Chapter 7 - Option Strategies

Question 0

An investor buys 100 shares of stock at $24 and buys one APR 20 put @ $2.00. At expiration the stock is worth $0. This person’s total loss is_______________.

Answer 0

$600.

Question 1

Which of the following is most similar to writing a covered call?

a) buying a put
b) buying a straddle
c) buying a call
d) writing a put

Answer 1

d) writing a put

Question 2

An investor buys 200 shares of stock at $30 and sells one APR 35 call @ $2.00. At expiration the stock is worth $50. This person’s total gain is ______________________.

Answer 2

$700.

Question 3

An investor sells a call and sells a put with the same strike price and expiration date, this is referred to as a:

Answer 3

short straddle

Question 4

If an inventor buys one call with a lower strike price and sells another call with a higher strike price, this is referred to as a:

Answer 4

bull-spread

Question 5

Which of the following trades has the most risk, assuming the same underlying asset, strike price and maturity?

a) covered call
b) protective put
c) long straddle
d) short call

Answer 5

d) short call.

Question 6

Which of the following trades has the least risk, assuming the same underlying asset, strike price and maturity?

a) covered call
b) protective put
c) short straddle
d) short call

Answer 6

b) protective put

Question 7

An investor bought 100 shares of AAPL stock at 460 and sold one June 480 call for $14. The investor’s total maximum gain is equal to:

Answer 7

$3400

Question 8

An investor bought a June 800 call and a June 800 put on GOOG for a total of $60. What are the breakeven prices for the trade? What type of trade is this?

Answer 8

Breakeven: 740 and 860

Long straddle