Reading 71: Option Markets and Contracts-LOS b 习题精选 2011, between, center, style, label

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Session 17: Derivatives
Reading 71: Option Markets and Contracts

LOS b: Distinguish between European and American options.

 

 

Which of the following statements about European and American options is least accurate?

A) European options offer more flexible trading opportunities for speculators.

B) American options are far more common than European options.

C) European options are easier to analyze and value than American options.

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European options are less flexible for traders than American options because of the limitation on when they can be exercised, which is only on the expiration date. Traders gain more flexibility with American options that can be exercised at anytime on or before expiration.

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What is the primary difference between an American and a European option?

A) The American option can be exercised at anytime on or before its expiration date.

B) American and European options are never written on the same underlying asset.

C) The European option can only be traded on overseas markets.

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American and European options are virtually identical, except exercising the European option is limited to its expiration date only. The American option can be exercised at anytime on or before its expiration date. For the exam, the key concept relating to this difference is the value of the American option must be equal or greater than the value of the corresponding European option, all else being equal.

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Which of the following statements concerning an American-style option is least accurate?

A) They are only traded in the U.S.

B) It allows the holder the right to exercise before maturity of the option.

C) The predominant option type is American-style, rather than European-style.

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American-style options are traded throughout the world. The “American” label simply identifies the option as having the right to be exercised before maturity. American-style options are the predominant type of options contract traded.

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A European option can be exercised by:

A) its owner, anytime during the term of the contract.

B) either party, at contract expiration.

C) its owner, only at the expiration of the contract.

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

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Which of the following statements about options is most accurate?

A) Most options throughout the world are European options.

B) For call options, the lower the strike price relative to the stock's underlying price, the more the call option is worth.

C) A put writer who deposits shares of the underlying stock has written a covered put.

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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.

luqian55

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