39) You wrote a $40 call option on a stock that has a market price of $43. Which one of the
following statements must be correct if the option expires three months from now?
A) Your option currently has zero intrinsic value.
B) Your option currently has a negative payoff.
C) You have the right to purchase shares at $40 a share.
D) Your option payoff will increase if the market price of the stock increases.
E) If the market price remains stable, you will make the decision to exercise this option prior to
expiration.
40) You bought a put with a strike price of $35. The current stock price is $33. What is the
current payoff value of this option?
A) -$2
B) -$1
C) $0
D) $1
E) $2
41) The maximum option payoff from:
A) writing a put is $0.
B) buying a put is $0.
C) writing a call is an unlimited profit.
D) buying a call is the strike price.
E) writing a call is the stock price.
42) The maximum:
A) profit from buying a put is the stock price.
B) loss from writing a put is the option premium.
C) profit from writing a call is the strike price.
D) loss from buying a call is $0.
E) profit from writing a put is the option premium.
43) Which one of the following is the primary purpose of a protective put?
A) profit from an expected future increase in the underlying stock’s value
B) guarantee a higher return than is possible from just owning the underlying security
C) offset the risk associated with a decrease in the value of the underlying asset
D) receipt of the option premium
E) increase in potential rate of return due to increase in risk
44) You own 200 shares of Allen Bros. stock. Which one of the following would allow you to
receive an option premium in exchange for selling your shares in Allen Bros. at the strike price?
A) straddle
B) long spread
C) selling a put
D) buying a call
E) writing a covered call
45) You wrote a covered call with a strike price of $35 and an option premium of $1.10. Assume
the stock price is $34 a share currently and that it falls to $32 a share and remains at that price
until the option expires. As a result, you will:
A) lose an amount equal to the option premium.
B) lose the option premium but get to keep the stock.
C) keep both your stock and the option premium.
D) keep the option premium but lose your shares of stock.
E) lose both your stock and the option premium.
46) Which one of the following applies to a naked call?
A) unlimited potential profits
B) unlimited potential losses
C) sale of a put on a stock you do not own
D) sale of a call on a stock you currently own
E) purchase of a call on a stock you do not own
47) Which one of the following is a bull call spread?
A) buying a $30 call and selling a $35 call on the same stock
B) selling a $30 call and buying a $35 call on the same stock
C) buying a $30 call and selling a $25 call on the same stock
D) selling a $30 call and buying a $35 put
E) buying a $30 call and selling a $35 put
48) Which one of the following is a bear call spread?
A) buying a $30 call and selling a $35 call on the same stock
B) selling a $30 call and buying a $30 call on the same stock
C) buying a $30 call and selling a $25 call on the same stock
D) selling a $30 call and buying a $35 put
E) buying a $30 call and selling a $35 put
49) Amy bought a $50 May call and a $50 May put on the same underlying stock. This strategy
is referred to as which one of the following?
A) bull spread
B) bear spread
C) parity play
D) short straddle
E) long straddle
50) A short straddle:
A) involves exercising two or more options simultaneously.
B) is the purchase of both a put and a call on the same underlying asset.
C) obtains its maximum profit when the underlying stock price is equal to the strike price.
D) involves writing a call on shares of stock you currently own.
E) is a highly bullish strategy.
51) Which one of the following is the upper price bound for the intrinsic value of a European call
option on a stock?
A) $0
B) strike price
C) stock price
D) Max (S – K, 0)
E) Max (K – S, 0)
52) Which one of the following is the upper price bound for the intrinsic value of a European put
option on a stock?
A) 0
B) strike price
C) stock price
D) Max (S – K, 0)
E) Max (K – S, 0)
53) Which one of the following correctly defines the range of time values for a put option?
A) $0 to +$1
B) -$1 to +$1
C) ≤ $0
D) ≥ $0
E) 1 $0
54) Which one of the following values is discounted in the put-call parity formula?
A) call price
B) put price
C) stock price
D) strike price
E) option premium
55) Which one of the following represents an arbitrage opportunity?
A) stock price of $18 and strike price of $20
B) call price of $0.40 and put price of $0.40
C) PCP-implied put price of $0.30 and call price of $0.28
D) PCP-implied put price of $0.30 and put market price of $0.31
E) PCP-implied call price of $0.20 and a put market price of $0.22
56) What is the total option premium you will receive if you sell 4 May $27.50 calls on Texas
Instruments?
Texas Instruments (TXN)
CALL
PUT
Exp
Strike
Bid
Ask
Bid
Ask
May
25.00
6.60
6.70
N/A
0.01
Jun
25.00
6.50
6.75
N/A
0.03
Oct
25.00
6.95
7.25
0.39
0.42
May
27.50
4.10
4.15
N/A
0.01
Jun
27.50
4.05
4.30
0.07
0.10
A) $90
B) $850
C) $1,640
D) $2,170
E) $3,375
57) What is the total amount you will receive if you sell 10 June $27.50 puts on Texas
Instruments?
Texas Instruments (TXN)
CALL
PUT
Exp
Strike
Bid
Ask
Bid
Ask
May
25.00
6.60
6.70
N/A
0.01
Jun
25.00
6.50
6.75
N/A
0.03
Oct
25.00
6.95
7.25
0.39
0.42
May
27.50
4.10
4.15
N/A
0.01
Jun
27.50
4.05
4.30
0.07
0.10
A) unknown
B) $70
C) $100
D) $4,050
E) $4,300
58) How much will it cost to purchase 5 May $27.50 calls on Texas Instruments?
Texas Instruments (TXN)
CALL
PUT
Exp
Strike
Bid
Ask
Bid
Ask
May
25.00
6.60
6.70
N/A
0.01
Jun
25.00
6.50
6.75
N/A
0.03
Oct
25.00
6.95
7.25
0.39
0.42
May
27.50
4.10
4.15
N/A
0.01
Jun
27.50
4.05
4.30
0.07
0.10
A) $21
B) $1,215
C) $1,245
D) $1,720
E) $2,075
59) You bought a call option with a strike price of $40. What is your total payoff on this option
contract if the underlying stock is selling for $42.70 on the option expiration date?
A) $3.00
B) $70.00
C) $133.00
D) $233.00
E) $270.00
60) Katie purchased 6 call options on Atlas Co. stock with a strike price of $40.00. On the
expiration date, the stock was priced at $38.95 a share. What is the total payoff on the option
contracts?
A) -$220.00
B) -$55.00
C) $0.00
D) $2.20
E) $55.00
61) Josh owns 2 call options on Foster Glass stock. The exercise price is $47.50 and the stock
price at expiration is $49.01. What is the total payoff on the option contracts?
A) -$0.00
B) -$3.02
C) $3.02
D) $30.20
E) $302.00
62) Jennifer purchased 3 put option contracts on Winslow Mfg. stock. The option premium was
$0.75 and the strike price was $27.50. On the expiration date, the stock was selling for $27.75 a
share. What is the total payoff on the option contracts?
A) -$100
B) -$50
C) $0
D) $50
E) $150
63) You purchased 7 put option contracts on Alto Industries. The strike price was $42.50 and the
option premium was $1.30. On the expiration date, the stock was valued at $41.40 a share. What
is the payoff on the option contracts?
A) -$140
B) $0
C) $110
D) $360
E) $770
64) Tim purchased 5 put option contracts on Western Fields stock. The strike price was $35 and
the option premium was $0.55. At expiration, the stock was selling for $35.75. What is the
payoff on the option contracts?
A) -$60
B) -$30
C) $0
D) $30
E) $60
65) You own three SPX call options with a strike of 1,800. What is the payoff at maturity for this
option contract if the S&P 500 index is 1,820?
A) $0
B) $20
C) $200
D) $1,200
E) $6,000
66) You purchased one SPX call option with a strike of 1,500. You wrote one SPX call option
with the same maturity date and a strike of 1,450. At maturity, what is your payoff if the S&P
500 is at 1,475?
A) -$2,500
B) -$250
C) $25
D) $250
E) $2,500
67) You purchased one SPX put option with a strike of 1,400. You wrote one SPX put option
with the same maturity date and a strike of 1,300. At maturity, what is your total payoff if the
S&P 500 index is 1,320?
A) -$8,000
B) -$2,000
C) $2,000
D) $4,000
E) $8,000
68) You own two SPX put options with a strike of 1,600. What is the payoff at maturity for this
option contract if the S&P 500 index is 1,622?
A) -$2,200
B) -$22
C) $0
D) $22
E) $2,200
69) You purchased 6 call options with a $40 strike price at a total cost of $150. On the expiration
date, the underlying stock was priced at $39.20. What is the percentage return on your
investment?
A) -420 percent
B) -100 percent
C) 68.75 percent
D) 2.02 percent
E) 220 percent
70) You purchased a call option with a $22.50 strike price and a call premium of $0.40. On the
expiration date, the underlying stock was priced at $23.40 per share. What is the percentage
return on your investment?
A) -100 percent
B) 0 percent
C) 50 percent
D) 125 percent
E) 200 percent
71) Callie purchased 3 call options with a $37.50 strike price and a call premium of $0.910. On
the expiration date, the underlying stock was priced at $40.20 per share. What is her percentage
return on this investment?
A) -100 percent
B) 70.45 percent
C) 181.82 percent
D) 200.00 percent
E) 909.10 percent
72) Gerold purchased 3 put option contracts at an option premium of $0.95 and a strike price of
$40. At expiration, the stock price was $42.25 per share. What is his percentage return?
A) -100 percent
B) 0 percent
C) 15.79 percent
D) 21.62 percent
E) 31.58 percent
73) Kim Lee purchased 6 put option contracts on Eastern Imports stock at a strike price of
$47.50. The option premium was $0.65. At expiration, the stock was valued at $44.90 a share.
What is her percentage return?
A) -100 percent
B) 0 percent
C) 5.47 percent
D) 32.82 percent
E) 300 percent