week 8 MCQ's Flashcards
Which of the following creates a bull spread?
Select one:
a. Buy a low strike price call and sell a high strike price put
b. Buy a low strike price put and sell a high strike price call
c. Buy a low strike price call and sell a high strike price call
d. Buy a high strike price call and sell a low strike price call
A bull spread is created by buying a low strike call and selling a high strike call
Which of the following creates a bear spread?
Select one:
a. Buy a low strike price put and sell a high strike price call
b. Buy a low strike price call and sell a high strike price put
c. Buy a high strike price call and sell a low strike price call
d. Buy a low strike price call and sell a high strike price call
bear spread is created by buying a high strike call and selling a low strike call
Which of the following creates a bull spread?
Select one:
a. Buy a high strike price put and sell a low strike price call
b. Buy a high strike price put and sell a low strike price put
c. Buy a low strike price put and sell a high strike price put
d. Buy a high strike price call and sell a low strike price put
Buy a low strike price put and sell a high strike price put
Which of the following creates a bear spread?
Select one:
a. Buy a high strike price put and sell a low strike price call
b. Buy a high strike price call and sell a low strike price put
c. Buy a high strike price put and sell a low strike price put
d. Buy a low strike price put and sell a high strike price put
Buy a high strike price put and sell a low strike price put
What is the number of different option series used in creating a butterfly spread?
Select one:
a. 4
b. 1
c. 2
d. 3
3
A stock price is currently $23. A reverse (i.e short) butterfly spread is created from options with strike prices of $20, $25, and $30. Which of the following is true?
Select one:
a. It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20
b. The gain when the stock price is greater than $30 is less than the gain when the stock price is less than $20
c. The gain when the stock price is greater than $30 is the same as the gain when the stock price is less than $20
d. The gain when the stock price is greater than $30 is greater than the gain when the stock price is less than $20
The gain when the stock price is greater than $30 is the same as the gain when the stock price is less than $20
How can a straddle be created?
Select one:
a. Buy one call and two puts with the same strike price and expiration date
b. Buy one call and one put with the same strike price and same expiration date
c. Buy two calls and one put with the same strike price and expiration date
d. Buy one call and one put with different strike prices and same expiration date
Buy one call and one put with the same strike price and same expiration date
How can a strap trading strategy be created?
Select one:
a. Buy one call and one put with different strike prices and same expiration date
b. Buy two calls and one put with the same strike price and expiration date
c. Buy one call and two puts with the same strike price and expiration date
d. Buy one call and one put with the same strike price and same expiration date
Buy two calls and one put with the same strike price and expiration date
How can a strip trading strategy be created?
Select one:
a. Buy two calls and one put with the same strike price and expiration date
b. Buy one call and one put with different strike prices and same expiration date
c. Buy one call and one put with the same strike price and same expiration date
d. Buy one call and two puts with the same strike price and expiration date
Buy one call and two puts with the same strike price and expiration date
How can a strangle trading strategy be created?
Select one:
a. Buy one call and one put with the same strike price and same expiration date
b. Buy two calls and one put with the same strike price and expiration date
c. Buy one call and two puts with the same strike price and expiration date
d. Buy one call and one put with different strike prices and same expiration date
Buy one call and one put with different strike prices and same expiration date
Which of the following describes a protective put?
Select one:
a. A short put option on a stock plus a long position in the stock
b. A long put option on a stock plus a long position in the stock
c. A short put option on a stock plus a short call option on the stock
d. A long put option on a stock plus a short position in the stock
A long put option on a stock plus a long position in the stock
Which of the following describes a covered call?
Select one:
a. A long call option on a stock plus a long position in the stock
b. A short call option on a stock plus a short position in the stock
c. A long call option on a stock plus a short put option on the stock
d. A short call option on a stock plus a long position in the stock
A short call option on a stock plus a long position in the stock
When the interest rate is 5% per annum with continuous compounding, which of the following creates a principal protected note worth $1000?
Select one:
a. A one-year zero-coupon bond plus a one-year call option worth about $39
b. A one-year zero-coupon bond plus a one-year call option worth about $29
c. A one-year zero-coupon bond plus a one-year call option worth about $49
d. A one-year zero-coupon bond plus a one-year call option worth about $59
A one-year zero-coupon bond plus a one-year call option worth about $49
A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net gain (after the cost of the options is taken into account)?
Select one:
a. $200
b. $300
c. $100
d. $400
$400
Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 200 options?
Select one:
a. $400
b. $300
c. $100
d. $200
$300
