Options Quizz 07

Question 1

An investment opportunity that doesn’t require a positive net-investment today and delivers a riskless profit in the future constitutes an arbitrage opportunity.

Answer 1

True

Question 2

A call option is in the money if the current price of the underlying is below the strike price.

Answer 2

False

Question 3

Assume there is a put option which can be exercised in one year. The current price of the underlying is above the strike price. Therefore, the current value of the option is zero.

Answer 3

False

Question 4

The seller of a European call option has the right to exercise the option at a specific point in time for a predetermined price.

Answer 4

False

Question 5

A put option long is a reasonable way to speculate on the falling prices of the underlying asset.

Answer 5

True

Question 6

Your opinion is that the price of Stock ABC will increase. What should you do to make a profit? (Hint: multiple answers are correct)

Answer 6

Buy a call option on Stock ABC
Sell a put option on Stock ABC

Question 7

Long straddle strategy bets on high future volatility of underlying stocks:

Answer 7

True

Question 8

The value of an option with a lower strike price will always be higher than the value of the option with a higher strike price, assuming the two options have the same time to maturity and the same underlying.

Answer 8

False

Question 9

Because the payouts on a long position of an option contract cannot be negative, the profit of an option investment will never be negative.

Answer 9

False

Question 10

The Put-Call Parity posits that the value of a call option is equal to the value of a put option plus the stock price plus the present value of the strike price.

Answer 10

False