unit 2 practice

FIN 433Speculative MarketsUNIT 2 – Options Strategies

Additional Practice

2

(1) An investor that is long the ABC Mar 25 call [email protected] when ABC is trading at $24.20

is said to be long an:A. In the money callB. At the money callC. Out of the money call

© 2016 Dr. N. Richie, UNCW

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(1) An investor that is long the ABC Mar 25 call [email protected] when ABC is trading at $24.20

is said to be long an:A. In the money callB. At the money callC. Out of the money call


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(2) If the investor that is long the ABC Mar 25 call [email protected]

exercises, then the short position will:

A. Have the right to make deliveryB. Have the right to take deliveryC. Be obligated to make deliveryD. Be obligated to take delivery


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(2) If the investor that is long the ABC Mar 25 call [email protected]

exercises, then the short position will:

A. Have the right to make deliveryB. Have the right to take deliveryC. Be obligated to make deliveryD. Be obligated to take delivery


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(3) An investor that is long the ABC Mar 25 call [email protected] faces a maximum possible

loss of:

A. $1.10 per shareB. $25 per shareC. UnlimitedD. $25 less $1.10 per share


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(3) An investor that is long the ABC Mar 25 call [email protected] faces a maximum possible

loss of:

A. $1.10 per shareB. $25 per shareC. UnlimitedD. $25 less $1.10 per share


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(4) An investor who is short the XYZ Mar 35 put when XYZ is trading at 37 is said to be short an:

A. In the money putB. At the money putC. Out of the money put


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(4) An investor who is short the XYZ Mar 35 put when XYZ is trading at 37 is said to be short an:



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(5) The writer of a put contract faces a maximum possible gain of:

A. The strike priceB. The price of the underlying at

expirationC. The premiumD. The strike price less the premium


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(5) The writer of a put contract faces a maximum possible gain of:

A. The strike priceB. The price of the underlying at

expirationC. The premiumD. The strike price less the premium


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(6) If LMN is trading at $133 per share, then the Feb 125 Call is

A. In the moneyB. At the moneyC. Out of the money


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15




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(8) The short put position is:

A. Bullish and hopes the market will decline.

B. Bullish and hopes the market will rise.C. Bearish and hopes the market will

decline.D. Bearish and hopes the market will rise.


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(8) The short put position is:

A. Bullish and hopes the market will decline.

B. Bullish and hopes the market will rise.

C. Bearish and hopes the market will decline.

D. Bearish and hopes the market will rise.NOTE: the short put may also have a neutral outlook and not expect the price of the underlying to move up or down.


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(9) If the holder exercises a put, then the writer will have the:

A. Right to buy the underlyingB. Right to sell the underlyingC. Obligation to buy the underlyingD. Obligation to sell the underlying


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(9) If the holder exercises a put, then the writer will have the:

A. Right to buy the underlyingB. Right to sell the underlyingC. Obligation to buy the underlyingD. Obligation to sell the underlying


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(10)The XYZ Mar 35 Call is out of the money when:

A. XYZ is trading above $35 per shareB. XYZ is trading below $35 per share


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(10)The XYZ Mar 35 Call is out of the money when:



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(11)If in January an investor wants to go long the DEF Jul 50 call trading at $3.70 when DEF is trading at $47,

then in Jan he/she will have to pay:A. $3.70 per shareB. $47 per shareC. $50 per shareD. $50 less $3.70 per share


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(11)If in January an investor wants to go long the DEF Jul 50 call trading at $3.70 when DEF is trading at $47,

then in Jan he/she will have to pay:A. $3.70 per shareB. $47 per shareC. $50 per shareD. $50 less $3.70 per share


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(12)If ABC is trading at $122 per share, then the Feb 125 Put is



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(14)The XYZ Mar 35 Put is in the money when:



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(14)The XYZ Mar 35 Put is in the money when:



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(15)If the holder exercises a put, then the writer will have to:

A. Make delivery of the underlyingB. Take delivery of the underlying


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(15)If the holder exercises a put, then the writer will have to:

A. Make delivery of the underlyingB. Take delivery of the underlying


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(16)An investor who is long the UUU Mar 35 put when UUU is trading at $33 issaid to be long an:



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(16)An investor who is long the UUU Mar 35 put when UUU is trading at $33 issaid to be long an:



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(17)An investor that is short the YYY Mar 25 call [email protected] when YYY is trading at $26.50

is said to be short an:A. In the money callB. At the money callC. Out of the money call


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(17)An investor that is short the YYY Mar 25 call [email protected] when YYY is trading at $26.50

is said to be short an:A. In the money callB. At the money callC. Out of the money call


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(18)An investor who buys an GGG Feb 130 put at $6.35 experiences a positive payoff

if:

A. GGG trades above $130 per shareB. GGG trades below $130 per shareC. GGG remains at $130 per share


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(18)An investor who buys an GGG Feb 130 put at $6.35 experiences a positive payoff

if:

A. GGG trades above $130 per shareB. GGG trades below $130 per shareC. GGG remains at $130 per share


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Payoff and Profit of LONG Stock

ABC stock initially purchased for $35

ST Payoff Profit

25.00

30.00

35.00

40.00


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Solution - LONG StockABC stock initially purchased for $35

ST Payoff Profit

25.00 25.00 - 10.00

30.00 30.00 - 5.00

35.00 35.00 0.00

40.00 40.00 + 5.00


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Payoff and Profit of SHORT Stock

ABC stock sold short at $35

ST Payoff Profit

25.00

30.00

35.00

40.00


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Solution - SHORT StockABC stock sold short at $35

ST Payoff Profit

25.00 -25.00 +10.00

30.00 - 30.00 +5.00

35.00 - 35.00 0.00

40.00 - 40.00 - 5.00


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Payoff and Profit of LONG Bond$100 Face Value initially purchased for

$95ST Payoff Profit

25.00

30.00

35.00

40.00


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Solution - LONG Bond$100 Face Value initially purchased for

$95ST Payoff Profit

25.00 100.00 +5.00

30.00 100.00 +5.00

35.00 100.00 +5.00

40.00 100.00 +5.00


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Payoff and Profit of SHORT Bond

$100 Face Value initially issued for $95

ST Payoff Profit

25.00

30.00

35.00

40.00


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Solution - SHORT Bond$100 Face Value initially issued for $95

ST Payoff Profit

25.00 -100.00 -5.00

30.00 -100.00 -5.00

35.00 -100.00 -5.00

40.00 -100.00 -5.00


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Value of LONG Call at Expiration

XYZ Jun 17.50 Call at $2.50ST In or out? Payoff Profit

12.5015.0017.5020.0027.50


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Solution - LONG Call at Expiration

ST In or out? Payoff Profit12.50 Out 0 -2.5015.00 Out 0 -2.5017.50 At 0 -2.5020.00 In 2.50 027.50 In 10.00 +7.50


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Value of SHORT Call at Expiration


12.5015.0017.5020.0027.50


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Solution - SHORT Call at Expiration


12.50 Out 0 +2.5015.00 Out 0 +2.5017.50 At 0 +2.5020.00 In -2.50 027.50 In -10.00 -7.50


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Value of LONG Put at Expiration

AAA Feb 10 Put at $2.00

ST In or out? Payoff Profit

6.008.0010.0012.0014.00


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Solution - LONG Put at Expiration



6.00 In 4.00 2.008.00 In 2.00 010.00 At 0 -2.0012.00 Out 0 -2.0014.00 Out 0 -2.00


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Value of SHORT Put at Expiration



6.008.0010.0012.0014.00


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Solution - SHORT Put at Expiration



6.00 In -4.00 -2.008.00 In -2.00 0.0010.00 At 0 +2.0012.00 Out 0 +2.0014.00 Out 0 +2.00


unit 2 practice

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