If you believe a stock is going to go down, should you buy a call or a put option?
Buy a call
Buy a put
QUESTION 6
1. A put option has a strike price of $100 and the current stock’s price is $120. Based on this information, the put option is:
In the money
At the money
Out of the money
QUESTION 7
1. An option strategy of buying a call and a put with strike price equal to the current stock price is known as:
Bull spread
Covered call
Long Straddle
Protective put
QUESTION 8
1. A contract that gives the owner (the buyer) the right, but not the obligation, to buy an asset at a specified exercise price on or before a specified expiration date is known as:
Call option
Forward contract
Put option
Future contract
QUESTION 9
1. A stock currently has a price of $100. You buy 1 call option on this stock for $100 per share. The exercise price of the option is $100 and the option expires in 1 year. In one year, the stock price is $500. What is your rate of return from the option contract?
Less than -50%
Between -50% and 150%
Between 150% and 250%
Between 250% and 350%
Between 350% and 450%
More than 450%
QUESTION 10
1. Assume all investors are rational and wealth maximizing. What is the payoff to a call option with an exercise (strike) price of $100 if the price at expiration is $80?
-$20
$0
$20
QUESTION 11
1. You have gathered the following information for a put option on a non-dividend paying stock:
Current stock price ($) 90
Exercise price ($) 104
Time to Expiration (Years) 1
Returns standard deviation (%) 50
Risk Free Rate (APR with annual compounding) 4.00%
Based on this information, what is the price of the put option using the Black-Scholes formula?
Less than $10
Between $10 and $15
Between $15 and $20
Between $20 and $25
More than $25
QUESTION 12
1. You enter a long futures position on feeder cattle with a futures price of $2.00 per pound. Each futures contract is for 50,000 pounds. On the expiration date the price of feeder cattle is $2.50. Based on this information, what was your total profit or loss on this position?
Gain between $0 and $20,000
Gain between $20,000 and $30,000
Lose between $0 and $20,000
Lose between $20,000 and $30,000
QUESTION 13
1. You have gathered the following information for a call option on a non-dividend paying stock:
Current stock price ($) 106
Exercise price ($) 104
Time to Expiration (Years) 1
Returns standard deviation (%) 25
Risk Free Rate (APR with annual compounding) 3.00%
Based on this information, what is the price of the call option using the Black-Scholes formula?
Less than $10
Between $10 and $15
Between $15 and $20
Between $20 and $25
More than $25
QUESTION 14
1. A contract between a buyer and seller specifying a commodity or financial asset to be delivered at some date in the future at a price agreed upon today that is traded on commodity exchanges is known as:
Call option
Futures contract
Put option
QUESTION 15
1. Is the following statement true or false:
A person or firm that takes the risk of loss for the chance for profit is known as a speculator.
True
False
QUESTION 16
1. A strategy for earning risk-free profits from an unusual difference between cash and futures prices is known as:
Cash market
Cash futures arbitrage
Basis
Carrying charge market
Inverted market
QUESTION 17
1. F0 is the futures price at time 0 and ST is the spot price on the expiration date. Which of the following formulas would you use to calculate the payoff on a long futures position:
Payoff= (F0 -ST)*Number of units
Payoff= (F0 / ST)*Number of units
Payoff= (ST – F0)*Number of units
Payoff= (ST / F0)*Number of units
Payoff= (F0 -ST)*Number of units
Payoff= (F0 / ST)*Number of units
Payoff= (ST – F0)*Number of units
Payoff= (ST / F0)*Number of units
QUESTION 18
1. Is the following statement true or false:
Adding a long futures position to a short position in the underlying asset is known as a short hedge.
True
False
QUESTION 19
1. You enter a short futures position on feeder cattle with a futures price of $2.00 per pound. Each futures contract is for 50,000 pounds. On the expiration date the price of feeder cattle is $2.50. Based on this information, what was your profit or loss on this position?
Gain between $0 and $20,000
Gain between $20,000 and $30,000
Lose between $0 and $20,000
Lose between $20,000 and $30,000
QUESTION 20
You have gathered the following information for call and put options on the same stock with the same exercise price:
d1 0.2495
Based on this information, what is the value of N(d1) in the Black-Scholes formula?
Less than 0.35
Between 0.35 and 0.45
Between 0.45 and 0.55
Between 0.55 and 0.65
More than 0.65