Chapter 15

Question 1

Security whose value is derived from the value of another security

Answer 1

Derivative Security

Question 2

Grants the holder the right, but not the obligation, to buy the underlying asset at a given strike price

Answer 2

Call Option

Question 3

Grants the holder the right, but not the obligation, to sell the underlying asset at a given strike price

Answer 3

Put Option

Question 4

Price specified in an option contract that the holder pays to buy shares or receives to sell shares if the option is exercised

Answer 4

Strike Price

Question 5

An option that can be exercised any time before expiration

Answer 5

American Option

Question 6

An option that can be exercised only at expiration

Answer 6

European Option

Question 7

A list of available option contracts and their prices for a particular security arrayed by strike price and maturity

Answer 7

Option Chain

Question 8

Private agency that guarantees that the terms of an option contract will be fulfilled if the option is exercised

Answer 8

Options Clearing Corporation (OCC)

Question 9

An option on a stock market index

Answer 9

Stock Index Option

Question 10

An option contract settled by a cash payment from the option writer to the option holder when the option is exercised

Answer 10

Cash-Settled Option

Question 11

The payoff that an option holder receives assuming the underlying stock price remains unchanged from its current value

Answer 11

Intrinsic Value

Question 12

The maximum of the stock price minus the strike price of zero

Answer 12

Call Option Intrinsic Value

Question 13

The maximum of the strike price minus the stock price or zero

Answer 13

Put Option Intrinsic Value

Question 14

The difference between the price of an option and its intrinsic value

Answer 14

Option Time Value

Question 15

Any option with a positive intrinsic value

Answer 15

In-the-Money Option

Question 16

Any option with a strike price exactly equal to the underlying price

Answer 16

At-the-Money Option

Question 17

An option that would not yield a positive payoff if the stock price remained unchanged until expiration

Answer 17

Out-of-the-Money Option

Question 18

Taking the seller’s side of an option contract

Answer 18

Option Writing

Question 19

One who has the obligation to stock at the option’s strike price if the option is exercised

Answer 19

Call Writer

Question 20

One who has the obligation to buy stock at the option’s strike price if the option is exercised

Answer 20

Put Writer

Question 21

Strategy of buying a put option on a stock already owned

Answer 21

Protective Put

Question 22

Strategy of selling a call option on a stock already owned

Answer 22

Covered Call

Question 23

An option trading strategy involving two or more call options or two or more put options

Answer 23

Spread

Question 24

An option trading strategy involving two or more call and put options

Answer 24

Combination

Question 25

The no-arbitrage relationship between put and call prices for European-style options with the same strike price and expiration date

Answer 25

Put-Call Parity