Deck 16: Futures Options

Question 1

When a put futures is exercised, the holder of the put acquires: choose one)

A) A long position in the futures contract
B) A short position in the futures contract
C) A long position in the underlying asset
D) None of the above

Answer 1

B

Question 2

Which of the following is not true? choose one)

A) Black's model can be used to value an American-style option on futures.
B) Black's model can be used to value a European-style option on futures.
C) Black's model can be used to value a European-style option on spot.
D) Black's model is widely used by practitioners.

Answer 2

A

Question 3

A futures-style option is: choose one)

A) An option on a futures
B) An option on spot with daily settlement
C) A futures contract on an option payoff
D) None of the above

Answer 3

C

Question 4

The risk-free rate is 5% and the dividend yield on the S&P/ASX 200 Index is 2%. Which of the following is correct when a futures option on the index is being valued? choose one)

A) The futures price of the S&P/ASX 200 can be treated like a stock paying a dividend yield of 5%.
B) The futures price of the S&P/ASX 200 can be treated like a stock paying a dividend yield of 2%.
C) The futures price of the S&P/ASX 200 can be treated like a stock paying a dividend yield of 3%.
D) The futures price of the S&P/ASX 200 can be treated like a non-dividend-paying stock.

Question 5

When a call futures is exercised, the holder of the call acquires: choose one)

A) A long position in the futures contract
B) A short position in the futures contract
C) A long position in the underlying asset
D) None of the above

Question 6

A futures price is currently 40 cents. It is expected to move up to 44 cents or down to 34 cents in the next six months. The risk-free interest rate is 6% with continuous compounding.
i) What is the probability of an up movement in a risk-neutral world? _ _ _ _ _ _
ii) What is the value of a six-month put option with a strike price of 37 cents? Give two decimal places.) _ _ _ _ _ _
iii) What is the value of a six-month call with a strike price of 33 cents? Give two decimal places.) _ _ _ _ _ _

Question 7

Which two of the following are true when futures prices exceed spot prices? choose two)

A) American call options on futures are worth more than the corresponding American call option on spot.
B) American call options on futures are worth less than the corresponding American call option on spot.
C) American put options on futures are worth more than the corresponding American put option on spot.
D) American put options on futures are worth less than the corresponding American put option on spot.