Options Flashcards
Sandra buys 1 ABC Dec 70 Call at 4. Does Sandra have a right or an obligation?
right to buy at 70
Sandra buys 1 ABC Dec 70 Call at 4. What is Sandra’s strategy?
Bullish
Buy 1 ABC Dec 70 Call at 4. When ABC rises to 80, the call is exercised and the stock is immediately sold. Result?
profit of $600.
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?
loss of the premium, $400.
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 $700 gain. She originally paid 4, but received 11 on the sale, netting a $700 gain.
An investor writes 1 DEF May 55 Call at 6. Does she have a right or an obligation?
obligation to sell at 55
An investor writes 1 DEF May 55 Call at 6. What is the investor’s strategy?
bearish
Bill writes 1 DEF May 55 Call at 6. Later DEF rises to 70 and the call is exercised, what is Bill’s result?
lost $900
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?
gain of $600 on the premium
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 $300 loss since the investor received $600, but paid $900. Closing out means to execute the opposite transaction.
An investor holds 1 XYZ Jan 80 Put at 5. Does she have a right or an obligation?
right to sell at 80
An investor holds 1 XYZ Jan 80 Put at 5. What is her strategy?
bearish
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?
profit of $1,000. $1,500 less the $500 premium
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?
loss of the premium, $500
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?
profit of $750, difference in premium prices
Jim is short 1 MNO Aug 40 Put at 4.50. Does Jim have a right or an obligation?
short means he sold, he has an obligation to buy at 40
Jim is short 1 MNO Aug 40 Put at 4.50. What is Jim’s strategy?
Bullish
Short 1 MNO Aug 40 Put at 4.50. MNO falls to 30, the put is exercised and the stock is immediately sold. Result?
Loss of $550. $1,000 total loss, credited with the $50 premium
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?
gain of $450 premium
Jim shorts 1 MNO Aug 40 Put at 4.50. XYZ later falls to 32 and Jim liquidates at the intrinsic value. Result?
A loss of $350. Jim originally received $450, but then closed out by paying $800, netting a $350 loss.
An investor buys an OEX May 475 call at 10. What is his strategy?
Bullish
An investor buys an OEX May 475 call at 10. What is his breakeven point?
485
An investor buys an OEX May 475 call at 10. What is his maximum gain?
unlimited
An investor buys an OEX May 475 call at 10. What is his maximum loss?
$1,000 premium
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?
lost $400 premium
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?
gain of $500 the premium
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?
gain of $550
Julio bought a 75 call at 5 and later exercised the option. What is Julio’s cost basis?
$8000
Eric sold a 50 call at 6 and was later exercised against. Eric would have sales proceeds of how much?
$5600
Jean bought an 80 put at 7 and later exercised the contract. Jean would have sales proceeds of how much?
$8,000 - $700 = $7,300 or 73 (strike price minus the premium)
Mark sold an 80 put at 7 and was later exercised against. What is Mark’s cost basis?
80 - 7 = 73 (strike price minus the premium)
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?
credit spread. Since the larger premium is on the sell leg, sold for a net premium of 4.
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?
bearish
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?
30 + 4 = 34 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).
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?
The net premium of $400. Remember, sellers cannot make more than the premium.
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?
$600. If the stock rises, the investor could lose starting from the breakeven of 34 up to 40.
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?
debit
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?
bullish
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?
30 + 4 = 34 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).
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?
$600. If the stock rises, the investor could profit starting from the breakeven of 34 up to 40.
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?
The net premium of $400. Remember, buyers cannot lose more than the premium.
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?
Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 2.
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?
bearish
Long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the breakeven point?
35 - 2 = 33 (always between strikes). For put spreads, the net premium is subtracted from the higher strike (PUT DOWN).
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?
$300. If the stock falls, the investor could profit starting from the breakeven of 33 down to 30.
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?
The net premium of $200. Remember, buyers cannot lose more than the premium.
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?
If the premium spread widens, the spread can be closed for more than $200. Remember, BUYER and WIDEN have 5 letters.
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?
Since the larger premium is on the sell leg, this is a credit spread, sold for a net premium of 7.
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?
bullish
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?
95 - 7 = 88 (always between strikes). For put spreads, the net premium is subtracted from the higher strike (PUT DOWN).
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?
The net premium of $700. Remember, sellers cannot make more than the premium.
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?
$800. If the stock falls, the investor could lose starting from the breakeven of 88 down to 80.
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?
If the premium spread narrows, much of the $700 net premium is kept. Remember, SELLER and NARROW have 6 letters.
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?
Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 4.
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?
bullish
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?
60 + 4 = 64 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).
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?
$600. If the stock rises, the investor could profit starting from the breakeven of 64 up to 70.
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?
The net premium of $400. Remember, buyers cannot lose more than the premium.
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?
If the premium spread widens, the spread can be closed for more than $400. Remember, BUYER and WIDEN have 5 letters.
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?
credit, and bullish
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?
debit, bullish
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?
70 + 8 = 78 and 70 - 8 = 62. The combined premium of 8 is added to 70 (CALL UP) and subtracted from 70 (PUT DOWN).
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?
Unlimited gain on the long call, $6,200 gain on the long put. Gains occur if the stock rises or falls dramatically.
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?
$800
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?
volatility
An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What are the breakeven points?
55 on the call, 45 on the put. combine the premiums
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?
$500
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?
unlimited loss on call, $4500 on put
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?
stability
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?
54 on the call, 36 on the put
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?
Unlimited gain on the long call, $3,600 gain on the long put. Gains occur if the stock rises or falls dramatically.
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?
$400
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?
volatility
An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What are the breakeven points?
70 + 6 = 76 and 65 - 6 = 59. The combined premium of 6 is added to 70 (CALL UP) and subtracted from 65 (PUT DOWN).
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?
$600
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?
Unlimited loss on the short call, $5,900 loss on the short put. Losses occur if the stock rises or falls dramatically.
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?
stability
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?
bullish
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?
93
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?
unlimited
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?
$300. At exercise, the stock bought at 91 can be sold at 90 ($100 loss) plus the cost of the option ($200 loss).
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?
Bearish since the investor is short the stock. The call is purchased to protect upside risk.
An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor’s breakeven point?
44
An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor’s maximum gain?
$4,400
Al sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is Al’s maximum loss?
$600. If XYZ rises, Al can buy stock back at 50 ($300 loss), plus he would lose the premium ($300 loss).
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?
To provide premium income on stable stock. Also note the premium provides a partial hedge against downside risk.
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?
28
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?
$700. If the stock rises and the call is exercised, the 30 stock is sold at 35 ($500 gain) plus the premium ($200 gain).
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?
$2,800 if the stock falls to zero. The investor would lose $3,000 on the stock, but keep the $200 premium.
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?
To generate income (the premium); also note the premium provides a partial hedge against upside risk.
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?
35 + 3 = 38 (short sale proceeds + premium received)
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?
$800. If stock falls and the put is exercised, the short stock is covered at 30 ($500 gain) plus premium ($300 gain).
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?
Unlimited. The investor has no protection if the stock continues to rise above the 38 breakeven.
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?
horizontal (calendar), debit
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 gain of $500. Initially there is a net debit of 4, and later offset for a net credit of 9 (9 - 4 = 5).
What is the breakeven point? Buy 1 XYZ Jan 70 Call at 5.90
75.90
What is the breakeven point? Sell 1 RFQ Feb 100 Call at 1.00
101
What is the breakeven point? Long 1 MNO March 95 Put at 3.40
91.60
What is the breakeven point? Short 1 XYZ Apr 85 Put at 1.00
84
What is the maximum profit? Buy 1 RFQ May 115 Call at 2.90
unlimited
What is the maximum gain? Write 1 MNO June 120 Call at 5.80
$580, the premium
What is the maximum profit? Long 1 XYZ July 65 Put at 2.10
$6,210
What is the maximum gain? Sell 1 RFQ Aug 65 Put at 6.70
$670
What is the maximum risk? Buy 1 MNO Sep 45 Call at 5.80
$580, the premium
What is the maximum loss? Short 1 XYZ Oct 90 Call at 2.90
unlimited
What is the maximum risk? Long 1 RFQ Nov 20 Put at 3.70
$370
What is the maximum loss? Sell 1 MNO Dec 45 Put at 4.90
$4,010
What is the breakeven point? Buy 100 shares of XYZ at 91 and Buy 1 XYZ Jan 95 Put at 8.00
99
What is the maximum profit? Buy 100 shares of RFQ at 52 and Buy 1 RFQ Feb 50 Put at 8.00
unlimited
What is the maximum risk? Buy 100 shares of XYZ at 97 and Buy 1 XYZ Mar 95 Put at 5.25
The maximum risk is cost of the stock + premium - the strike price= 725.00
What is the breakeven point? Sell Short 100 shares of MNO at 52 and Buy 1 MNO Apr 50 Call at 7.75
The breakeven point is short sale price - premium = 44.25
What is the maximum gain? Sell Short 100 shares of XYZ at 63 and Buy 1 XYZ May 60 call at 7.00
The maximum gain is proceeds of the short sale - premium = 5600.00
What is the maximum loss? Sell Short 100 shares of RFQ at 79 and Buy 1 RFQ June 75 Call at 7.50
The maximum loss is the strike price + premium - the proceeds of the short sale = 350.00
What is the breakeven point? Buy 100 shares of XYZ at 85 and Write 1 XYZ July 85 Call at 7.75
$77.25, The breakeven point is cost of the stock - premium
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
The maximum profit is the strike price + premium - cost of stock = $375.00
What is the maximum risk? Buy 100 shares of MNO at 52 and Write 1 MNO Sep 50 Call at 7.25
$4,475
What is the breakeven point? Sell Short 100 shares of XYZ at 80 and Sell 1 XYZ Oct 80 Put at 6.75
86.75
What is the maximum risk? Sell Short 100 shares of RFQ at 105 and Write 1 RFQ Nov 100 Put at 7.25
unlimited
What is the breakeven point? Buy 1 XYZ Dec 30 Call at 9.75 and write 1 XYZ Dec 45 Call at 4.50
The breakeven point is lower strike price + net premium = 35.25
What is the maximum gain? Buy 1 XYZ Dec 110 Call at 9.75 and write 1 XYZ Dec 125 Call at 5.25
The maximum gain is the difference in the strikes - net premium = 10.50
What is the maximum loss? Buy 1 XYZ Dec 70 Call at 3.75 and write 1 XYZ Dec 75 Call at 1.25
$250
What is the breakeven point? Sell 1 XYZ Dec 30 Call at 10.50 and buy 1 XYZ Dec 45 Call at 4.50
The breakeven point is lower strike price + net premium = 36.00
What is the maximum gain? Sell 1 XYZ Dec 100 Call at 9.00 and buy 1 XYZ Dec 115 Call at 5.25
The maximum gain is the net premium = 375.00
What is the maximum loss? Sell 1 XYZ Dec 75 Call at 4.25 and buy 1 XYZ Dec 80 Call at 1.50
The maximum loss is the difference in the strikes - net premium = 225.00
What is the breakeven point? Buy 1 ABC Nov 50 Put at 3.00 and write 1 ABC Nov 45 at 1.00
The breakeven point is higher strike price - net premium = 48.00
What is the maximum gain? Buy 1 ABC Nov 90 Put at 6.00 and write 1 ABC Nov 80 at 2.00
The maximum gain is the difference in the strikes - net premium = 600.00
What is the maximum loss? Buy 1 ABC Nov 50 Put at 10.50 and write 1 ABC Nov 35 at 3.75
$675, the net premium
What is the breakeven point? Sell 1 ABC Nov 90 Put at 3.25 and buy 1 ABC Nov 85 at 1.50
88.25
What is the maximum gain? Sell 1 ABC Nov 75 Put at 12.75 and buy 1 ABC Nov 60 at 3.00
The maximum gain is the net premium = 975.00
What is the maximum loss? Sell 1 ABC Nov 85 Put at 10.50 and buy 1 ABC Nov 70 at 3.75
The maximum loss is the difference in the strikes - net premium = 825.00
