［2008］Topic 17: Trading Strategies Involving Options相关习题 stock, long, following, believes, investor

Baran

AIM 1: List why an investor would be motivated to initiate a covered call or a protective put strategy.

1、An investor owns a stock and believes that the stock’s price will remain relatively unchanged for the short term but is bullish in the long term. Which of the following strategies will be the best for this investor?

A) A covered call.
 
B) A protective put.
 
C) An at-the-money strip.
 
D) An at-the money strap.

Baran

The  correct answer is A

A covered call strategy is used to generate cash on a stock position that is not expected to increase in value over the life of the option.

Baran

2、A covered call position is equivalent to:

A) a short put.
 
B) owning the stock and a long put.
 
C) a short call.
 
D) owning the stock and a long call.

Baran

The  correct answer is A

The covered call: stock plus a short call, or a short put. The term covered means that the stock covers the inherent obligation assumed in writing the call. Why would you write a covered call? You feel the stock’s price will not go up any time soon, and you want to increase your income by collecting some call option premiums. To add some insurance that the stock won’t get called away, the call writer can write out-of-the money calls. You should know that this strategy for enhancing one’s income is not without risk. The call writer is trading the stock’s upside potential for the call premium. The desirability of writing a covered call to enhance income depends upon the chance that the stock price will exceed the exercise price at which the trader writes the call.  This is similar reasoning to selling (or going short) a put. A put is in-the-money when the exercise price is above the stock price. Since the seller of a put prefers that the buyer just pay the premium and never exercise, the seller wants the price of the stock to remain above the exercise price.

Baran

3、Which of the following combinations resemble(s) the payoff of a covered call position?

Long stock plus a long put.
Short put plus cash.
Short stock plus long call.
Short call plus cash.
A) II only.
 
B) I and II only.
 
C) III only.
 
D) III and IV only.

Baran

The  correct answer is A

A covered call combines a long position in a stock with a written call. The payoff is similar to cash plus a short put option because the upside is capped at the strike price plus the premium, but still has the downside of the strike price less the stock price. Note that a long stock plus a long put is a protective put. A short stock plus long call will profit as the stock price declines, but if the stock price rises, losses are limited by the long call. A short call plus cash receives a premium, but has unlimited downside if the price of the stock rises.

Baran

AIM 2: List, define, and explain the use of spread strategies, including bull spread, bear spread, calendar spread, and butterfly spread.

1、A bear spread is an option strategy in which the option trader:

A) sells a low strike call option and sells a higher strike put option.
 
B) purchases a low strike put option and sells a higher strike call option.
 
C) purchases a high strike call option and sells a lower strike call option.
 
D) sells a low strike put option and buys a higher strike call option.

Baran

The  correct answer is C

Bear spreads are those in which an option trader buys a high strike call option and sells a lower strike call.

Baran

2、A bear spread is an option strategy in which the option trader:

A) sells a high strike call option and buys a lower strike call option. 
 
B) purchases a high strike put option and sells a lower strike call option. 
 
C) purchases a high strike call option and sells a lower strike call option.
 
D) sells a high strike put option and buys a lower strike call option. 

Baran

The  correct answer is C

Bear spreads are those in which an option trader buys a high strike call option and sells a lower strike call.