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Exam 15: Options Markets

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Question 51

Multiple Choice

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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

A) II only
B) II and IV only
C) I, II and III only
D) I, II, III and IV

E) None of the above
F) All of the above

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Question 52

Multiple Choice

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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) $33.00; $3.50
B) $33.00; $31.50
C) $35.00; $3.50
D) $35.00; $35.00

E) A) and C)
F) A) and B)

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Question 53

Multiple Choice

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At contract maturity the value of a put option is ___________ where X equals the option's strike price and S_T is the stock price at contract expiration.

You invest in the stock of Rayleigh Corp.and write a call option on Rayleigh Corp.This strategy is called a _________.

The potential loss for a writer of a naked call option on a stock is _________.

Which strategy benefits from upside price movement and has some protection should the price of the security fall?

Bill Jones inherited 5,000 shares of stock priced at $45 per share.He does not want to sell the stock this year due to tax reasons but he is concerned the stock will drop in value before year end.Bill wants to use a collar to ensure that he minimizes his risk and doesn't incur too much cost in deferring the gain.January call options with a strike of $50 are quoted at a cost of $2 and January puts with a $40 exercise price are quoted at a cost of $3.If Bill establishes the collar and the stock price winds up at $35 in January,Bill's net position value including the option profit or loss and the stock is _________.

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: -If in June the stock price is $53 your net profit on the bull money spread would be ________.