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Reading 70: Option Markets and Contracts LOSa习题精选

LOS a: Define European option, American option, and the concept of moneyness of an option.

Which of the following statements about call options at expiration is most accurate?

A)

All of the answers are correct.

B)

The profit potential to the buyer of the option is unlimited.

C)

The call buyer's maximum loss is the call option's premium.




A call option gives its owner the right to purchase an underlying good at a specified price for a specified period of time. When the stock's price (S) is above the strike price (X), a call option has value and is said to be in the money.

The table below summarizes the maximum loss and gain for the call writer/owner:

Writer Owner
Maximum Loss unlimited premium
Maximum Gain premium unlimited

Note: Trading call options is a zero-sum game. The long profits = the short losses.

 

Which of the following statements about options is most accurate?

A)
For call options, the lower the strike price relative to the stock's underlying price, the more the call option is worth.
B)
Most options throughout the world are European options.
C)
A put writer who deposits shares of the underlying stock has written a covered put.



The other statements are false. Most options throughout the world are American options. A call writer who deposits shares of the underlying stock has written a covered call.

TOP

Which of the following statements about put and call options at expiration is least accurate?

Put

Call

A)

The maximum loss to a writer is their cost on the stock less the premium

The maximum gain to the buyer is unlimited.

B)

The maximum gain to the buyer is unlimited.

The maximum loss to the writer is the premium.

C)

The maximum gain to the buyer is limited to the stock price less the premium price.

The maximum gain to the buyer is unlimited.




The maximum gain to the buyer of a put is limited to the value of the stock less the premium.

The maximum loss to the writer of a call is unlimited.

TOP

Regarding buyers and sellers of put and call options, which of the following statements concerning the resulting option position is most accurate? The buyer of a:

A)
call option is taking a long position and the buyer of a put option is taking a short position.
B)
put option is taking a short position and the seller of a call option is taking a short position.
C)
call option is taking a long position while the seller of a put is taking a short position.



The buyers of both puts and calls are taking long positions in the options contracts (but the buyer of a put is establishing a potentially short exposure to the underlying), while writers (sellers) of each are taking short positions in the options contracts.

TOP

Consider a put option on Deter, Inc., with an exercise price of $45. The current stock price of Deter is $52. What is the intrinsic value of the put option, and is the put option at-the-money or out-of-the-money?

Intrinsic Value

Moneyness

A)
$7   At-the-money
B)
$7   Out-of-the-money
C)
$0   Out-of-the-money



The option has an intrinsic value of $0, because the stock price is above the exercise price. Put value is MAX (0, X-S). Equivalently, the option is out-of-the-money.

TOP

Bidco Corporation common stock has a market value of $30.00. Which statement about put and call options available on Bidco common is most accurate?

A)

A call with a strike price of $25.00 is at-the-money.

B)

A put with a strike price of $35.00 is in-the-money.

C)

A put with a strike price of $20.00 has intrinsic value.




A put is in-the-money when its exercise price is higher than the market value of the underlying asset. A put with a $35.00 strike price allows the trader to sell 100 shares of stock for $35.00 per share, which is $5.00 higher than the prevailing market value. This gives the put a value, hence, it is in-the-money. For a call to be in-the-money, its strike price would have to be lower than the market value of the underlying common stock, allowing the trader to purchase 100 shares at a price below the prevailing market value. At-the-money is when the strike price and asset market value are equal. A put with a strike price of $20.00 does not have intrinsic value because it is below the $30 price of the stock. It does have time value meaning it is worth something because there is the possibility the put will come into the money before it expires.

TOP

James Anthony has a short position in a put option with a strike price of $94. If the stock price is below $94 at expiration, what will happen to Anthony’s short position in the option?

A)

He will have the option exercised against him at $94 by the person who is long the put option.

B)

The person who is long the put option will not exercise the put option.

C)

He will let the option expire.




Anthony has sold the right to sell the stock at $94. That is, he received a payment upfront for the payer to have the right but not the obligation to sell the stock at $94. Because the option is in-the-money at expiration, MAX (0, X-S), the holder will exercise his right to sell at $94.

TOP

A European option can be exercised by:

A)
its owner, anytime during the term of the contract.
B)
its owner, only at the expiration of the contract.
C)
either party, at contract expiration.



A European option can be exercised by its owner only at contract expiration.

TOP

A call option that is in the money:

A)
has an exercise price greater than the market price of the asset.
B)
has an exercise price less than the market price of the asset.
C)
has a value greater than its purchase price.



A call option is in the money when the exercise price is less than the market price of the asset.

TOP

Which of the following represents a long position in an option?

A)

Buying a put option.

B)

Writing a call option.

C)

Writing a put option.




A long position is always the buying position. Remember that the buyer of an option is said to have gone long the position, while the writer (seller) of the option is said to have gone short the position.

TOP

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