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1. You purchase one IBM July 120 call contract for a premium of $5. You hold the option until
the expiration date, when IBM stock sells for $123 per share. You will realize a ______ on the
investment.
2. You purchase one IBM July 125 call contract for a premium of $5. You hold the option until
the expiration date, when IBM stock sells for $123 per share. You will realize a ______ on the
investment.
3. You purchase one IBM July 120 put contract for a premium of $3. You hold the option until
the expiration date, when IBM stock sells for $123 per share. You will realize a ______ on the
investment.
4. You write one IBM July 120 call contract for a premium of $4. You hold the option until the
expiration date, when IBM stock sells for $121 per share. You will realize a ______ on the
investment.
5. ______ option can only be exercised on the expiration date.
6. All else the same, an American style option will be ______ valuable than a ______ style
option.
7. At contract maturity the value of a call option is ___________, where
X
equals the option's
strike price and
ST
is the stock price at contract expiration.
8. At contract maturity the value of a put option is ___________, where
X
equals the option's
strike price and
ST
is the stock price at contract expiration.
9. An American put option gives its holder the right to _________.
10. An Asian call option gives its holder the right to ____________.
11. An Asian put option gives its holder the right to ____________.
12. A time spread may be executed by _____.
13. Which of the following statements about convertible bonds are true?
I. The conversion price does not change over time.
II. The associated stocks may not pay dividends as long as the bonds are outstanding.
III. Most convertibles are also callable at the discretion of the firm.
IV. They may be thought of as straight bonds plus a call option.
14. A quanto provides its holder with the right to ______________.
15. You purchase a call option on a stock. The profit at contract maturity of the option
position is ___________, where
X
equals the option's strike price,
ST
is the stock price at contract
expiration, and
C
0 is the original purchase price of the option.
16. Strips and straps are variations of __________.
17. You write a put option on a stock. The profit at contract maturity of the option position is
___________, where
X
equals the option's strike price,
ST
is the stock price at contract expiration,
and
P
0 is the original premium of the put option.
18. Longer-term American-style options with maturities of up to 3 years are called
__________.
19. The initial maturities of most exchange-traded options are generally __________.
20. A futures call option provides its holder with the right to ___________.
21. Exchange-traded stock options expire on the _______________ of the expiration month.
22. The writer of a put option _______________.
23. Advantages of exchange-traded options over OTC options include all but which one of the
following?
24. Each listed stock option contract gives the holder the right to buy or sell __________ shares
of stock.
25. Exercise prices for listed stock options usually occur in increments of ____ and bracket the
current stock price.
26. You buy a call option and a put option on General Electric. Both the call option and the put
option have the same exercise price and expiration date. This strategy is called a _________.
27. In 1973, trading of standardized options on a national exchange started on the _________.
28. An American call option gives the buyer the right to _________.
29. A put option on Dr. Pepper Snapple Group, Inc., has an exercise price of $45. The current
stock price is $41. The put option is _________.
30. You buy a call option on Merritt Corp. with an exercise price of $50 and an expiration date
in July, and you write a call option on Merritt Corp. with an exercise price of $55 and an expiration
date in July. This is called a ________.
31. A call option on Brocklehurst Corp. has an exercise price of $30. The current stock price of
Brocklehurst Corp. is $32. The call option is _________.
32. You invest in the stock of Rayleigh Corp. and write a call option on Rayleigh Corp. This
strategy is called a _________.
33. You buy a call option on Summit Corp. with an exercise price of $40 and an expiration date
in September, and you write a call option on Summit Corp. with an exercise price of $40 and an
expiration date in October. This strategy is called a _________.
34. A European call option gives the buyer the right to _________.
35. You invest in the stock of Valleyview Corp. and purchase a put option on Valleyview Corp.
This strategy is called a _________.
36. The value of a listed call option on a stock is lower when:
I. The exercise price is higher.
II. The contract approaches maturity.
III. The stock decreases in value.
IV. A stock split occurs.
37. The Option Clearing Corporation is owned by _________.
38. The value of a listed put option on a stock is lower when:
I. The exercise price is higher.
II. The contract approaches maturity.
III. The stock decreases in value.
IV. A stock split occurs.
39. The maximum loss a buyer of a stock call option can suffer is the _________.
40. Which one of the statements about margin requirements on option positions is
not
correct?
41. A European put option gives its holder the right to _________.
42. The potential loss for a writer of a naked call option on a stock is _________.
43. A writer of a call option will want the value of the underlying asset to __________, and a
buyer of a put option will want the value of the underlying asset to _________.
44. Buyers of listed options __________ required to post margins, and writers of naked listed
options __________ required to post margins.
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.
46. Which of the following expressions represents the value of a call option to its holder on
the expiration date?
47. A "bet" option is also called a ____ option.
