Flashcards in Options Deck (130)

1

##

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

### right to buy at 70

2

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

### Bullish

3

## 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 $600.

4

##

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, $400.

5

## 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.

6

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

### obligation to sell at 55

7

##

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

### bearish

8

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

### lost $900

9

##

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 on the premium

10

## 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.

11

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

### right to sell at 80

12

##

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

### bearish

13

## 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. $1,500 less the $500 premium

14

##

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 the premium, $500

15

##

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?

### profit of $750, difference in premium prices

16

##

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

### short means he sold, he has an obligation to buy at 40

17

##

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

### Bullish

18

##

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. $1,000 total loss, credited with the $50 premium

19

## 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 premium

20

##

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

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

21

##

An investor buys an OEX May 475 call at 10. What is his strategy?

### Bullish

22

##

An investor buys an OEX May 475 call at 10. What is his breakeven point?

### 485

23

##

An investor buys an OEX May 475 call at 10. What is his maximum gain?

### unlimited

24

## An investor buys an OEX May 475 call at 10. What is his maximum loss?

### $1,000 premium

25

##

Marty buys 1 ABC May 55 Call at 4. Later, if ABC is at 51 and the option expires, what is Marty's gain or loss?

### lost $400 premium

26

##

Emma sells 1 RST Oct 40 Put at 5. Later, if RST is at 43 and the option expires, what is Emma's gain or loss?

### gain of $500 the premium

27

##

Holden buys 1 STC 65 Call at 3. Later STC rises to 72 and the call is liquidated at 8.50. Is there a gain or loss?

### gain of $550

28

## Julio bought a 75 call at 5 and later exercised the option. What is Julio's cost basis?

### $8000

29

## Eric sold a 50 call at 6 and was later exercised against. Eric would have sales proceeds of how much?

### $5600

30

##

Jean bought an 80 put at 7 and later exercised the contract. Jean would have sales proceeds of how much?

### $8,000 - $700 = $7,300 or 73 (strike price minus the premium)

31

## Mark sold an 80 put at 7 and was later exercised against. What is Mark's cost basis?

### 80 - 7 = 73 (strike price minus the premium)

32

##

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. Is this a debit or credit spread?

### credit spread. Since the larger premium is on the sell leg, sold for a net premium of 4.

33

##

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. Is the investor bullish or bearish on ABC?

### bearish

34

## An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor's breakeven point?

### 30 + 4 = 34 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).

35

## An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor's maximum gain?

### The net premium of $400. Remember, sellers cannot make more than the premium.

36

##

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor's maximum loss?

### $600. If the stock rises, the investor could lose starting from the breakeven of 34 up to 40.

37

## An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. Is this a debit or credit spread?

### debit

38

### bullish

39

##

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor's breakeven point?

40

##

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor's maximum gain?

### $600. If the stock rises, the investor could profit starting from the breakeven of 34 up to 40.

41

##

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor's maximum loss?

###

The net premium of $400. Remember, buyers cannot lose more than the premium.

42

## An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. Is this a debit or credit spread?

### Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 2.

43

## An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. Is the investor bullish or bearish on DEF?

### bearish

44

##

Long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the breakeven point?

### 35 - 2 = 33 (always between strikes). For put spreads, the net premium is subtracted from the higher strike (PUT DOWN).

45

##

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the investor's maximum gain?

###

$300. If the stock falls, the investor could profit starting from the breakeven of 33 down to 30.

46

##

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the investor's maximum loss?

### The net premium of $200. Remember, buyers cannot lose more than the premium.

47

## Long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. To profit, should the spread widen or narrow?

### If the premium spread widens, the spread can be closed for more than $200. Remember, BUYER and WIDEN have 5 letters.

48

## An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. Is this a debit or credit spread?

### Since the larger premium is on the sell leg, this is a credit spread, sold for a net premium of 7.

49

## An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. Is the investor bullish or bearish on RST?

### bullish

50

### 95 - 7 = 88 (always between strikes). For put spreads, the net premium is subtracted from the higher strike (PUT DOWN).

51

## An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. What is the investor's maximum gain?

### The net premium of $700. Remember, sellers cannot make more than the premium.

52

## An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. What is the investor's maximum loss?

###

$800. If the stock falls, the investor could lose starting from the breakeven of 88 down to 80.

53

## Sell 1 RST May 95 put at 8 and buy 1 RST May 80 put at 1. To profit, should the spread widen or narrow?

### If the premium spread narrows, much of the $700 net premium is kept. Remember, SELLER and NARROW have 6 letters.

54

##

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. Is this a debit or credit spread?

### Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 4.

55

##

Sid purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. Is Sid bullish or bearish on XRX?

### bullish

56

##

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor's breakeven point?

### 60 + 4 = 64 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).

57

##

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor's maximum gain?

### $600. If the stock rises, the investor could profit starting from the breakeven of 64 up to 70.

58

##

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor's maximum loss?

### The net premium of $400. Remember, buyers cannot lose more than the premium.

59

## Buy 1 XRX May 60 call at 6 and write 1 XRX May 70 call at 2. For profit, should the spread widen or narrow?

### If the premium spread widens, the spread can be closed for more than $400. Remember, BUYER and WIDEN have 5 letters.

60

## Sell 1 ABC May 65 put at 9 and buy 1 ABC May 50 put at 2. Is the spread a debit or credit? Is it bullish or bearish?

### credit, and bullish

61

## Long 1 TNT Aug 50 call at 5 and short 1 TNT Aug 60 call at 2. Is the spread a debit or credit? Is it bullish or bearish?

### debit, bullish

62

##

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What are the breakeven points for the investor?

### 70 + 8 = 78 and 70 - 8 = 62. The combined premium of 8 is added to 70 (CALL UP) and subtracted from 70 (PUT DOWN).

63

##

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor's maximum gain?

###

Unlimited gain on the long call, $6,200 gain on the long put. Gains occur if the stock rises or falls dramatically.

64

## An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor's maximum loss?

### $800

65

## An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor's strategy?

### volatility

66

##

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What are the breakeven points?

### 55 on the call, 45 on the put. combine the premiums

67

##

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor's maximum gain?

### $500

68

##

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor's maximum loss?

### unlimited loss on call, $4500 on put

69

## An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor's strategy?

### stability

70

##

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What are the breakeven points for the investor?

### 54 on the call, 36 on the put

71

## An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor's maximum gain?

###

Unlimited gain on the long call, $3,600 gain on the long put. Gains occur if the stock rises or falls dramatically.

72

## An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor's maximum loss?

### $400

73

## An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor's strategy?

### volatility

74

## An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What are the breakeven points?

###

70 + 6 = 76 and 65 - 6 = 59. The combined premium of 6 is added to 70 (CALL UP) and subtracted from 65 (PUT DOWN).

75

##

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor's maximum gain?

### $600

76

##

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor's maximum loss?

### Unlimited loss on the short call, $5,900 loss on the short put. Losses occur if the stock rises or falls dramatically.

77

##

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor's strategy?

### stability

78

##

An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. Is the investor bullish or bearish on IBM?

### bullish

79

## An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. What is the investor's breakeven point?

### 93

80

## An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. What is the investor's maximum gain?

### unlimited

81

## Buy 100 shares of IBM at 91 and also Buy 1 IBM Nov 90 put at 2. If IBM later falls to 84, what is the maximum loss?

### $300. At exercise, the stock bought at 91 can be sold at 90 ($100 loss) plus the cost of the option ($200 loss).

82

## An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. Is the investor bullish or bearish on XYZ?

### Bearish since the investor is short the stock. The call is purchased to protect upside risk.

83

## An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor's breakeven point?

### 44

84

##

An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor's maximum gain?

### $4,400

85

## Al sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is Al's maximum loss?

### $600. If XYZ rises, Al can buy stock back at 50 ($300 loss), plus he would lose the premium ($300 loss).

86

## An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What's the reason for selling the call?

### To provide premium income on stable stock. Also note the premium provides a partial hedge against downside risk.

87

##

An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor's breakeven point?

### 28

88

##

An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor's maximum gain?

### $700. If the stock rises and the call is exercised, the 30 stock is sold at 35 ($500 gain) plus the premium ($200 gain).

89

##

An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor's maximum loss?

### $2,800 if the stock falls to zero. The investor would lose $3,000 on the stock, but keep the $200 premium.

90

## An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What's the reason for selling the put?

### To generate income (the premium); also note the premium provides a partial hedge against upside risk.

91

##

An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What's the investor's breakeven point?

### 35 + 3 = 38 (short sale proceeds + premium received)

92

##

An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What is the investor's maximum gain?

### $800. If stock falls and the put is exercised, the short stock is covered at 30 ($500 gain) plus premium ($300 gain).

93

##

An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What's the investor's maximum loss?

### Unlimited. The investor has no protection if the stock continues to rise above the 38 breakeven.

94

## Sell 1 BKS July 40 call at 6 and buy 1 Oct 40 call at 10. Is the spread vertical or horizontal? Is it a debit or credit?

### horizontal (calendar), debit

95

## Buy 1 STP Jan 50 call at 6 and sell 1 Jan 60 call at 2. STP is at 59 and options are closed at intrinsic value. Result?

### A gain of $500. Initially there is a net debit of 4, and later offset for a net credit of 9 (9 - 4 = 5).

96

## What is the breakeven point? Buy 1 XYZ Jan 70 Call at 5.90

### 75.90

97

## What is the breakeven point? Sell 1 RFQ Feb 100 Call at 1.00

### 101

98

## What is the breakeven point? Long 1 MNO March 95 Put at 3.40

### 91.60

99

## What is the breakeven point? Short 1 XYZ Apr 85 Put at 1.00

### 84

100

## What is the maximum profit? Buy 1 RFQ May 115 Call at 2.90

### unlimited

101

## What is the maximum gain? Write 1 MNO June 120 Call at 5.80

### $580, the premium

102

## What is the maximum profit? Long 1 XYZ July 65 Put at 2.10

### $6,210

103

## What is the maximum gain? Sell 1 RFQ Aug 65 Put at 6.70

### $670

104

## What is the maximum risk? Buy 1 MNO Sep 45 Call at 5.80

### $580, the premium

105

## What is the maximum loss? Short 1 XYZ Oct 90 Call at 2.90

### unlimited

106

## What is the maximum risk? Long 1 RFQ Nov 20 Put at 3.70

### $370

107

## What is the maximum loss? Sell 1 MNO Dec 45 Put at 4.90

### $4,010

108

## What is the breakeven point? Buy 100 shares of XYZ at 91 and Buy 1 XYZ Jan 95 Put at 8.00

### 99

109

## What is the maximum profit? Buy 100 shares of RFQ at 52 and Buy 1 RFQ Feb 50 Put at 8.00

### unlimited

110

## What is the maximum risk? Buy 100 shares of XYZ at 97 and Buy 1 XYZ Mar 95 Put at 5.25

### The maximum risk is cost of the stock + premium - the strike price= 725.00

111

## What is the breakeven point? Sell Short 100 shares of MNO at 52 and Buy 1 MNO Apr 50 Call at 7.75

### The breakeven point is short sale price - premium = 44.25

112

## What is the maximum gain? Sell Short 100 shares of XYZ at 63 and Buy 1 XYZ May 60 call at 7.00

### The maximum gain is proceeds of the short sale - premium = 5600.00

113

## What is the maximum loss? Sell Short 100 shares of RFQ at 79 and Buy 1 RFQ June 75 Call at 7.50

### The maximum loss is the strike price + premium - the proceeds of the short sale = 350.00

114

## What is the breakeven point? Buy 100 shares of XYZ at 85 and Write 1 XYZ July 85 Call at 7.75

### $77.25, The breakeven point is cost of the stock - premium

115

## What is the maximum profit if the option is exercised? Buy 100 shares of RFQ at 65 and Sell 1 RFQ Aug 60 Call at 8.75

### The maximum profit is the strike price + premium - cost of stock = $375.00

116

## What is the maximum risk? Buy 100 shares of MNO at 52 and Write 1 MNO Sep 50 Call at 7.25

### $4,475

117

## What is the breakeven point? Sell Short 100 shares of XYZ at 80 and Sell 1 XYZ Oct 80 Put at 6.75

### 86.75

118

## What is the maximum risk? Sell Short 100 shares of RFQ at 105 and Write 1 RFQ Nov 100 Put at 7.25

### unlimited

119

## What is the breakeven point? Buy 1 XYZ Dec 30 Call at 9.75 and write 1 XYZ Dec 45 Call at 4.50

### The breakeven point is lower strike price + net premium = 35.25

120

## What is the maximum gain? Buy 1 XYZ Dec 110 Call at 9.75 and write 1 XYZ Dec 125 Call at 5.25

### The maximum gain is the difference in the strikes - net premium = 10.50

121

## What is the maximum loss? Buy 1 XYZ Dec 70 Call at 3.75 and write 1 XYZ Dec 75 Call at 1.25

### $250

122

## What is the breakeven point? Sell 1 XYZ Dec 30 Call at 10.50 and buy 1 XYZ Dec 45 Call at 4.50

### The breakeven point is lower strike price + net premium = 36.00

123

## What is the maximum gain? Sell 1 XYZ Dec 100 Call at 9.00 and buy 1 XYZ Dec 115 Call at 5.25

### The maximum gain is the net premium = 375.00

124

## What is the maximum loss? Sell 1 XYZ Dec 75 Call at 4.25 and buy 1 XYZ Dec 80 Call at 1.50

### The maximum loss is the difference in the strikes - net premium = 225.00

125

## What is the breakeven point? Buy 1 ABC Nov 50 Put at 3.00 and write 1 ABC Nov 45 at 1.00

### The breakeven point is higher strike price - net premium = 48.00

126

## What is the maximum gain? Buy 1 ABC Nov 90 Put at 6.00 and write 1 ABC Nov 80 at 2.00

### The maximum gain is the difference in the strikes - net premium = 600.00

127

## What is the maximum loss? Buy 1 ABC Nov 50 Put at 10.50 and write 1 ABC Nov 35 at 3.75

### $675, the net premium

128

## What is the breakeven point? Sell 1 ABC Nov 90 Put at 3.25 and buy 1 ABC Nov 85 at 1.50

### 88.25

129

## What is the maximum gain? Sell 1 ABC Nov 75 Put at 12.75 and buy 1 ABC Nov 60 at 3.00

### The maximum gain is the net premium = 975.00

130