Unit 2 practice

FIN 433
Speculative Markets
UNIT 2 – Options Strategies
Additional Practice

2
(1) An investor that is long the
ABC Mar 25 call at@1.10
when ABC is trading at $24.20
is said to be long an:
A. In the money call
B. At the money call
C. Out of the money call
© 2016 Dr. N. Richie, UNCW

3
when ABC is trading at $24.20
is said to be long an:

4
(2) If the investor that is long the
ABC Mar 25 call at@1.10 exercises,
then the short position will:
A. Have the right to make delivery
B. Have the right to take delivery
C. Be obligated to make delivery
D. Be obligated to take delivery

5
(2) If the investor that is long the
ABC Mar 25 call at@1.10 exercises,
then the short position will:
A. Have the right to make delivery
B. Have the right to take delivery
C. Be obligated to make delivery
D. Be obligated to take delivery

6
faces a maximum possible loss of:
A. $1.10 per share
B. $25 per share
C. Unlimited
D. $25 less $1.10 per share

7
faces a maximum possible loss of:
A. $1.10 per share
B. $25 per share
C. Unlimited

8
(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 put
B. At the money put
C. Out of the money put

9
(4) An investor who is short the
XYZ Mar 35 put
when XYZ is trading at 37
A. In the money put
B. At the money put

10
(5) The writer of a put contract faces a
maximum possible gain of:
A. The strike price
B. The price of the underlying at expiration
C. The premium
D. The strike price less the premium

11
(5) The writer of a put contract faces a
maximum possible gain of:
A. The strike price
B. The price of the underlying at expiration
C. The premium
D. The strike price less the premium

12
(6) If LMN is trading at $133 per share,
then the Feb 125 Call is
A. In the money
B. At the money
C. Out of the money

13
A. In the money
B. At the money
C. Out of the money

14
A. In the money
B. At the money
C. Out of the money

15
A. In the money
B. At the money
C. Out of the money

16
(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.

17
(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.

18
(9) If the holder exercises a put, then
the writer will have the:
A. Right to buy the underlying
B. Right to sell the underlying
C. Obligation to buy the underlying
D. Obligation to sell the underlying

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the writer will have the:
A. Right to buy the underlying
B. Right to sell the underlying
C. Obligation to buy the underlying
D. Obligation to sell the underlying

20
(10) The XYZ Mar 35 Call is out of the
money when:
A. XYZ is trading above $35 per share
B. XYZ is trading below $35 per share

21
(10) The XYZ Mar 35 Call is out of the
money when:

22
(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 share
B. $47 per share
C. $50 per share

23
(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 share
B. $47 per share
C. $50 per share

24
(12) If ABC is trading at $122 per share,
then the Feb 125 Put is
A. In the money
B. At the money
C. Out of the money

25
A. In the money
B. At the money
C. Out of the money

26
A. In the money
B. At the money
C. Out of the money

27
A. In the money
B. At the money
C. Out of the money

28
(14) The XYZ Mar 35 Put is in the
money when:

29
(14) The XYZ Mar 35 Put is in the
money when:

30
the writer will have to:
A. Make delivery of the underlying
B. Take delivery of the underlying

31
the writer will have to:
A. Make delivery of the underlying
B. Take delivery of the underlying

32
(16) An investor who is long the
UUU Mar 35 put
when UUU is trading at $33 is
said to be long an:
A. In the money put
B. At the money put

33
(16) An investor who is long the
UUU Mar 35 put
when UUU is trading at $33 is
said to be long an:
A. In the money put
B. At the money put

34
(17) An investor that is short the
YYY Mar 25 call at@1.10
when YYY is trading at $26.50

35
(17) An investor that is short the
YYY Mar 25 call at@1.10
when YYY is trading at $26.50

36
(18) An investor who buys an
GGG Feb 130 put at $6.35
experiences a positive payoff if:
A. GGG trades above $130 per share
B. GGG trades below $130 per share
C. GGG remains at $130 per share

37
(18) An investor who buys an
GGG Feb 130 put at $6.35
experiences a positive payoff if:
A. GGG trades above $130 per share
B. GGG trades below $130 per share
C. GGG remains at $130 per share

38
Payoff and Profit of LONG Stock
ABC stock initially purchased for $35
ST Payoff Profit
25.00
30.00
35.00
40.00

39
Solution - LONG Stock
ABC 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

40
Payoff and Profit of SHORT Stock
ABC stock sold short at $35
ST Payoff Profit
25.00
30.00
35.00
40.00

41
Solution - SHORT Stock
ABC 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

42
Payoff and Profit of LONG Bond
$100 Face Value initially purchased for $95
ST Payoff Profit
25.00
30.00
35.00
40.00

43
Solution - LONG Bond
$100 Face Value initially purchased 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

44
Payoff and Profit of SHORT Bond
$100 Face Value initially issued for $95
ST Payoff Profit
25.00
30.00
35.00
40.00

45
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

46
Value of LONG Call at Expiration
XYZ Jun 17.50 Call at $2.50
ST In or out? Payoff Profit
12.50
15.00
17.50
20.00
27.50

47
Solution - LONG Call at Expiration
12.50 Out 0 -2.50
15.00 Out 0 -2.50
17.50 At 0 -2.50
20.00 In 2.50 0
27.50 In 10.00 +7.50

48
Value of SHORT Call at Expiration
12.50
15.00
17.50
20.00
27.50

49
Solution - SHORT Call at Expiration
12.50 Out 0 +2.50
15.00 Out 0 +2.50
17.50 At 0 +2.50
20.00 In -2.50 0
27.50 In -10.00 -7.50

50
Value of LONG Put at Expiration
AAA Feb 10 Put at $2.00
6.00
8.00
10.00
12.00
14.00

51
Solution - LONG Put at Expiration
6.00 In 4.00 2.00
8.00 In 2.00 0
10.00 At 0 -2.00
12.00 Out 0 -2.00
14.00 Out 0 -2.00

52
Value of SHORT Put at Expiration
6.00
8.00
10.00
12.00
14.00

53
Solution - SHORT Put at Expiration
6.00 In -4.00 -2.00
8.00 In -2.00 0.00
10.00 At 0 +2.00
12.00 Out 0 +2.00
14.00 Out 0 +2.00

Unit 2 practice

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