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Series 7 > Options > Flashcards

Options Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Sandra buys 1 ABC Dec 70 Call at 4. Does Sandra have a right or an obligation?

A

right to buy at 70

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2
Q

Sandra buys 1 ABC Dec 70 Call at 4. What is Sandra’s strategy?

A

Bullish

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3
Q

Buy 1 ABC Dec 70 Call at 4. When ABC rises to 80, the call is exercised and the stock is immediately sold. Result?

A

profit of $600.

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4
Q

Sandra buys 1 ABC Dec 70 Call at 4. Later at expiration, if ABC has fallen to 67, would Sandra have a gain or a loss?

A

loss of the premium, $400.

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5
Q

Sandra buys 1 ABC Dec 70 Call at 4. Later ABC rises to 80 and Sandra liquidates the call for 11. What is the result?

A

A $700 gain. She originally paid 4, but received 11 on the sale, netting a $700 gain.

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6
Q

An investor writes 1 DEF May 55 Call at 6. Does she have a right or an obligation?

A

obligation to sell at 55

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7
Q

An investor writes 1 DEF May 55 Call at 6. What is the investor’s strategy?

A

bearish

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8
Q

Bill writes 1 DEF May 55 Call at 6. Later DEF rises to 70 and the call is exercised, what is Bill’s result?

A

lost $900

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9
Q

An investor writes 1 DEF May 55 Call at 6. Later at expiration, if DEF has fallen to 53, would there be a gain or loss?

A

gain of $600 on the premium

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10
Q

Write 1 DEF May 55 Call at 6. DEF rises to 63 and the investor closes the position at a premium of 9. What’s the result?

A

A $300 loss since the investor received $600, but paid $900. Closing out means to execute the opposite transaction.

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11
Q

An investor holds 1 XYZ Jan 80 Put at 5. Does she have a right or an obligation?

A

right to sell at 80

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12
Q

An investor holds 1 XYZ Jan 80 Put at 5. What is her strategy?

A

bearish

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13
Q

An investor holds 1 XYZ Jan 80 Put at 5. What is the result if later XYZ falls to 65, and the put is exercised?

A

profit of $1,000. $1,500 less the $500 premium

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14
Q

An investor holds 1 XYZ Jan 80 Put at 5. Later at expiration, if XYZ has held at 80, would there be a gain or a loss?

A

loss of the premium, $500

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15
Q

Long 1 XYZ Jan 80 Put at 5. Later XYZ falls to 68, and the put is liquidated at its then premium of 12.50. Result?

A

profit of $750, difference in premium prices

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16
Q

Jim is short 1 MNO Aug 40 Put at 4.50. Does Jim have a right or an obligation?

A

short means he sold, he has an obligation to buy at 40

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17
Q

Jim is short 1 MNO Aug 40 Put at 4.50. What is Jim’s strategy?

A

Bullish

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18
Q

Short 1 MNO Aug 40 Put at 4.50. MNO falls to 30, the put is exercised and the stock is immediately sold. Result?

A

Loss of $550. $1,000 total loss, credited with the $50 premium

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19
Q

Jim is short 1 MNO Aug 40 Put at 4.50. If MNO rises to 44 at expiration, would Jim have a gain or a loss?

A

gain of $450 premium

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20
Q

Jim shorts 1 MNO Aug 40 Put at 4.50. XYZ later falls to 32 and Jim liquidates at the intrinsic value. Result?

A

A loss of $350. Jim originally received $450, but then closed out by paying $800, netting a $350 loss.

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21
Q

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

A

Bullish

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22
Q

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

A

485

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23
Q

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

A

unlimited

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24
Q

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

A

$1,000 premium

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25
Q

Marty buys 1 ABC May 55 Call at 4. Later, if ABC is at 51 and the option expires, what is Marty’s gain or loss?

A

lost $400 premium

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26
Q

Emma sells 1 RST Oct 40 Put at 5. Later, if RST is at 43 and the option expires, what is Emma’s gain or loss?

A

gain of $500 the premium

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27
Q

Holden buys 1 STC 65 Call at 3. Later STC rises to 72 and the call is liquidated at 8.50. Is there a gain or loss?

A

gain of $550

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28
Q

Julio bought a 75 call at 5 and later exercised the option. What is Julio’s cost basis?

A

$8000

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29
Q

Eric sold a 50 call at 6 and was later exercised against. Eric would have sales proceeds of how much?

A

$5600

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30
Q

Jean bought an 80 put at 7 and later exercised the contract. Jean would have sales proceeds of how much?

A

$8,000 - $700 = $7,300 or 73 (strike price minus the premium)

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31
Q

Mark sold an 80 put at 7 and was later exercised against. What is Mark’s cost basis?

A

80 - 7 = 73 (strike price minus the premium)

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32
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

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

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33
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

bearish

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34
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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35
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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36
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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37
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

debit

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38
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

bullish

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39
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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40
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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41
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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42
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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43
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

bearish

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44
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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45
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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46
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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47
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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48
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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49
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

bullish

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50
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

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

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51
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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52
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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53
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

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

54
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.

55
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

bullish

56
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).

57
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.

58
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.

59
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.

60
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

credit, and bullish

61
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

debit, bullish

62
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).

63
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.

64
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

65
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

66
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

55 on the call, 45 on the put. combine the premiums

67
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

68
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 call, $4500 on put

69
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

70
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

54 on the call, 36 on the put

71
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.

72
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

73
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

74
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).

75
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

76
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.

77
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

78
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

79
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

93

80
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

81
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).

82
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.

83
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

44

84
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

$4,400

85
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).

86
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.

87
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

28

88
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).

89
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.

90
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.

91
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)

92
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).

93
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.

94
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

horizontal (calendar), debit

95
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).

96
Q

What is the breakeven point? Buy 1 XYZ Jan 70 Call at 5.90

A

75.90

97
Q

What is the breakeven point? Sell 1 RFQ Feb 100 Call at 1.00

A

101

98
Q

What is the breakeven point? Long 1 MNO March 95 Put at 3.40

A

91.60

99
Q

What is the breakeven point? Short 1 XYZ Apr 85 Put at 1.00

A

84

100
Q

What is the maximum profit? Buy 1 RFQ May 115 Call at 2.90

A

unlimited

101
Q

What is the maximum gain? Write 1 MNO June 120 Call at 5.80

A

$580, the premium

102
Q

What is the maximum profit? Long 1 XYZ July 65 Put at 2.10

A

$6,210

103
Q

What is the maximum gain? Sell 1 RFQ Aug 65 Put at 6.70

A

$670

104
Q

What is the maximum risk? Buy 1 MNO Sep 45 Call at 5.80

A

$580, the premium

105
Q

What is the maximum loss? Short 1 XYZ Oct 90 Call at 2.90

A

unlimited

106
Q

What is the maximum risk? Long 1 RFQ Nov 20 Put at 3.70

A

$370

107
Q

What is the maximum loss? Sell 1 MNO Dec 45 Put at 4.90

A

$4,010

108
Q

What is the breakeven point? Buy 100 shares of XYZ at 91 and Buy 1 XYZ Jan 95 Put at 8.00

A

99

109
Q

What is the maximum profit? Buy 100 shares of RFQ at 52 and Buy 1 RFQ Feb 50 Put at 8.00

A

unlimited

110
Q

What is the maximum risk? Buy 100 shares of XYZ at 97 and Buy 1 XYZ Mar 95 Put at 5.25

A

The maximum risk is cost of the stock + premium - the strike price= 725.00

111
Q

What is the breakeven point? Sell Short 100 shares of MNO at 52 and Buy 1 MNO Apr 50 Call at 7.75

A

The breakeven point is short sale price - premium = 44.25

112
Q

What is the maximum gain? Sell Short 100 shares of XYZ at 63 and Buy 1 XYZ May 60 call at 7.00

A

The maximum gain is proceeds of the short sale - premium = 5600.00

113
Q

What is the maximum loss? Sell Short 100 shares of RFQ at 79 and Buy 1 RFQ June 75 Call at 7.50

A

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

114
Q

What is the breakeven point? Buy 100 shares of XYZ at 85 and Write 1 XYZ July 85 Call at 7.75

A

$77.25, The breakeven point is cost of the stock - premium

115
Q

What is the maximum profit if the option is exercised? Buy 100 shares of RFQ at 65 and Sell 1 RFQ Aug 60 Call at 8.75

A

The maximum profit is the strike price + premium - cost of stock = $375.00

116
Q

What is the maximum risk? Buy 100 shares of MNO at 52 and Write 1 MNO Sep 50 Call at 7.25

A

$4,475

117
Q

What is the breakeven point? Sell Short 100 shares of XYZ at 80 and Sell 1 XYZ Oct 80 Put at 6.75

A

86.75

118
Q

What is the maximum risk? Sell Short 100 shares of RFQ at 105 and Write 1 RFQ Nov 100 Put at 7.25

A

unlimited

119
Q

What is the breakeven point? Buy 1 XYZ Dec 30 Call at 9.75 and write 1 XYZ Dec 45 Call at 4.50

A

The breakeven point is lower strike price + net premium = 35.25

120
Q

What is the maximum gain? Buy 1 XYZ Dec 110 Call at 9.75 and write 1 XYZ Dec 125 Call at 5.25

A

The maximum gain is the difference in the strikes - net premium = 10.50

121
Q

What is the maximum loss? Buy 1 XYZ Dec 70 Call at 3.75 and write 1 XYZ Dec 75 Call at 1.25

A

$250

122
Q

What is the breakeven point? Sell 1 XYZ Dec 30 Call at 10.50 and buy 1 XYZ Dec 45 Call at 4.50

A

The breakeven point is lower strike price + net premium = 36.00

123
Q

What is the maximum gain? Sell 1 XYZ Dec 100 Call at 9.00 and buy 1 XYZ Dec 115 Call at 5.25

A

The maximum gain is the net premium = 375.00

124
Q

What is the maximum loss? Sell 1 XYZ Dec 75 Call at 4.25 and buy 1 XYZ Dec 80 Call at 1.50

A

The maximum loss is the difference in the strikes - net premium = 225.00

125
Q

What is the breakeven point? Buy 1 ABC Nov 50 Put at 3.00 and write 1 ABC Nov 45 at 1.00

A

The breakeven point is higher strike price - net premium = 48.00

126
Q

What is the maximum gain? Buy 1 ABC Nov 90 Put at 6.00 and write 1 ABC Nov 80 at 2.00

A

The maximum gain is the difference in the strikes - net premium = 600.00

127
Q

What is the maximum loss? Buy 1 ABC Nov 50 Put at 10.50 and write 1 ABC Nov 35 at 3.75

A

$675, the net premium

128
Q

What is the breakeven point? Sell 1 ABC Nov 90 Put at 3.25 and buy 1 ABC Nov 85 at 1.50

A

88.25

129
Q

What is the maximum gain? Sell 1 ABC Nov 75 Put at 12.75 and buy 1 ABC Nov 60 at 3.00

A

The maximum gain is the net premium = 975.00

130
Q

What is the maximum loss? Sell 1 ABC Nov 85 Put at 10.50 and buy 1 ABC Nov 70 at 3.75

A

The maximum loss is the difference in the strikes - net premium = 825.00

Series 7 (25 decks)

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