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25 Cards in this Set
- Front
- Back
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All of the following option strategies are considered to be bearish except
[A] long put [B] net credit call spread [C] sale of an uncovered put [D] sale of an uncovered call |
Premiums Stock Trans.
buys 1 OEX Sept 170 put at 5.375 B - 537.50 exercises the option S + 170 index closed at 159.40 B - 159.40 - 537.50 + 10.60 x 100 What is the gross settlement? + 1,060 |
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Yield-based or Interest Rate options are traded based on the value of which of the following underlying securities?
Treasury bills with 13 week maturities based on the annualized discount rate of the most recently issued 13 week T-Bills. Treasury Bonds with 30 year maturities based on the yield to maturity of the most recently issued 30 year Treasury Bonds. Treasury Notes with 10 year maturities based on the yield to maturity of the most recently issued 10 year Treasury Notes. Treasury Notes with 5 year maturities based on the yield to maturity of the most recently issued 5 year Treasury Notes. [A] I and II [B] II and III [C] I, II, and IV [D] All of the above |
D
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One of your clients is a corporate account. The corporation regularly sells its products to manufacturers overseas. Recently the company received an order from a British company. The terms of the contract specify that the British firm must pay in British Pounds no later than 45 days following delivery. The corporate account has used options in the past to hedge against currency fluctuations when accepting delivery in a foreign currency. Which of the following would be the BEST domestic options strategy to take on British Pounds given this scenario?
[A] The corporation should buy calls on the British Pound. [B] The corporation should sell calls on the British Pound. [C] The corporation should buy puts on the British Pound. [D] The corporation should sell puts on the British Pound. |
c
An investor or firm who has entered into a contract where they will be paid in a foreign currency would be worried about a decline in that foreign currency against the dollar. They would buy puts on the foreign currency to provide protection against a decline in that currency against the dollar. Always remember that domestically, options cannot be traded on the U.S. Dollar. |
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Stock index options are used for which of the following purposes?
To hedge a stock portfolio from market risk To be sure that the stock portfolio will not decline in value To profit in a rising market To profit in a declining market [A] I and II [B] III and IV [C] I, III, and IV [D] All of the above |
C
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Stock Index options normally expire
[A] Weekly [B] Monthly [C] Quarterly [D] Annually |
B
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A customer purchases 100 shares of ABC at $60/share and buys a Nov OEX 180 put @ 3 on a broad based index. In November the index declines to 170, the customer exercises the put and subsequently sells the 100 shares of ABC at $56/share. What is the customer's gain or loss?
[A] $400 loss [B] $300 profit [C] $700 profit [D] $1,400 loss |
B
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A British pound option contract is quoted at 7.50. Contract size is 10,000 units. What would be the cost of one of these option contracts?
[A] $75 [B] $750 [C] $7,500 [D] $75,000 |
B
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Which of the following are true of the S&P 100 Index options?
Exercise prices are set at five point intervals. Expiration date is the Saturday following the third Friday of the expiration month. Settlement is in cash, if the option is exercised. The aggregate exercise price of an OEX 160 option is $1,600. [A] I and II [B] III and IV [C] I, II, and III [D] All of the above |
C
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An American Corporation is selling office equipment to a British Corporation. The equipment will be paid for in British pounds. How would the American Corporation best hedge?
[A] By selling calls on British pounds or buying puts on British pounds. [B] By selling calls on American dollars or buying puts on American dollars. [C] By selling puts on British pounds or buying calls on British pounds. [D] By selling puts on American dollars or buying calls on American dollars. |
A
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On the floor of the CBOE, which is incorrect regarding the handling of stock index options?
[A] The O.B.O. handles the public limit order book. [B] The O.B.O. is an exchange employee. [C] The O.B.O. may trade for his own account. [D] The O.B.O. insures that public orders on the book at a given price are executed before orders from the floor at the same price. |
C
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Which of the following best defines LEAPS options?
[A] Long term bonds with long term staggered interest payments [B] Extended long term options on stocks and indexes [C] Long term estimated annuity securities [D] Options with 30 point limit moves |
B
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Upon the expiration of S&P index options, all options that are "in the money" will be settled by the delivery of:
[A] Cash [B] U.S. Treasury bills [C] S&P 100 stocks [D] Dow Jones Industrial Average stocks |
A
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Which of the following are true about long term options?
Premiums are generally less than standard options. They have expirations of up to 39 months. They can provide a hedge for stock positions held long term. [A] I and II [B] I and III [C] II and III [D] All of the above |
C
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An investor is long 1 OEX Aug 500 put @10 when the index is at 550. The index closes at 450. The investor decides to exercise his option. What will he get at settlement?
[A] $10,000 [B] $5,000 [C] $50,000 [D] 5,000 shares. |
B
Index options are always settled in cash when exercised. The cash settlement amount is the difference between the contract value ($500 x 100 multiplier = $50,000) and the index value ( $450 x 100 multiplier = $45,000) at the time of exercise. Therefore, $50,000 - $45,000 = $5,000 cash settlement. This is the in-the-money amount of the option. |
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When trading LEAPS options, a premium change of one point would be equal to which of the following?
[A] $0.10 [B] $1.00 [C] $10.00 [D] $100.00 |
D
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S & P 100 index options when exercised are settled by the use of which of the following?
[A] Cash [B] stocks from the S & P 500 index [C] Treasury Securities [D] ETF shares on the index |
A
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An investor has a portfolio of common stocks with a cost basis of $22,000 and a current market value of $30,000. The portfolio has a beta of 1.0. To hedge the portfolio the investor should:
[A] Buy 2 OEX 110 Puts [B] Write 2 OEX 110 Puts [C] Buy 2 OEX 150 Puts [D] Write 2 OEX 150 Puts |
C
Buying a put gives the investor the best downside protection. This investor wants to protect a $30,000 portfolio therefore would buy 2 OEX 150 puts (150 x $100 = $15,000 x 2 contracts = $30,000). A Beta of 1.0 means that the market value of this security is expected to move up or down just as the overall market moved up or down. |
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Mr. Smith purchased 1 CCD July 75 Call @ 4. The Canadian Dollar is trading at $0.74. Mr. Smith's total premium to purchase the call, assuming a CCD contract is 10,000 units would be:
[A] $40 [B] $400 [C] $750 [D] $300 |
B
$4.00 X $100 = $400 Premium Cost Foreign Currency option premiums are calculated the same way premiums on any other options are calculated, using a multiplier of 100, in the case $100 because these settle in U. S. Dollars (New Dollar Settled Foreign Currency Options) |
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Which of the following investment strategies is BEST suited for an investor who believes that the market will have large amounts of volatility in the coming months, but that despite the volatility, the market will remain stable or only go down slightly?
[A] The investor should sell short the SPY ETF. [B] The investor should purchase the SPY ETF. [C] The investor should purchase call options on VIX. [D] The investor should purchase an index fund for the NYSE. |
C
VIX options are a barometer of near-term investor sentiment. VIX stands for Volatility Index Options. The VIX moves in the opposite direction of the S&P 500 approximately 88% of the time, so this investor should buy VIX call options since they will appreciate with a decrease in market value, and since the volatility may increase their value. |
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All of the following are characteristics of LEAPS, except:
[A] They are used to protect against a decline in a stock's price or take advantage of an up move in stock prices. [B] They have expirations up to 3+ years (up to 39 months). [C] They are an alternative to stock ownership without the short term time risk of regular options. [D] Because they are long term, investors do not have to receive a risk disclosure document. |
D
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A customer buys 1 Broad Based Index March 70 call at a premium of 5. The Index closes at 78.00 and is exercised. Assuming a multiplier of $100, what is the profit or loss to the customer upon exercise?
[A] $300 profit [B] $500 loss [C] $800 profit [D] $1,300 loss |
A
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Which of the following would be the most profitable during a bear market?
[A] long put on a broad based index [B] writing covered calls [C] buying calls on a broad based index [D] bear call spread |
A
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A writer of a June 220 index put is assigned with the index at 215. The writer will be required to:
[A] Deliver cash [B] Receive cash [C] Deliver securities [D] Receive Securities |
A
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What is the maximum risk for the buyer of a call option on a stock index?
[A] The strike price less the premium. [B] The strike price plus the premium. [C] The premium paid. [D] The premium paid plus the out of the money amount. |
C
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A British company sells it's products to companies in the United States and is paid in U.S. Dollars. The company wants to use foreign currency options traded in the U.S. to protect itself against a decline in the value of U. S. Dollar. Which of the following option strategies would be best for this British company?
[A] Buy calls on the British Pound [B] Buy puts on the British Pound [C] Buy calls on the U. S. Dollar [D] Buy puts on the U. S. Dollar |
A
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