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标题: Derivatives【Reading 65】Sample [打印本页]

作者: kim226 时间: 2012-4-1 12:56 标题: [2012 L1] Derivatives【Session 17 - Reading 65】Sample

A call option has a strike price of $35 and the stock price is $47 at expiration. What is the expiration day value of the call option?

$0.

$12.

$35.

A call option has an expiration day value of MAX (0, S − X). Here, X is $35 and S is $47.

作者: kim226 时间: 2012-4-1 12:57

A put option has a strike price of $65, and the stock price is $39 at expiration. The expiration day value of the put option is:

$65.

$26.

$0.

A put option has an expiration day value of MAX (0, X-S). Here, X is $65 and S is $39.

作者: kim226 时间: 2012-4-1 12:57

A call option has a strike price of $120, and the stock price is $105 at expiration. The expiration day value of the call option is:

$0.

$105.

$15.

A call option has an expiration day value of MAX (0, S-X). Here, X is $120 and S is $105. Because the call option is out of the money at expiration, its value is zero.

作者: kim226 时间: 2012-4-1 12:58

A put option has a strike price of $80, and the stock price is $75 at expiration. The expiration day value of the put option is:

$5.

$0.

$80.

A put option has an expiration day value of MAX (0, X-S). Here, X is $80 and S is $75.

作者: kim226 时间: 2012-4-1 12:58

An investor buys 5 calls on Stock XYZ with a strike price of $10 for a price of $1 per call. Three months later, Stock XYZ is trading for $15 per share. Each call entitles the owner to buy 2 shares of Stock XYZ. What is the investor’s net profit?

$45.

$20.

$0.

($15 – $10) × (5 × 2) – ($1 × 5 calls). The gross payoff is (15 – 10) × 10 = $50. The net profit is $50 – price of calls ($5) = $45.

作者: kim226 时间: 2012-4-1 13:00

Shigeo Kishiro recently purchased an American put option and Lendon Grey recently wrote an American call option on the same underlying stock, Tackel Sports (currently trading at $40 per share). Kishiro paid $2.75 for an exercise price of $38.00 and Grey received $3.75 for a strike price of $42. Assume that there are no transaction costs to exercise.At a stock price of $43:

A)	the intrinsic put value is $0 and the put is at-the-money.

B)	if Grey exercises, he will have gained a total of $4.75.

C)	the intrinsic call value is $1.

The intrinsic value of a call is given as: max [0, S − X], where S = stock price and X = strike price. Here, max [0, 43 − 42] = max [0, 1] = 1.
The other answers are incorrect. Grey wrote the option and thus cannot exercise. The intrinsic value of the put is correct at $0, or max [0, X − S], but as previously noted, the put is out-of-the money at a stock price of $43. The put is at-the-money when the stock price is equal to the strike price, or $38.

Which of the following statements about the investors is least accurate?

A)	Grey's loss is unlimited.

B)	Kishiro's gain is limited to the strike price minus the premium.

C)	Grey's maximum gain and Kishiro's maximum loss sum to zero.

Although options are a zero-sum game, it is the counterparty exposures that nets to zero. For example, the put buyer’s maximum loss = put writer’s maximum gain = the premium. The other statements are true. Note that the reason why Grey’s loss is unlimited is that he does not currently own the stock. In other words, he has a naked position. If the stock were to rise, Grey would be forced to buy the stock in the open market to settle the exercise of the option. Because the potential for the stock to rise is unlimited, the potential loss for the naked call writer is also unlimited.

作者: kim226 时间: 2012-4-1 13:01

An investor writes a July 20 call on a stock trading at 23 for premium of $4. The breakeven price on the trade and the maximum gain on the trade are, respectively:

Breakeven Price

Maximum Gain

$24

$27

$24

The breakeven price is the premium received on the call plus the strike price. For a writer of an option, the maximum gain is the premium received.

作者: kim226 时间: 2012-4-1 13:01

An investor bought a 40 put on a stock trading at 43 for a premium of $1. What is the maximum gain on the put and the value of the put at expiration if the stock price is $41?

Maximum Gain on Put

Value of the Put at Expiration

$40

$39

$42

The maximum gain on a long put is the strike price minus the premium, 40 – 1 = $39. The value at expiration is zero because the put is out-of-the-money.

作者: kim226 时间: 2012-4-1 13:01

An investor bought a 15 call for $14 on a stock trading at $20. If the stock is trading at $24 at option expiration, what is the profit and the value of the call at option expiration?

Profit

Value of the Call

-$5

The potential gains on a call purchase are unlimited. With a stock price of $24, the call at 15 is $9 in the money. By subtracting out the 14 call price a loss of $5 results.

作者: kim226 时间: 2012-4-1 13:02

Mosaks, Inc., has a put option with a strike price of $105. If Mosaks stock price is $115 at expiration, the value of the put option is:

$10.

$0.

$105.

The put has a value of $0 because it will not be exercised. Put value is MAX (0, X-S).

作者: kim226 时间: 2012-4-1 13:02

Consider a call option with a strike price of $32. If the stock price at expiration is $41, the value of the call option is:

$9.

$0.

$41.

The call has a $9 ($41 − $32) value at expiration, because the holder of the call can exercise his right to buy the stock at $32 and then sell the stock on the open market for $41. Remember, the intrinsic value of a call at expiration is MAX (0, S-X).

作者: kim226 时间: 2012-4-1 13:02

Which of the following statements regarding call options is most accurate? The:

A)	call holder will exercise (at expiration) whenever the strike price exceeds the stock price.

B)	breakeven point for the buyer is the strike price plus the option premium.

C)	breakeven point for the seller is the strike price minus the option premium.

The breakeven for the buyer and the seller is the strike price plus the premium. The call holder will exercise if the market price exceeds the strike price.

作者: kim226 时间: 2012-4-1 13:03

An investor buys a call option that has an option premium of $5 and a strike price of $22.50. The current market price of the stock is $25.75. At expiration, the value of the stock is $23.00. The net profit/loss of the call position is closest to:

$4.50.

-$4.50.

-$5.00.

The option is in-the-money by $0.50 ($23.00 – $22.50). The investor paid $5.00 for the call option, thus the net loss is –$4.50 ($0.50 – $5.00).

作者: kim226 时间: 2012-4-1 13:03

An investor purchases a stock for $40 a share and simultaneously sells a call option on the stock with an exercise price of $42 for a premium of $3/share. Ignoring dividends and transactions cost, what is the maximum profit that the writer of this covered call can earn if the position is held to expiration?

$3.

$2.

$5.

This is an out of the money covered call. The stock can go up $2 to the strike price and then the writer will get $3 for the premium, total $5.

作者: kim226 时间: 2012-4-1 13:03

A put on Stock X with a strike price of $40 is priced at $3.00 per share; while a call with a strike price of $40 is priced at $4.50. What is the maximum per share loss to the writer of the uncovered put and the maximum per share gain to the writer of the uncovered call?

Maximum Loss to Put Writer

Maximum Gain to Call Writer

$40.00

$4.50

$37.00

$4.50

$37.00

$35.50

The maximum loss to the uncovered put writer is the strike price less the premium, or $40.00 − $3.00 = $37.00. The maximum gain to the uncovered call writer is the premium, or $4.50.

作者: kim226 时间: 2012-4-1 13:05

Suppose the price of a share of Stock A is $100. A European call option that matures one month from now has a premium of $8, and an exercise price of $100. Ignoring commissions and the time value of money, the holder of the call option will earn a profit if the price of the share one month from now:

A)	decreases to $90.

B)	increases to $106.

C)	increases to $110.

The breakeven point is the strike price plus the premium, or $100 + $8 = $108. Any price greater than this would result in a profit, and the only choice that exceeds this amount is $110.

作者: kim226 时间: 2012-4-1 13:06

Jimmy Casteel pays a premium of $1.60 to buy a put option with a strike price of $145. If the stock price at expiration is $128, Casteel’s profit or loss from the options position is:

$18.40.

$1.60.

$15.40.

The put option will be exercised and has a value of $145-$128 = $17 [MAX (0, X-S)]. Therefore, Casteel receives $17 minus the $1.60 paid to buy the option. Therefore, the profit is $15.40 ($17 less $1.60).

作者: kim226 时间: 2012-4-1 13:08

Al Steadman receives a premium of $3.80 for shorting a put option with a strike price of $64. If the stock price at expiration is $84, Steadman’s profit or loss from the options position is:

$23.80.

$16.20.

$3.80.

The put option will not be exercised because it is out-of-the-money, MAX (0, X-S). Therefore, Steadman keeps the full amount of the premium, $3.80.

作者: kim226 时间: 2012-4-1 13:08

Linda Reynolds pays $2.45 to buy a call option with a strike price of $42. The stock price at which Reynolds earns $3.00 from her call option position is:

$2.45.

$42.00.

$47.45.

To earn $3.00, the stock price must be above the strike price by $3.00 plus the premium Reynolds paid to buy the option ($42.00+$3.00+$2.45).

作者: kim226 时间: 2012-4-1 13:09

A stock is trading at $18 per share. An investor believes that the stock will move either up or down. He buys a call option on the stock with an exercise price of $20. He also buys two put options on the same stock each with an exercise price of $25. The call option costs $2 and the put options cost $9 each. The stock falls to $17 per share at the expiration date and the investor closes his entire position. The investor’s net gain or loss is:

$4 gain.

$3 loss.

$4 loss.

The total cost of the options is $2 + ($9 × 2) = $20.
At expiration, the call is worth Max [0, 17-20] = 0.
Each put is worth Max [0, 25-17] = $8.
The investor made $16 on the puts but spent $20 to buy the three options, for a net loss of $4.

作者: kim226 时间: 2012-4-1 13:10

Which of the following statements about put options is least accurate? The most the:

A)	writer can gain is the put premium.

B)	writer can lose is the strike price less the premium.

C)	buyer can gain is unlimited.

The most the put buyer can gain is the strike price of the stock less the premium.

作者: kim226 时间: 2012-4-1 13:10

Jasper Quartermaine is interested in using the options market to create “insurance” against a severe drop in the value of a stock portfolio that he owns. How could he best accomplish this goal and what is this type of strategy called?

Type of option

Strategy

buy put options

protective put

write call options

protective put

write call options

covered call

An investor can simulate portfolio insurance by purchasing put options. Losses in the underlying portfolio are offset by gains in the put position. The investor is already long his portfolio and if he buys a long put for his portfolio he is replicating a protective put strategy.

作者: kim226 时间: 2012-4-1 13:10

In June, Todd Puckett bought stock in SBC Communications for $30 per share. At that time, Puckett sold an equivalent number of call options on SBC with an exercise price of $35 for $2.75. In September, at expiration, the stock is trading at $26. What is Puckett’s profit per share from his covered call strategy? Puckett:

A)	gained $1.25.

B)	gained $4.00.

C)	lost $1.25.

Since the option is out-of-the-money at expiration (MAX (0, S − X)), the options are worthless. Also, the stock decreased in value from $30 per share to $26 per share, creating a $4 loss. The $4 loss is partially offset by the $2.75 premium Puckett received. Therefore, the loss per share from the covered call position is $1.25 = (–$4 + $2.75).

作者: kim226 时间: 2012-4-1 13:10

James Jackson currently owns stock in PNG, Inc., valued at $145 per share. Thinking that PNG is overbought and will decrease in price soon, Jackson writes a call option on PNG with an exercise price of $148 for a premium of $2.40. At expiration of the option, PNG stock is valued at $152 per share. What is the profit or loss from Jackson’s covered call strategy? Jackson:

A)	gained $9.40.

B)	lost $4.60.

C)	gained $5.40.

The option is in-the-money at expiration (MAX (0, S-X) and the PNG stock will be called away from Jackson at $148 per share, limiting Jackson’s gain from owning the stock to $3 ($148-145). However, Jackson also gains the $2.40 from writing the call option. Therefore, Jackson’s gain from the covered call strategy is $5.40 ($3.00+$2.40).

作者: kim226 时间: 2012-4-1 13:11

George Mote owns stock in IBM currently valued at $112 per share. Mote writes a call option on IBM with an exercise price of $120. The call option is sold for $1.80. At expiration, the price of IBM is $115. What is Mote’s profit (or loss) from his covered call strategy? Mote:

A)	gained $3.00.

B)	gained $4.80.

C)	lost $3.20.

Since the option is out-of-the-money at expiration (MAX (0, S - X)), the option is worthless. Also, the stock increased in value from $112 per share to $115 per share, creating a $3 gain. The $3 gain in the stock price is added to the $1.80 gain from writing the (unexercised) call option. Therefore, the total gain is $4.80 ($3 + $1.80).

作者: kim226 时间: 2012-4-1 13:11

In October, James Knight owned stock in Valerio, Inc., that was valued at $45 per share. At that time, Knight sold a call option on Valerio with an exercise price of $60 for $1.45. In December, at expiration, the stock is trading at $32. What is Knight’s profit (or loss) from his covered call strategy? Knight:

A)	gained $11.55.

B)	lost $11.55.

C)	gained $1.45.

Since the option is out-of-the-money at expiration (MAX (0, S-X)), the option is worthless. Also, the stock decreased in value from $45 per share to $32 per share, creating a $13 loss. The $13 loss is partially offset by the $1.45 premium Knight received. Therefore, the total loss from the covered call position is $11.55 (-$13+$1.45).

作者: kim226 时间: 2012-4-1 13:12

The profit/loss diagram for a covered call strategy looks like what other type of profit/loss diagram?

A)	Short put.

Long put.

C)	Short call.

The profit/loss diagram for the covered call looks like the profit/loss diagram for a short put position. Both option positions have limited profit potential, with the potential loss equal to the strike price less the premium.

作者: kim226 时间: 2012-4-1 13:12

The potential profits from writing a covered call position on a stock are:

A)	limited to the premium plus stock appreciation up to the exercise price.

B)	limited to the premium.

C)	greater than the potential profits from owning the stock.

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. The owner of a stock has the rights to all upside potential. The profits for a short call are limited to the premium.
For example, say that a stock owner writes a covered call at a stock price (S) of $50 and an exercise price (X) of $55 for a premium of $4. If at expiration, the price of the stock is more than $50 but less than $55, the buyer will not exercise, and the writer will "gain" the premium plus any stock appreciation between $50 and $55. If at expiration, the price of the stock is more than $55, the buyer will exercise and the writer's gain is limited to the premium.

作者: kim226 时间: 2012-4-1 13:12

A covered call position is equivalent to:

A)	owning the stock and a long call.

B)	owning the stock and a long put.

C)	a short put.

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.

作者: kim226 时间: 2012-4-1 13:13

A covered call position is:

A)	the purchase of a share of stock with a simultaneous sale of a call on that stock.

B)	the simultaneous purchase of the call and the underlying asset.

C)	the purchase of a share of stock with a simultaneous sale of a put on that stock.

The covered call: stock plus a short call. 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.

作者: kim226 时间: 2012-4-1 13:13

The shape of a protective put payoff diagram is most similar to a:

A)	long call.

B)	short call.

C)	covered call.

The payoff diagram for a protective put is like that of a call option but shifted upward by the exercise price of the put.

作者: kim226 时间: 2012-4-1 13:13

An investor buys a share of stock at $33 and simultaneously writes a 35 call for a premium of $3. What is the maximum gain and loss?

Maximum Gain

Maximum Loss

$30

unlimited

-$33

-$35

The maximum gain on the stock itself is $2 ($35 − $33). At stock prices above the exercise price, the stock will be called away from the investor. The gain from writing the call is $3 so the total maximum gain is $5. If the stock ends up worthless, the call writer still has the call premium of $3 to offset the $33 loss on the stock so the total maximum loss is $30.

作者: kim226 时间: 2012-4-1 13:14

An investor buys a 30 put on a share of stock for a premium of $7 and simultaneously buys a share of stock for $26. The breakeven price on the position and the maximum gain on the position are:

Breakeven price

Maximum gain

$33

unlimited

$21

$11

$37

$11

To break even, the stock price should rise as high as the amount invested, $33 ($26 + $7). The maximum gain is unlimited, as the gain will be as high as the increase in the stock price.

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