Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SIE > Ch. 10 Options > Flashcards

Ch. 10 Options Flashcards

You may prefer our related Brainscape-certified flashcards:
SIE Exam flashcards
1
Q

The maximum expiration for standard equity options is ____ months.

A

The maximum expiration for standard equity options is 9 months.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

By what time must equity options be exercised?

A

5:30 p.m. ET on the third Friday of the expiration month

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Consider the following: BNB Jan 30 Put at 2 If BNB is trading at 30, how much intrinsic value does the option have?

A

0, it is at-the-money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

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?

A

Bullish since they are long the stock. The put is purchased to protect downside risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

When may European-Style options be exercised?

A

Only at expiration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

A call option is in-the-money when the market price is ____________ the strike price.

A

Above

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The maximum loss for an option buyer is the ____________.

A

Premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Consider the following: ABC Sep 45 Put at 6 If ABC is trading at 41, how much intrinsic value does the option have?

A

$4.00 or 4 points

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is intrinsic value?

A

The amount by which the option is in-the-money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

With options, what terms are synonymous with buyer?

A

Owner, holder, long

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Options will only have intrinsic value if they are ____-the-money.

A

In-the-money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Is Sandra Bearish or Bullish? Sandra buys 1 ABC December 70 Call at 4.

A

Bullish

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

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?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What positions would be appropriate for an investor who is bullish on the S&P 500 Index?

A

Buy SPX (S&P 500) Calls or Sell SPX (S&P 500) Puts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

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

A

Right to buy at 70

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

True or False: An investor may buy calls to speculate on a stock going up in price or to hedge a short position.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

True or False: A 110 call with the market at 108 is out-of-the-money.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

True or False: Covered call writing is a conservative option strategy that is designed to generate income.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

True or False: A 60 put with the market at 60 is at-the-money.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

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

A

The premium of $1,000 (the value of 10 x $100)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

An investor holds 1 XYZ January 80 Put at 5. What is her breakeven point?

A

80 - 5 = 75 (strike price minus premium or PUT DOWN)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Put sellers are bearish or bullish?

A

Bullish

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

If exercised against, the writer of an equity put option is obligated to ____ the underlying stock.

A

Buy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

True or False: A 95 call with the market at 95 is in-the-money.

A

False, it is at-the-money.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

True or False: A 95 put with the market at 90 is in-the-money.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

At what time do equity options stop trading?

A

4:00 p.m. ET on the third Friday of the expiration month

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

When must a firm provide a copy of the Option Disclosure Document (ODD) to a client?

A

At or prior to account approval

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

True or False: A 110 put with the market at 108 is out-of-the-money.

A

False, in-the-money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

By selling a call and receiving the premium, covered call writers sacrifice the stock’s future ________ potential.

A

Upside potential

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

The maximum gain for an option seller is the ____________.

A

Premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

If long stock, a put option can be used to limit ___________ risk.

A

Downside

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

A put option is in-the-money when the market price is ____________ the strike price.

A

Below

33
Q

What is a covered call position?

A

The sale of a call (obligation to sell) against stock that is owned

34
Q

What is an uncovered call position?

A

The sale of a call (obligation to sell) without owning the stock

35
Q

A call option gives the owner the right to _____.

A

A call option gives the owner the right to buy, but not the obligation

36
Q

A put option gives the owner the right to ______.

A

Sell, but not the obligation to sell

37
Q

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

A

Bullish

38
Q

If an investor is short a call, how could that option be covered?

A

1) Be long 2) Own convertibles 3) Present escrow receipt 4) Own a call (lower strike, same or later expiration)

39
Q

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

A

475 + 10 = 485 (strike price plus the premium or CALL UP)

40
Q

The ___________________________ issues and guarantees option contracts.

A

The Options Clearing Corporation (OCC) issues and guarantees option contracts.

41
Q

Name three important factors for determining the premium of an equity option.

A

The stock’s market price versus the strike price, time left until expiration, and volatility of the underlying security

42
Q

True or False: A 60 call with the market at 63 is in-the-money.

A

True

43
Q

What are two uses of index options?

A

Speculate or hedge

44
Q

True or False: Option writers want contracts to expire at- or out-of-the-money.

A

True. For options at- or out-of-the-money, the seller would retain the premium (maximum gain).

45
Q

Consider the following: BNB Jan 30 Put at 2 If BNB is trading at 30, how much time value does the option have?

A

$2.00 or 2 points

46
Q

Consider the following: STC May 60 Call at 3 If STC is trading at 61, how much time value does the option have?

A

$2.00 or 2 points

47
Q

Consider the following: TNT Jun 80 call at 3 If TNT is trading at 78, how much intrinsic value does the option have?

A

0 as it is out-of-the-money

48
Q

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

A $300 loss since the investor received $600, but paid $900. Closing out means to execute the opposite transaction.

49
Q

What are the specifics regarding the expiration of equity options?

A

They expire at 11:59 p.m. ET on the third Friday of the expiration month.

50
Q

Is there any difference between the exercise of an index option and an equity option?

A

Yes, index options are cash-settled while equity options are settled by delivery of a specific security.

51
Q

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

A

Bearish

52
Q

Consider the following: ABC Sep 45 Put at 5 If ABC is trading at 41, how much time value does the option have?

A

$1.00 or 1 point

53
Q

Consider the following: STC May 60 Call at 3 If STC is trading at 61, how much intrinsic value does the option have?

A

$1.00 or 1 point

54
Q

Sandra buys 1 ABC December 70 Call at 4. What is Sandra’s breakeven point?

A

70 + 4 = 74 (strike price + premium or CALL UP)

55
Q

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

A

Right to sell at 80

56
Q

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?

A

30 - 2 = 28 (cost of the stock - the premium received)

57
Q

True or False: Both the buyer and seller of an option have the right to exercise.

A

False. Only buyers can exercise the contract.

58
Q

If exercised against, the writer of an equity call option is obligated to _____ the underlying stock.

A

Sell

59
Q

True or False: An investor who is long 100 shares of ABC stock and long an ABC put is bearish on the stock.

A

False. The purchase of the put is designed to protect against downward price movement.

60
Q

Call buyers and put writers are __________.

A

Bullish

61
Q

If short stock, a call option can be used to limit _________ risk.

A

Upside risk (loss)

62
Q

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

A

Bearish

63
Q

True or False: Options are derivatives since their value is based on the changing value of an underlying instrument.

A

True

64
Q

An investor writes 1 DEF May 55 Call at 6. What is the breakeven point?

A

55 + 6 = 61 (strike price + premium or CALL UP)

65
Q

What is time value?

A

The option’s premium minus the intrinsic value.

66
Q

Equity options have a contract size of _____ shares.

A

100 shares

67
Q

Jim is short 1 MNO August 40 Put at 4.50. What is Jim’s breakeven point?

A

40 - 4.50 = 35.50 (strike price minus the premium or PUT DOWN)

68
Q

Consider the following: TNT Jun 80 Call at 3 If TNT is trading at 78, how much time value does the option have?

A

$3.00 or 3 points (can’t have negative intrinsic value)

69
Q

Identify the acronym: OCC

A

Options Clearing Corporation

70
Q

Call sellers are __________.

A

Bearish

71
Q

Investors who want to generate income on a stock position should ______ an option.

A

Sell (write)

72
Q

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?

A

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

73
Q

Buy 1 ABC Dec 70 Call at 4. When ABC rises to 80, the call is exercised and the stock is immediately sold. Result?

A

A $600 profit since the investor is bullish and the stock rose 6 points above the breakeven point of 74.

74
Q

When may American-Style options be exercised?

A

On any business day up to the expiration date

75
Q

To protect a long position, an investor would _____ a _____ option as a hedge.

A

Buy a put option

76
Q

A mutual fund portfolio manager wanting to generate income would engage in what option strategy?

A

Covered call writing

77
Q

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

A

Bullish

78
Q

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

A

Obligation to buy at 40

SIE (20 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions