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Chapter 14 Flashcards

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Series 7 Top-off Exam flashcards
1
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)

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2
Q

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

A

1) Deposit cash equal to the strike 2) Be short the stock 3) Own a put (higher strike, same or later expiration)

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3
Q

Identify the position: An investor sells 1 ABC May 30 call at 3 and purchases 1 ABC May 35 call at 1.

A

A sale and purchase of calls or puts is a spread.

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4
Q

Identify the position: An investor shorts 1 XYZ May 50 call at 3 and is long 1 XYZ May 40 call at 5.

A

A spread, which is the sale and purchase of calls or puts.

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5
Q

Identify the position: An investor writes 1 STC Jul 70 put at 7 and owns 1 STC Jul 60 put at 3.

A

A spread, which is the sale and purchase of calls or puts.

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6
Q

Identify the position: An investor buys 1 GDG Mar 50 call at 4 and buys 1 GDG Mar 50 put at 4.

A

A straddle, which is the purchase or sale of both a call and a put with the same stock, expiration and strike price.

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7
Q

Identify the spread: An investor buys 1 JMK May 60 call and sells 1 JMK May 65 call.

A

A spread with different strike prices is a Price/Vertical spread.

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8
Q

Identify the spread: An investor writes 1 ABC Jan 75 put and is long 1 ABC Mar 75 put.

A

A spread with different expirations is a Calendar/Horizontal spread.

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9
Q

Identify the spread: An investor is long 1 MCD Jun 50 call and is short 1 MCD Sep 60 call.

A

A spread with different expirations and different strikes is a Diagonal spread.

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10
Q

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. Is this a debit or credit spread?

A

Since the larger premium is on the sell leg, this is a credit spread, sold for a net premium of 4.

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11
Q

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. Is the investor bullish or bearish on ABC?

A

She is bearish. The dominant leg is the sell leg, which makes the investor the seller of a call.

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12
Q

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor’s breakeven point?

A

30 + 4 = 34 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).

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13
Q

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor’s maximum gain?

A

The net premium of $400. Remember, sellers cannot make more than the premium.

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14
Q

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor’s maximum loss?

A

$600. If the stock rises, the investor could lose starting from the breakeven of 34 up to 40.

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15
Q

True or False: Maximum gains and maximum losses could be unlimited with vertical spreads.

A

False. Spreads limit both gains and losses. Remember, net premium is the loss for the buyer and the gain for the seller.

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16
Q

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. Is this a debit or credit spread?

A

Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 4.

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17
Q

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. Is the investor bullish or bearish on ABC?

A

He is bullish. The dominant leg is the buy leg, which makes the investor the buyer of a call.

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18
Q

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor’s breakeven point?

A

30 + 4 = 34 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).

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19
Q

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor’s maximum gain?

A

$600. If the stock rises, the investor could profit starting from the breakeven of 34 up to 40.

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20
Q

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor’s maximum loss?

A

The net premium of $400. Remember, buyers cannot lose more than the premium.

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21
Q

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. Is this a debit or credit spread?

A

Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 2.

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22
Q

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. Is the investor bullish or bearish on DEF?

A

He is bearish. The dominant leg is the buy leg, which makes the investor the buyer of a put.

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23
Q

Long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the breakeven point?

A

35 - 2 = 33 (always between strikes). For put spreads, the net premium is subtracted from the higher strike (PUT DOWN).

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24
Q

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the investor’s maximum gain?

A

$300. If the stock falls, the investor could profit starting from the breakeven of 33 down to 30.

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25
Q

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the investor’s maximum loss?

A

The net premium of $200. Remember, buyers cannot lose more than the premium.

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26
Q

Long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. To profit, should the spread widen or narrow?

A

If the premium spread widens, the spread can be closed for more than $200. Remember, BUYER and WIDEN have 5 letters.

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27
Q

An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. Is this a debit or credit spread?

A

Since the larger premium is on the sell leg, this is a credit spread, sold for a net premium of 7.

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28
Q

An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. Is the investor bullish or bearish on RST?

A

She is bullish. The dominant leg is the sell leg, which makes the investor the seller of a put.

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29
Q

She is bullish. The dominant leg is the sell leg, which makes the investor the seller of a put.

A

95 - 7 = 88 (always between strikes). For put spreads, the net premium is subtracted from the higher strike (PUT DOWN).

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30
Q

An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. What is the investor’s maximum gain?

A

The net premium of $700. Remember, sellers cannot make more than the premium.

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31
Q

An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. What is the investor’s maximum loss?

A

$800. If the stock falls, the investor could lose starting from the breakeven of 88 down to 80.

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32
Q

Sell 1 RST May 95 put at 8 and buy 1 RST May 80 put at 1. To profit, should the spread widen or narrow?

A

the premium spread narrows, much of the $700 net premium is kept. Remember, SELLER and NARROW have 6 letters.

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33
Q

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. Is this a debit or credit spread?

A

Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 4.

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34
Q

Sid purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. Is Sid bullish or bearish on XRX?

A

Sid is bullish. The dominant leg is the buy leg, which makes the investor the buyer of a call.

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35
Q

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor’s breakeven point?

A

60 + 4 = 64 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).

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36
Q

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor’s maximum gain?

A

$600. If the stock rises, the investor could profit starting from the breakeven of 64 up to 70.

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37
Q

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor’s maximum loss?

A

The net premium of $400. Remember, buyers cannot lose more than the premium.

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38
Q

Buy 1 XRX May 60 call at 6 and write 1 XRX May 70 call at 2. For profit, should the spread widen or narrow?

A

If the premium spread widens, the spread can be closed for more than $400. Remember, BUYER and WIDEN have 5 letters.

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39
Q

Sell 1 ABC May 65 put at 9 and buy 1 ABC May 50 put at 2. Is the spread a debit or credit? Is it bullish or bearish?

A

The larger premium is the sell leg, so it is a credit spread. The dominant leg is the sale of a put, so it is bullish.

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40
Q

Long 1 TNT Aug 50 call at 5 and short 1 TNT Aug 60 call at 2. Is the spread a debit or credit? Is it bullish or bearish?

A

The larger premium is on the buy leg, so it is a debit. The dominant leg is the purchase of a call, so it is bullish.

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41
Q

True or False: Buyers of straddles are seeking volatility, while sellers of straddles are expecting stability.

A

True

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42
Q

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What are the breakeven points for the investor?

A

70 + 8 = 78 and 70 - 8 = 62. The combined premium of 8 is added to 70 (CALL UP) and subtracted from 70 (PUT DOWN).

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43
Q

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor’s maximum gain?

A

Unlimited gain on the long call, $6,200 gain on the long put. Gains occur if the stock rises or falls dramatically.

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44
Q

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor’s maximum loss?

A

$800. If XYZ stays at 70, both options expire. Remember, buyers cannot lose more than the premium.

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45
Q

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor’s strategy?

A

Volatility

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46
Q

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What are the breakeven points?

A

50 + 5 = 55 and 50 - 5 = 45. The combined premium of 5 is added to 50 (CALL UP) and subtracted from 50 (PUT DOWN).

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47
Q

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor’s maximum gain?

A

$500. If ABC stays at 50, both options expire and $500 is made. Remember, sellers cannot make more than the premium.

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48
Q

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor’s maximum loss?

A

Unlimited loss on the short call, $4,500 loss on the short put. Losses occur if the stock rises or falls dramatically.

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49
Q

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor’s strategy?

A

Stability

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50
Q

A position similar to a straddle, but with different expirations and/or different strikes is called a _____________.

A

combination

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51
Q

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is this position?

A

Long combination

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52
Q

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What are the breakeven points for the investor?

A

50 + 4 = 54 and 40 - 4 = 36. The combined premium of 4 is added to 50 (CALL UP) and subtracted from 40 (PUT DOWN).

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53
Q

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor’s maximum gain?

A

Unlimited gain on the long call, $3,600 gain on the long put. Gains occur if the stock rises or falls dramatically.

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54
Q

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor’s maximum loss?

A

$400. If DEF stays between 50 and 40, both options expire. Remember, buyers cannot lose more than the premium.

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55
Q

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor’s strategy?

A

volatility

56
Q

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is this position?

A

short combination

57
Q

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What are the breakeven points?

A

70 + 6 = 76 and 65 - 6 = 59. The combined premium of 6 is added to 70 (CALL UP) and subtracted from 65 (PUT DOWN).

58
Q

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor’s maximum gain?

A

$600. If BBO remains between 70 and 65, both options expire and the seller makes the $600 total premium.

59
Q

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor’s maximum loss?

A

Unlimited loss on the short call, $5,900 loss on the short put. Losses occur if the stock rises or falls dramatically.

60
Q

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor’s strategy?

A

stability

61
Q

True or False: To hedge a stock position, buying options provides more protection than writing options.

A

True. When long stock, investors may buy a put. When short stock, investors may buy a call.

62
Q

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

A

sell

63
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.

64
Q

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

A

True

65
Q

What is a covered call position?

A

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

66
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.

67
Q

An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. What is the investor’s breakeven point?

A

91 + 2 = 93 (cost of the stock + premium paid)

68
Q

An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. What is the investor’s maximum gain?

A

Unlimited, since the stock’s upside is infinite

69
Q

Buy 100 shares of IBM at 91 and also Buy 1 IBM Nov 90 put at 2. If IBM later falls to 84, what is the maximum loss?

A

$300. At exercise, the stock bought at 91 can be sold at 90 ($100 loss) plus the cost of the option ($200 loss).

70
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.

71
Q

An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor’s breakeven point?

A

47 - 3 = 44 (short sale proceeds - the premium paid)

72
Q

An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor’s maximum gain?

A

If the stock falls to zero, the investor could potentially make $4,400 ($4,700 - the $300 premium).

73
Q

Al sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is Al’s maximum loss?

A

$600. If XYZ rises, Al can buy stock back at 50 ($300 loss), plus he would lose the premium ($300 loss).

74
Q

If investors have a stock position AND an option position, will strategy be determined by the stock or the option?

A

The stock position is the primary focus since gains or losses are determined by the stock’s movements.

75
Q

An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What’s the reason for selling the call?

A

To provide premium income on stable stock. Also note the premium provides a partial hedge against downside risk.

76
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)

77
Q

An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor’s maximum gain?

A

$700. If the stock rises and the call is exercised, the 30 stock is sold at 35 ($500 gain) plus the premium ($200 gain).

78
Q

An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor’s maximum loss?

A

$2,800 if the stock falls to zero. The investor would lose $3,000 on the stock, but keep the $200 premium.

79
Q

An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What’s the reason for selling the put?

A

To generate income (the premium); also note the premium provides a partial hedge against upside risk.

80
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)

81
Q

An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What is the investor’s maximum gain?

A

$800. If stock falls and the put is exercised, the short stock is covered at 30 ($500 gain) plus premium ($300 gain).

82
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 maximum loss?

A

Unlimited. The investor has no protection if the stock continues to rise above the 38 breakeven.

83
Q

Which has unlimited risk? 1) Long stock + short call, 2) Short stock + long call, 3) Short stock + short put

A

3) Short stock + short put

84
Q

Sell 1 BKS July 40 call at 6 and buy 1 Oct 40 call at 10. Is the spread vertical or horizontal? Is it a debit or credit?

A

This is a horizontal spread (different expirations) and it is a debit spread (paid out more than what was received).

85
Q

Buy 1 STP Jan 50 call at 6 and sell 1 Jan 60 call at 2. STP is at 59 and options are closed at intrinsic value. Result?

A

A gain of $500. Initially there is a net debit of 4, and later offset for a net credit of 9 (9 - 4 = 5).

86
Q

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

A

downside

87
Q

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

A

upside

88
Q

What is the breakeven point? Buy 100 shares of XYZ at 46 and Buy 1 XYZ Jan 50 Put at 6.75

A

The breakeven point is cost of the stock + premium = 52.75

89
Q

What is the maximum profit? Buy 100 shares of RFQ at 56 and Buy 1 RFQ Feb 55 Put at 5.75

A

The maximum profit is unlimited

90
Q

What is the maximum risk? Buy 100 shares of XYZ at 95 and Buy 1 XYZ Mar 90 Put at 7.00

A

The maximum risk is cost of the stock + premium - the strike price= 1200.00

91
Q

What is the breakeven point? Sell Short 100 shares of MNO at 82 and Buy 1 MNO Apr 80 Call at 8.00

A

The breakeven point is short sale price - premium = 74.00

92
Q

What is the maximum gain? Sell Short 100 shares of XYZ at 50 and Buy 1 XYZ May 55 call at 7.00

A

The maximum gain is proceeds of the short sale - premium = 4300.00

93
Q

What is the maximum loss? Sell Short 100 shares of RFQ at 54 and Buy 1 RFQ June 50 Call at 7.50

A

The maximum loss is the strike price + premium - the proceeds of the short sale = 350.00

94
Q

What is the breakeven point? Buy 100 shares of XYZ at 55 and Write 1 XYZ July 60 Call at 9.00

A

The breakeven point is cost of the stock - premium = 46.00

95
Q

What is the maximum profit if the option is exercised? Buy 100 shares of RFQ at 80 and Sell 1 RFQ Aug 80 Call at 5.50

A

The maximum profit is the strike price + premium - cost of stock = $550.00

96
Q

What is the maximum risk? Buy 100 shares of MNO at 56 and Write 1 MNO Sep 60 Call at 5.50

A

The maximum risk is the cost of stock - premium = $5050.00

97
Q

What is the breakeven point? Sell Short 100 shares of XYZ at 55 and Sell 1 XYZ Oct 55 Put at 8.25

A

The breakeven point is stock price + premium = 63.25

98
Q

What is the maximum risk? Sell Short 100 shares of RFQ at 92 and Write 1 RFQ Nov 95 Put at 7.00

A

unlimited

99
Q

What is the breakeven point? Buy 1 XYZ Dec 110 Call at 7.50 and write 1 XYZ Dec 120 Call at 3.50

A

The breakeven point is lower strike price + net premium = 114.00

100
Q

What is the maximum gain? Buy 1 XYZ Dec 75 Call at 12.75 and write 1 XYZ Dec 90 Call at 4.50

A

The maximum gain is the difference in the strikes - net premium = 6.75

101
Q

What is the maximum loss? Buy 1 XYZ Dec 30 Call at 3.50 and write 1 XYZ Dec 35 Call at 1.75

A

The maximum loss is the net premium = 175.00

102
Q

What is the breakeven point? Sell 1 XYZ Dec 70 Call at 6.50 and buy 1 XYZ Dec 80 Call at 3.50

A

The breakeven point is lower strike price + net premium = 73.00

103
Q

What is the maximum gain? Sell 1 XYZ Dec 40 Call at 4.00 and buy 1 XYZ Dec 45 Call at 1.00

A

The maximum gain is the net premium = 300.00

104
Q

What is the maximum loss? Sell 1 XYZ Dec 120 Call at 4.25 and buy 1 XYZ Dec 125 Call at 1.75

A

The maximum loss is the difference in the strikes - net premium = 250.00

105
Q

What is the breakeven point? Buy 1 ABC Nov 90 Put at 3.50 and write 1 ABC Nov 85 at 1.75

A

The breakeven point is higher strike price - net premium = 88.25

106
Q

What is the maximum gain? Buy 1 ABC Nov 95 Put at 9.75 and write 1 ABC Nov 80 at 4.50

A

The maximum gain is the difference in the strikes - net premium = 975.00

107
Q

What is the maximum loss? Buy 1 ABC Nov 100 Put at 8.50 and write 1 ABC Nov 90 at 3.00

A

The maximum loss is the net premium = 550.00

108
Q

What is the breakeven point? Sell 1 ABC Nov 80 Put at 9.75 and buy 1 ABC Nov 65 at 4.50

A

The breakeven point is higher strike price - net premium = 74.75

109
Q

What is the maximum gain? Sell 1 ABC Nov 40 Put at 8.50 and buy 1 ABC Nov 30 at 3.50

A

The maximum gain is the net premium = 500.00

110
Q

What is the maximum loss? Sell 1 ABC Nov 60 Put at 12.75 and buy 1 ABC Nov 45 at 4.50

A

The maximum loss is the difference in the strikes - net premium = 675.00

111
Q

What are the breakeven points? Buy 1 XYZ Dec 90 Call at 7.75 and buy 1 XYZ Dec 90 Put at 8.75

A

The breakeven points are the strike plus the total premium and the strike minus the total premium = 106.50 AND 73.50

112
Q

What is the maximum gain? Buy 1 XYZ Dec 65 Call at 6.00 and buy 1 XYZ Dec 65 Put at 7.75

A

unlimited

113
Q

What is the maximum gain? Buy 1 XYZ Dec 65 Call at 6.00 and buy 1 XYZ Dec 65 Put at 7.75

A

The maximum loss is the premium = 1100.00

114
Q

What are the breakeven points? Write 1 XYZ Dec 85 Call at 2.75 and write 1 XYZ Dec 85 Put at 4.75

A

The breakeven points are the strike plus the total premium and the strike minus the total premium = 92.50 AND 77.50

115
Q

What is the maximum gain? Write 1 XYZ Dec 90 Call at 5.00 and sell 1 XYZ Dec 90 Put at 1.25

A

The maximum gain is the total premium = 625.00

116
Q

What is the maximum loss? Sell 1 XYZ Dec 70 Call at 6.75 and sell 1 XYZ Dec 70 Put at 1.25

A

unlimited

117
Q

What are the breakeven points? Buy 1 XYZ Dec 95 Call at 3.00 and buy 1 XYZ Dec 85 Put at 1.00

A

The breakeven points are the call’s strike plus the total premium and the put’s strike minus the total premium = 99.00 AND 81.00

118
Q

What is the maximum gain? Buy 1 XYZ Dec 85 Call at 5.00 and buy 1 XYZ Dec 70 Put at 5.00

A

unlimited

119
Q

What is the maximum loss? Buy 1 XYZ Dec 50 Call at 1.00 and buy 1 XYZ Dec 45 Put at 4.75

A

The maximum loss is the total premium: 575.00

120
Q

True or False: A spread consists of both a call and a put.

A

False. A spread consists of either two calls or two puts.

121
Q

True or False: A spread consists of both a long and short option position.

A

True. A spread consists of either a long call and short call or a long put and short put.

122
Q

Given the same expiration months and no premiums, how is the more valuable option in a call spread identified?

A

The call option with the lower strike price is always more valuable.

123
Q

Given the same expiration months and no premiums, how is the more valuable option in a put spread identified?

A

The put option with the higher strike price is always more valuable.

124
Q

True or False: A straddle consists of a long and short option position.

A

False. A straddle consists of either a long call and long put or a short call and a short put.

125
Q

True or False: A combination contains two calls or two puts.

A

False. A combination, as with a straddle, consists of one call and one put.

126
Q

Joe sells 1 ABC Oct 55 call. To create a debit call spread, Joe buys 1 ABC Oct call with a strike price that is ______.

A

lower

127
Q

Jill buys 1 XYZ Jun 70 put. To create a credit put spread, Jill sells 1 XYZ Jun put with a strike price that is _______.

A

higher

128
Q

Joe sells 1 RFQ May 40 call. To create a credit call spread, Joe buys 1 RFQ May call with a strike price that is ______.

A

higher

129
Q

Jill buys 1 STC Nov 85 put. To create a debit put spread, Jill sells 1 STC Nov put with a strike price that is ______.

A

lower

130
Q

Ken buys 1 ABC Dec 75 call. To create a long straddle, Ken must _____________________.

A

Ken must buy 1 ABC Dec 75 put

131
Q

Sue sells 1 XYZ Jan 50 put. To create a short straddle, Sue must _______________________.

A

Sue must sell 1 XYZ Jan 50 call

132
Q

Sell 1 ABC Mar 30 call at 7 and buy 1 ABC Mar 40 call at 3. For profit, should the spread widen or narrow?

A

If the premium spread narrows, much of the $400 net premium is kept. Remember, SELLER and NARROW have 6 letters.

133
Q

Buy 1 ABC Mar 30 call at 7 and sell 1 ABC Mar 40 call at 3. For profit, should the spread widen or narrow?

A

If the premium spread widens, the spread can be closed for more than $400. Remember, BUYER and WIDEN have 5 letters.

134
Q

A date spread is synonymous with a __________ spread.

A

horizontal spread

135
Q

Identify the spread: Sell 1 STC Sept 50 call and Purchase 1 STC June 50 call

A

horizontal spread

Series 7 (25 decks)

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