The Option Model Flashcards
The option model has the most uncertainty at:
a) the current price of the underlying asset
b) when an option reaches parity
c) when an option becomes a teenie
d) none of the above
a) the current price of the underlying asset
An option model has the most certainty:
a) at the point the calls reach parity and the puts become teenies
b) at the point the puts reach parity and the calls become teenies
c) at the at-the-money strike
d) both a and b
d) both a and b
The Black–Scholes option model:
a) was the first option model
b) has changed because of high-frequency traders
c) is not reliable in volatile markets
d) none of the above
a) was the first option model
How is poker similar to options?
a) Some information concerning the market is revealed.
b) Both rely on probability models to succeed.
c) Luck can play a part in the short run.
d) All of the above.
d) All of the above.
How is blackjack similar to options?
a) Your opponent has unlimited capital.
b) Both rely on probability models and skill to succeed.
c) Luck can overcome your opponent in the short run.
d) All of the above.
d) All of the above.
What happens when the at-the-money (ATM) call is exactly where the underlying
asset is trading?
a) It has a 50 percent chance of ending up in the money.
b) It has less than a 50 percent chance if the market is in a bear trend.
c) It is impossible to say what its chances are of ending up in the money.
d) None of the above.
a) It has a 50 percent chance of ending up in the money.
If the at-the-money (ATM) option has premium expanding, what is most likely
true?
a) The out-of-the-money options will have more air.
b) The in-the-money options will have more air.
c) Volatility of the underlying asset is probably greater.
d) All of the above.
d) All of the above.
At expiration, which option will have the most premium?
a) the at the money (ATM)
b) the 40 delta put
c) the 40 delta call
d) none of the above
d) none of the above: at expiration contracts have no value
Once an option reaches parity, what will happen if the volatility doesn’t change?
a) It will remain at parity.
b) It will mimic the underlying stock 100 percent.
c) It can never end up a teenie.
d) It is always at risk for market direction.
d) It is always at risk for market direction.
The amount of premium in the at-the-money option (ATM) is determined by:
a) the Black–Scholes model
b) the rate at which the underlying stock is moving
c) the supply and demand for the option in the specific expiration serial
d) all of the above
c) the supply and demand for the option in the specific expiration serial
