Flashcards in Chapter 13 Deck (74)

1

## With options, what terms are synonymous with buyer?

### Owner, holder, long

2

## A call option gives the owner the right to _____.

### buy

3

## With options, what terms are synonymous with seller?

### Writer, short

4

## If exercised against, the writer of an equity call option is obligated to _____ the underlying stock.

### sell

5

## A put option gives the owner the right to ______.

### sell

6

## If exercised against, the writer of an equity put option is obligated to ____ the underlying stock.

### buy

7

## True or False: Options are derivatives since their value is based on the changing value of an underlying instrument.

### True

8

## Equity options have a contract size of _____ shares.

### 100

9

## A call option is in-the-money when the market price is ____________ the strike price.

### greater than; up

10

## A put option is in-the-money when the market price is ____________ the strike price.

### below; down

11

##

True or False: A 60 call with the market at 63 is in-the-money.

### True

12

##

True or False: A 95 call with the market at 95 is in-the-money.

### False, it is at-the-money

13

## True or False: A 110 call with the market at 108 is out-of-the-money.

### True

14

## True or False: A 60 put with the market at 60 is at-the-money.

### True

15

## True or False: A 110 put with the market at 108 is out-of-the-money.

### False, it is in-the-money

16

##

True or False: A 95 put with the market at 90 is in-the-money.

### True

17

## What is intrinsic value?

### The amount by which the option is in-the-money

18

## Options will only have intrinsic value if they are ____-the-money.

### in-the-money

19

## What is time value?

### The option's premium minus the intrinsic value.

20

## Name three important factors for determining the premium of an equity option.

### The stock's market price versus the strike price, time left until expiration, and volatility of the underlying security

21

## Calls and puts are the two ________ of options.

### types

22

## Sandra buys 1 ABC Dec 70 Call at 4. Does Sandra have a right or an obligation?

### Right to buy at 70

23

##

Sandra buys 1 ABC Dec 70 Call at 4. What is Sandra's strategy?

### She's a bull, thinks price will go up

24

##

Buy 1 ABC Dec 70 Call at 4. When ABC rises to 80, the call is exercised and the stock is immediately sold. Result?

### Profit of $6/share, or $600

25

##

Sandra buys 1 ABC Dec 70 Call at 4. Later at expiration, if ABC has fallen to 67, would Sandra have a gain or a loss?

### loss of the premium, $4/share, $400

26

## Sandra buys 1 ABC Dec 70 Call at 4. Later ABC rises to 80 and Sandra liquidates the call for 11. What is the result?

### A $700 gain. She originally paid 4, but received 11 on the sale, netting a $700 gain.

27

##

An investor writes 1 DEF May 55 Call at 6. Does she have a right or an obligation?

### Obligation to sell at 55

28

## An investor writes 1 DEF May 55 Call at 6. What is the investor's strategy?

### Bearish, thinks stock will go down

29

## An investor writes 1 DEF May 55 Call at 6. Later at expiration, if DEF has fallen to 53, would there be a gain or loss?

### Gain of $600 (the premium)

30

## Write 1 DEF May 55 Call at 6. DEF rises to 63 and the investor closes the position at a premium of 9. What's the result?

###

A $300 loss since the investor received $600, but paid $900. Closing out means to execute the opposite transaction.

31

## The maximum loss for an option buyer is the ____________.

### the premium

32

## The maximum gain for an option seller is the ____________.

### premium

33

## True or False: To close (sell) or to exercise for profit, option buyers want contracts to become in-the-money.

### True

34

##

True or False: Option writers want contracts to expire at- or out-of-the-money.

### True

35

## An investor holds 1 XYZ Jan 80 Put at 5. Does she have a right or an obligation?

### Right to sell at 80

36

##

An investor holds 1 XYZ Jan 80 Put at 5. What is her strategy?

### Bearish, thinks stock will drop

37

## An investor holds 1 XYZ Jan 80 Put at 5. What is the result if later XYZ falls to 65, and the put is exercised?

### Profit of $1,000. $15/share gain, less $5/share premium, gives $10/share gain. Times 100 shares is $1,000 profit

38

##

Bill writes 1 DEF May 55 Call at 6. Later DEF rises to 70 and the call is exercised, what is Bill's result?

### loss of $900, the premium brings the at-the-money price to 61. 9 over that, for $900

39

##

An investor holds 1 XYZ Jan 80 Put at 5. Later at expiration, if XYZ has held at 80, would there be a gain or a loss?

### loss of $500, the premium

40

## Long 1 XYZ Jan 80 Put at 5. Later XYZ falls to 68, and the put is liquidated at its then premium of 12.50. Result?

### A $750 gain. The investor originally paid $500, but then received $1,250, netting a $750 gain.

41

##

Jim is short 1 MNO Aug 40 Put at 4.50. Does Jim have a right or an obligation?

### Obligation to buy at 40

42

## Jim is short 1 MNO Aug 40 Put at 4.50. What is Jim's strategy?

### Bullish, thinks stock will go up

43

## Short 1 MNO Aug 40 Put at 4.50. MNO falls to 30, the put is exercised and the stock is immediately sold. Result?

### loss of $550. The breakeven is 35.50, but the stock fell 5.50 lower than 35.50.

44

## Jim is short 1 MNO Aug 40 Put at 4.50. If MNO rises to 44 at expiration, would Jim have a gain or a loss?

### gain of $450 (the premium)

45

## Jim shorts 1 MNO Aug 40 Put at 4.50. XYZ later falls to 32 and Jim liquidates at the intrinsic value. Result?

### loss of $350. Jim originally received $450, but then closed out by paying $800, netting a $350 loss.

46

## How would an option order ticket be marked for an investor whose initial transaction was the purchase of a call?

### Opening Purchase

47

##

How would an option order ticket be marked for an investor whose initial transaction was the sale of a put?

### Opening Sale

48

## To offset an option purchase, an investor would execute a ________________.

### closing sale

49

## To offset an option sale, an investor would execute a ___________________.

### closing purchase

50

## True or False: Both the buyer and seller of an option have the right to exercise.

### False, only buyers can execute

51

##

Consider the following: STC May 60 Call at 3 If STC is trading at 61, how much intrinsic value does the option have?

### $1.00 or 1 point

52

## Consider the following: STC May 60 Call at 3 If STC is trading at 61, how much time value does the option have?

### $2.00 or 2 points

53

##

Consider the following: ABC Sep 45 Put at 6 If ABC is trading at 41, how much intrinsic value does the option have?

### $4.00 or 4 points

54

##

Consider the following: ABC Sep 45 Put at 5 If ABC is trading at 41, how much time value does the option have?

### $1.00 or 1 point

55

## Consider the following: BNB Jan 30 Put at 2 If BNB is trading at 30, how much intrinsic value does the option have?

### 0, it is at-the-money

56

##

Consider the following: BNB Jan 30 Put at 2 If BNB is trading at 30, how much time value does the option have?

### $2.00 or 2 points

57

## Consider the following: TNT Jun 80 call at 3 If TNT is trading at 78, how much intrinsic value does the option have?

### 0, it is out-of-the-money

58

## Consider the following: TNT Jun 80 Call at 3 If TNT is trading at 78, how much time value does the option have?

### $3.00 or 3 points

59

## True or False: Option sellers want contracts to expire at-the-money or out-of-the-money.

### True

60

## What is an uncovered call position?

### The sale of a call (obligation to sell) without owning the stock

61

## What is the breakeven point? Buy 1 XYZ Jan 55 Call at 5.10

### 60.10

62

## What is the breakeven point? Sell 1 RFQ Feb 85 Call at 2.70

### 87.7

63

## What is the breakeven point? Long 1 MNO March 40 Put at 1.00

### 39

64

## What is the breakeven point? Short 1 XYZ Apr 70 Put at 2.80

### 67.20

65

## What is the maximum profit? Buy 1 RFQ May 35 Call at 2.50

### it is unlimited

66

## What is the maximum gain? Write 1 MNO June 60 Call at 3.60

### $360.00, the premium

67

## What is the maximum profit? Long 1 XYZ July 115 Put at 4.20

### $11,080. If goes down to $0 get $115 minus $4.20/share

68

## What is the maximum gain? Sell 1 RFQ Aug 50 Put at 4.10

### $410, the premium

69

## What is the maximum risk? Buy 1 MNO Sep 60 Call at 6.70

### $670

70

## What is the maximum loss? Short 1 XYZ Oct 110 Call at 4.80

### unlimited

71

## What is the maximum risk? Long 1 RFQ Nov 70 Put at 6.90

### $690

72

## What is the maximum loss? Sell 1 MNO Dec 65 Put at 5.30

### $5,970. $65/share minus $5.30 equals $59.70/share

73

## Define a series of options.

### All options with the same underlying interest, expiration month, strike price and type (e.g. ABC May 60 Call)

74