Options fix PUTCALL PARITY

Question 1

Long Call (Definition)

Answer 1

Right, but not obligaion to buy at a strike price

Question 2

Long Call (Max Profit and Loss)

Answer 2

infinite and FV(Premium)

Question 3

Long Call (Position in Underlying Asset)

Answer 3

Long

Question 4

Short Call (Definition)

Answer 4

Obligation to sell at strike price

Question 5

Short Call (Max Profit and Loss)

Answer 5

FV(Premium) and infinite

Question 6

Short Call (Position in Underlying Asset)

Answer 6

Short

Question 7

Long Put (Definition)

Answer 7

Right to sell at the strike price

Question 8

Long Put (Max Profit and Loss)

Answer 8

K - FV(Premium) and FV(Premium)

Question 9

Long Put (Position in Underlying Asset)

Answer 9

Short

Question 10

Short Put (Definition)

Answer 10

Obligation to buy at strike price

Question 11

Short Put (Max Profit and Loss)

Answer 11

FV(Premium) and - K + FV(Premium)

Question 12

Short Put (Position in Underlying Asset)

Answer 12

Long

Question 13

European Option

Answer 13

Exercise option only at expiration date

Question 14

American Option

Answer 14

Exercise anytime during the contract

Question 15

Bermuda option

Answer 15

Exercise during specified periods

Question 16

Option Writer

Answer 16

Seller of an option

Question 17

in-the-money

Answer 17

would have a positive payoff if the option was exercised immediately

Question 18

at-the-money

Answer 18

would have no payoff if the option was exercised immediately

Question 19

out-of-the-money

Answer 19

would have a negative payoff if the option was exercised immediately

Question 20

covered call

Answer 20

Buying the underlying asset and selling a call, so long in the asset and short in the call.

For example, let’s say that you own shares of the TSJ Sports Conglomerate and like its long-term prospects as well as its share price but feel in the shorter term the stock will likely trade relatively flat, perhaps within a few dollars of its current price of, say, $25. If you sell a call option on TSJ for $26, you earn the premium from the option sale but cap your upside

Question 21

naked writing

Answer 21

Selling an option, but not holding the underlying asset.

Naked writers are exposed to additional risk, since they hold no position with which to hedge against the adverse movement of the underlying security’s price. If the options contract is exercised, the naked writer would be forced to buy or sell a certain number of shares at a potentially undesirable price. Naked writers try to profit by receiving premiums for writing the contracts without the need to purchase share lots.

Question 22

put-call parity

Answer 22

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