Chapter 12 Flashcards
Intrinsic Value =
Market price - strike price
Must be IN-the-money to have intrinsic value
Time Value =
Premium - Intrinsic Value
A holder of a _____ will receive the dividend on the underlying security as long as the option is exercised before the ex-deividend date.
call option
A holder of a _____ who holds the underlying stock must wait to exercise the option until the ex-dividend date or after to retain the dividend.
put option
When buying call options, the maximum gain is _____ and the maximum loss is_____.
unlimited; premium paid
When buying put options, the maximum gain is _____ and the maximum loss is _____.
strike price - premium x 100 shares; premium paid
When selling call options, the maximum gain is _____ and the maximum loss is_____.
premium received; unlimited
When selling put options, the maximum gain is _____ and the maximum loss is _____.
premium received; strike price - premium x 100 shares
An investor buys 10 ABC May 60 calls and holds another 10 ABC May 60 puts. This represents a:
Long Straddle
An investor writes 10 ABC May 60 calls and sells another 10 ABC May 60 puts. This represents a:
Short straddle
An investor buys 10 ABC May 60 calls at 3 and holds another 10 ABC May 50 puts at 1. This represents a:
Combination
An investor buys 1 ABC May 60 call and writes 1 ABC May 50 call. This represents a:
Price Spread
An investor buys 1 ABC May 60 call and sells another 1 ABC July 60 call. This represents a:
Time spread
An investor buys 1 ABC May 40 call and writes another 1 ABC July 50 call. This represents a:
Diagonal Spread
When analyzing an option spread, the dominant leg has the:
Largest premium
A LEAP is:
A long-term equity option (maturity of up to 39 months)
An investor sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is this position?
Short Combination
An option order ticket for an investor with an initial transaction being a sale of a put would be marked as a(n):
opening sale
An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investors breakeven point?
47 - 3 = 44
Mark sold an 80 put at 7 and was later exercised against. What is Mark’s cost basis?
80 - 7 = 73
An investor purchases a PRT Oct 45 call @ 3. When PRT is selling at 51, the investor exercises the call. The investor has a:
Cost basis of 48 because the investor has not yet sold the stock
An investor will buy VIX puts if he expects an _____ in the volatility of the S&P 500 Index
decrease
