Brainscape's Knowledge GenomeTM

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


See full index

Series 7 > Chapter 13 > Flashcards

Chapter 13 Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 7 Top-off Exam flashcards
1
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
2
Q

A call option gives the owner the right to _____.

A

buy

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

With options, what terms are synonymous with seller?

A

Writer, short

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

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

A

sell

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

A put option gives the owner the right to ______.

A

sell

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
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
7
Q

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

A

True

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

Equity options have a contract size of _____ shares.

A

100

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

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

A

greater than; up

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

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

A

below; down

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

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

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
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
13
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
14
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
15
Q

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

A

False, it is in-the-money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
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
17
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
18
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
19
Q

What is time value?

A

The option’s premium minus the intrinsic value.

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

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

Calls and puts are the two ________ of options.

A

types

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
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
23
Q

Sandra buys 1 ABC Dec 70 Call at 4. What is Sandra’s strategy?

A

She’s a bull, thinks price will go up

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

Profit of $6/share, or $600

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

Sandra buys 1 ABC Dec 70 Call at 4. Later at expiration, if ABC has fallen to 67, would Sandra have a gain or a loss?

A

loss of the premium, $4/share, $400

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

Sandra buys 1 ABC Dec 70 Call at 4. Later ABC rises to 80 and Sandra liquidates the call for 11. What is the result?

A

A $700 gain. She originally paid 4, but received 11 on the sale, netting a $700 gain.

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

An investor writes 1 DEF May 55 Call at 6. Does she have a right or an obligation?

A

Obligation to sell at 55

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

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

A

Bearish, thinks stock will go down

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

An investor writes 1 DEF May 55 Call at 6. Later at expiration, if DEF has fallen to 53, would there be a gain or loss?

A

Gain of $600 (the premium)

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

31
Q

The maximum loss for an option buyer is the ____________.

A

the premium

32
Q

The maximum gain for an option seller is the ____________.

A

premium

33
Q

True or False: To close (sell) or to exercise for profit, option buyers want contracts to become in-the-money.

A

True

34
Q

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

A

True

35
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

36
Q

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

A

Bearish, thinks stock will drop

37
Q

An investor holds 1 XYZ Jan 80 Put at 5. What is the result if later XYZ falls to 65, and the put is exercised?

A

Profit of $1,000. $15/share gain, less $5/share premium, gives $10/share gain. Times 100 shares is $1,000 profit

38
Q

Bill writes 1 DEF May 55 Call at 6. Later DEF rises to 70 and the call is exercised, what is Bill’s result?

A

loss of $900, the premium brings the at-the-money price to 61. 9 over that, for $900

39
Q

An investor holds 1 XYZ Jan 80 Put at 5. Later at expiration, if XYZ has held at 80, would there be a gain or a loss?

A

loss of $500, the premium

40
Q

Long 1 XYZ Jan 80 Put at 5. Later XYZ falls to 68, and the put is liquidated at its then premium of 12.50. Result?

A

A $750 gain. The investor originally paid $500, but then received $1,250, netting a $750 gain.

41
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

42
Q

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

A

Bullish, thinks stock will go up

43
Q

Short 1 MNO Aug 40 Put at 4.50. MNO falls to 30, the put is exercised and the stock is immediately sold. Result?

A

loss of $550. The breakeven is 35.50, but the stock fell 5.50 lower than 35.50.

44
Q

Jim is short 1 MNO Aug 40 Put at 4.50. If MNO rises to 44 at expiration, would Jim have a gain or a loss?

A

gain of $450 (the premium)

45
Q

Jim shorts 1 MNO Aug 40 Put at 4.50. XYZ later falls to 32 and Jim liquidates at the intrinsic value. Result?

A

loss of $350. Jim originally received $450, but then closed out by paying $800, netting a $350 loss.

46
Q

How would an option order ticket be marked for an investor whose initial transaction was the purchase of a call?

A

Opening Purchase

47
Q

How would an option order ticket be marked for an investor whose initial transaction was the sale of a put?

A

Opening Sale

48
Q

To offset an option purchase, an investor would execute a ________________.

A

closing sale

49
Q

To offset an option sale, an investor would execute a ___________________.

A

closing purchase

50
Q

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

A

False, only buyers can execute

51
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

52
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

53
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

54
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

55
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

56
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

57
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, it is out-of-the-money

58
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

59
Q

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

A

True

60
Q

What is an uncovered call position?

A

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

61
Q

What is the breakeven point? Buy 1 XYZ Jan 55 Call at 5.10

A

60.10

62
Q

What is the breakeven point? Sell 1 RFQ Feb 85 Call at 2.70

A

87.7

63
Q

What is the breakeven point? Long 1 MNO March 40 Put at 1.00

A

39

64
Q

What is the breakeven point? Short 1 XYZ Apr 70 Put at 2.80

A

67.20

65
Q

What is the maximum profit? Buy 1 RFQ May 35 Call at 2.50

A

it is unlimited

66
Q

What is the maximum gain? Write 1 MNO June 60 Call at 3.60

A

$360.00, the premium

67
Q

What is the maximum profit? Long 1 XYZ July 115 Put at 4.20

A

$11,080. If goes down to $0 get $115 minus $4.20/share

68
Q

What is the maximum gain? Sell 1 RFQ Aug 50 Put at 4.10

A

$410, the premium

69
Q

What is the maximum risk? Buy 1 MNO Sep 60 Call at 6.70

A

$670

70
Q

What is the maximum loss? Short 1 XYZ Oct 110 Call at 4.80

A

unlimited

71
Q

What is the maximum risk? Long 1 RFQ Nov 70 Put at 6.90

A

$690

72
Q

What is the maximum loss? Sell 1 MNO Dec 65 Put at 5.30

A

$5,970. $65/share minus $5.30 equals $59.70/share

73
Q

Define a series of options.

A

All options with the same underlying interest, expiration month, strike price and type (e.g. ABC May 60 Call)

74
Q

Define a class of options.

A

All options with the same underlying interest and the same type (e.g. STC calls or STC puts)

Series 7 (25 decks)

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