24 Jul WRITING BOTH A PUT AND A CALL AT THE SAME STRIKE PRICE AND EXPIRATION DATE IS AN ILLUSTRATION OF A STRADDLE.
One reason for writing and selling a covered Show more Need it in the next 30 minutes Question 1 (2.5 points) One reason for writing and selling a covered call option is Question 1 options: a) potential leverage b) safety of principal c) income received d) liquidity Save Question 2 (2.5 points) Call options unlike warrants may be written by individuals. Question 2 options: a) True b) False Save Question 3 (2.5 points) If the price of an option to buy stock were to sell for less than its strike price an opportunity for arbitrage exists. Question 3 options: a) True b) False Save Question 4 (2.5 points) The most the individual who buys a put option can lose is the cost of the option. Question 4 options: a) True b) False Save Question 5 (2.5 points) The intrinsic value of a put establishes the puts maximum price. Question 5 options: a) True b) False Save Question 6 (2.5 points) A call is an option to Question 6 options: a) sell stock at a specified price b) buy stock at a specified price c) deliver stock at a specified price d) deliver bonds at a specified price Save Question 7 (2.5 points) The profits (gains) on option trading are exempt from federal income taxation. Question 7 options: a) True b) False Save Question 8 (2.5 points) Call options offer buyers Question 8 options: a) potential leverage b) liquidity c) income d) safety of principal Save Question 9 (2.5 points) When a call option is exercised new stock is issued. Question 9 options: a) True b) False Save Question 10 (2.5 points) The maximum potential profit on a covered call is the time premium paid for the stock. Question 10 options: a) True b) False Save Question 11 (2.5 points) If investors believe that a stocks prices will fluctuate but they are not certain as to the direction these investors may buy a straddle. Question 11 options: a) True b) False Save Question 12 (2.5 points) If the investor buys a bear spread the individual anticipates Question 12 options: a) higher interest rates b) higher option prices c) lower stock prices d) lower put prices Save Question 13 (2.5 points) If the investor buys a bull spread the individual anticipates Question 13 options: a) higher call price b) higher stock prices c) lower stock prices d) lower call prices Save Question 14 (2.5 points) If the investor anticipates that the price of a stock will fluctuate this individual may Question 14 options: a) sell a call and sell a put b) buy a call and buy a put c) buy a call and sell a put d) sell a call and buy a put Save Question 15 (2.5 points) The hedge ratio indicates the number of call options that is necessary to offset price movements in the underlying stock. Question 15 options: a) True b) False Save Question 16 (2.5 points) According to the Black/Scholes option valuation model a call options value increases if Question 16 options: a) stock prices increase and interest rates decrease b) the time to expiration decreases and interest rates increase c) the variability of the stocks return increases and stock prices increase d) interest rates decrease and the variability of the stocks return increases Save Question 17 (2.5 points) Writing both a put and a call at the same strike price and expiration date is an illustration of a straddle. Question 17 options: a) True b) False Save Question 18 (2.5 points) The protective call strategy is an illustration of a short position. Question 18 options: a) True b) False Save Question 19 (2.5 points) Put-call parity suggests that the sum of the prices of a stock a call and a put on that stock and a debt instrument maturing at the expiration of the options must equal zero. Question 19 options: a) True b) False Save Question 20 (2.5 points) Buying a call and a treasury bill produces similar results as buying a stock and a put. Question 20 options: a) True b) False Show less
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