share if you decide to exercise this option?
General Electric
CALL
PUT
Exp
Strike
Bid
Ask
Bid
Ask
Jun
32.50
0.68
0.70
0.70
0.73
Sep
32.50
1.60
1.62
1.64
1.68
Jun
34.00
0.18
0.19
1.73
1.77
Sep
34.00
0.93
0.95
2.52
2.56
A) $32.50
B) $32.69
C) $33.81
D) $34.00
E) $34.19
28) Which of the following characteristics are correct regarding the old style option quotation
system?
I. The system is known as OPRA – the Options Price Reporting Authority code.
II. The system has 3 data elements.
III. The system has 21 characters.
IV. The system has 5 characters.
V. The system is known as the OCC Series Key.
VI. The root symbol is the underlying stock’s ticker symbol.
A) I, II, III, and VI
B) II, III, IV, and V
C) I, II, and IV
D) II, III, V, and VI
E) III, V, and VI
29) Which of the following characteristics are correct regarding the new style option quotation
system?
I. The system is known as OPRA – the Options Price Reporting Authority code.
II. The system has 3 data elements.
III. The system has 21 characters.
IV. The system has 5 characters.
V. The system is known as the OCC Series Key.
VI. The root symbol is the underlying stock’s ticker symbol.
A) I, II, III, and VI
B) II, III, IV, and V
C) I, II, and IV
D) II, III, V, and VI
E) III, V, and VI
30) The change in the option symbol quotation system was driven by which of the following?
I. Advances in technology
II. Increase in the number and type of option products
III. Difficulty in applying the old system to NASDAQ stocks
IV. Difficulty in applying the system to complicated option products
A) I, II, III, and IV
B) II, III, and IV
C) I, II, and IV
D) II and III
E) I, II and III
31) Which of the following issue exchange-listed option contracts?
I. CBOE
II. SEC
III. OCC
IV. NASDAQ
A) III only
B) IV only
C) I and III only
D) II and IV only
E) I, II, and III only
32) What is the maximum percentage loss you can incur if you buy a put option?
A) 0%
B) 10%
C) 100%
D) 1,000%
E) unlimited percentage
33) Which one of the following statements is correct?
A) Reduced Value index options are equal in size to one percent of the standard index option.
B) The holder of a stock index put option is betting that the underlying index will increase in
value.
C) Most index options are traded on the New York Options Exchange.
D) The contract size for a call option on the S&P 500 is 10 times the index.
E) Some stock index options close in the morning while others close at the end of the trading
day.
34) Which one of the following options is in-the-money?
A) call with a $45 strike and an underlying stock price of $42
B) put with a $35 strike and an underlying stock price of $36
C) call with a $15 strike and an underlying stock price of $15
D) put with a $45 strike and an underlying stock price of $42
E) call with a $30 strike and an underlying stock price of $29
35) Which one of the following combinations creates an in-the-money option?
A) underlying stock price is less than the strike price of a call
B) underlying stock price is $18 and the put has an exercise price of $15
C) underlying stock price is $22 and the call has an exercise price of $25
D) put strike price exceeds the underlying stock price
E) put price is equal to the call price
36) Which one of the following options is out-of-the-money?
A) call with a $20 strike and a stock price of $21
B) put with a $35 strike and a stock price of $33
C) call with a $45 strike and stock price of $46
D) put with a $75 strike and a stock price of $70
E) call with a $50 strike and a stock price of $49
37) Which one of the following statements is true?
A) A call with a strike price of $25 and a stock price of $23 has positive intrinsic value.
B) A European style option is more valuable than an American style option.
C) An American style out-of-the-money call option can have a positive value.
D) A $40 put option has more intrinsic value than a $50 put option on the same underlying asset.
E) The time value of an option is equal to the intrinsic value minus the option premium.
38) A decrease in which one of the following will increase the intrinsic value of a put option?
A) strike price
B) exercise price
C) option premium
D) time value
E) underlying stock price