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Series 7 by Chapter > Nonequity Options > Flashcards

Nonequity Options Flashcards

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Series 7 Top-off Exam flashcards
1
Q

For most world currency quotes, the decimal must be moved how many places to the left to convert to U.S. dollars?

A

Two places to the left

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2
Q

An investor buys an OEX May 475 call at 10. What is his strategy?

A

Bullish on the S and P 100 Index

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3
Q

What is the primary use of VIX options?

A

To give individual investors the ability to trade market volatility

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4
Q

What could an investor do if she expects the market to decline and volatility to increase?

A

Buy VIX calls

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5
Q

An investor, believing interest rates will rise, could profit by taking what yield-based option position?

A

Buy yield-based calls or write yield-based puts

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6
Q

Identify the acronym: VIX

A

CBOE’s Volatility Index

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7
Q

An investor buys an OEX May 475 call at 10. What is his breakeven point?

A

475 + 10 = 485 (strike price plus the premium or CALL UP)

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8
Q

An investor buys an OEX May 475 call at 10. What is his maximum gain?

A

Unlimited

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9
Q

Yield-based options are ______-based.

A

Yield-based options are yield-based (rather than based on price).

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10
Q

What could an investor do if she expects the market to rise and volatility to decrease?

A

Buy VIX puts

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11
Q

There is an inverse relationship between the movement of a world currency and the _____________.

A

There is an inverse relationship between the movement of a world currency and the U.S. dollar.

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12
Q

To convert the terms of a Japanese yen contract to U.S. dollars, the decimal is moved ______ places to the left.

A

To convert the terms of a Japanese yen contract to U.S. dollars, the decimal is moved four places to the left.

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13
Q

What is the VIX?

A

The CBOE Volatility Index Options, which is a leading barometer of investor sentiment and market volatility

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14
Q

Is there any difference between the exercise of an index option and an equity option?

A

Yes, index options are cash-settled while equity options are settled by delivery of a specific security.

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15
Q

What is the underlying instrument used to calculate the VIX?

A

Real-time S and P 500 option bid/ask quotes weighted to a constant 30-day measure of expected volatility

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16
Q

What are the hours of operation for the Interbank Market?

A

24 hours a day

17
Q

Equity options are based on a 100 share multiplier, while index options are based on a $______ multiplier.

A

Equity options are based upon a 100 share multiplier, while index options are based on a $100 multiplier.

18
Q

Volatility tends to increase during a ___________ market.

A

Volatility tends to increase during a declining market.

19
Q

How is the premium for a world currency option calculated?

A

Contract size x the premium (with decimal moved appropriately)

20
Q

What is the settlement for spot trades?

A

Two business days

21
Q

VIX options use a __________ style exercise and settle in ______.

A

VIX options use a European style exercise and settle in cash.

22
Q

An investor buys an OEX May 475 call at 10. What is his maximum loss?

A

The premium of $1,000 (the value of 10 x $100)

23
Q

True or False: If an investor expects the U.S. dollar to strengthen, she could profit by buying U.S. dollar calls.

A

False. There are no U.S. dollar calls or puts issued; therefore, all answers must be based on a world currency.

24
Q

When does volatility tend to increase?

A

When the market (S and P 500) drops abruptly

25
Q

World currencies trade in the _____________________.

A

World currencies trade in the Interbank Market.

26
Q

What are two uses of index options?

A

To speculate on market movement or to hedge a portfolio

27
Q

A _______-based index measures the movement of a particular sector or industry.

A

A narrow-based index measures the movement of a particular sector or industry.

28
Q

True or False: The buyer of a British pound call will profit if the British pound rises with a falling U.S. dollar.

A

True

29
Q

True or False: The Interbank Market is a fully regulated and centralized market.

A

False. The Interbank Market is unregulated and decentralized.

30
Q

A _______-based index measures the market as a whole.

A

A broad-based index measures the market as a whole.

31
Q

What should an investor do on the VIX if she anticipates an increase in volatility?

A

Buy VIX Calls. If volatility increases, the underlying VIX will rise and the calls will increase in value.

32
Q

Upon exercise, what must index option sellers deliver to the buyers?

A

The in-the-money amount of the contract (based on the close) multiplied by $100

Series 7 by Chapter (24 decks)

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