Options

Question 1

An option pricing model considers which of the following corporate actions to price an option?

Answer 1

Pricing models consider only those corporate actions that affect the future value of the stock. A dividend is one of several corporate actions that change the value of the stock.

Question 2

Which of the following is/are true about American options?

Answer 2

American options can be exercised before the expiration date. Hence, they are more valuable.

Question 3

Delta is the probability of the options finishing in the money. True or False.

Answer 3

Delta is not the probability of options finishing in the money.

Question 4

Consider that a stock is trading at 100. We want to buy a call option with strike 110. In which of the following cases, there exists an arbitrage opportunity?

Answer 4

When the call option premium is higher than the underlying value

Question 5

AUM

Answer 5

Assets under management (AUM)

Question 6

NAV

Answer 6

Net Asset Value (NAV

Question 7

What is negative and positive gama

Answer 7

Positive gamma positions will see their gains accelerate and losses decelerate, long options
Negative gamma positions will see their gains decelerate and losses accelerate: short options

Question 8

What is Theta in options

Answer 8

Theta is the options risk factor that describes its price-sensitive to the passage of time. Credit spreads or short positions have positive theta, meaning they benefit from the passage of time

Question 9

What is Lower-vega options

Answer 9

Lower-vega options that are out of the money are dirt cheap