Deck 22: Option Contracts

Question 1

The buyer of a straddle expects stock prices to move strongly in either direction.

Answer 1

True

Question 2

The owner of a call option on a futures contract has the obligation to buy the futures contract at a predetermined strike price during a specified time period.

Answer 2

False

Question 3

A price spread (or vertical spread)involves buying and selling an option for the same stock and expiration date but with different exercise prices.

Answer 3

True

Question 4

It is a violation of the securities laws to combine option contracts to achieve a customized payoff.

Question 5

There is an inverse relationship between the market interest rate and the value of a call option.

Question 6

Options on futures expire at the same time the futures contract expires.

Question 7

Index options can only be settled in cash.

Question 8

A long strip position indicates that an investor is bullish but conservative.

Question 9

A strip is a call option on a stock that is written by someone that owns the stock.

Question 10

Index options are settled by delivery of the stocks that make up the index.

Question 11

Unlike stock options,futures options require the holder to enter into a futures contract.

Question 12

The standardization of option contracts and the creation of the Options Clearing Corporation are two important results of the opening of the Chicago Board of Options Exchange.

Question 13

Risk management is the driving force behind the futures options market.

Question 14

The longer the time to expiration,the greater the value of a call option.

Question 15

A portfolio containing a share of stock and a put option will have the same value as a portfolio containing a call option and the risk-free discount bond.

Question 16

Stock options expire on the Sunday following the third Saturday of the designated month.

Question 17

Credit risk in the options market is only a concern to the option seller.

Question 18

In index options,the aggregate market takes the place of the individual stock issues being traded,as in stock options.

Question 19

The Chicago Board Options Exchange has the largest share of stock option trading.

Question 20

European options can only be exercised on the expiration date.

Question 21

The Options Clearing Corporation (OCC)acts as the guarantor of each Chicago Board Options Exchange (CBOE)traded contract.

Question 22

The creation of the CBOE led to all the following innovations in options except

A) The creation of a central marketplace.
B) The introduction of a clearing corporation.
C) The standardization of expiration dates.
D) The creation of a primary market.
E) The creation of a secondary market.

Question 23

A calendar spread requires the purchase and sale of two calls or two puts in the same stock with

A) The same expiration date but different exercise prices.
B) The same exercise price but different expiration dates.
C) Different exercise prices and different expiration dates.
D) The same exercise price and the same expiration month.
E) Traded in different markets.

Question 24

You own a stock that has risen from $10 per share to $32 per share.You wish to delay taking the profit but you are troubled about the short run behavior of the stock market.An effective action on your part would be to

A) Purchase a put.
B) Purchase a call.
C) Purchase an index option.
D) Utilize a bearish spread.
E) Utilize a bullish spread.

Question 25

The binomial option pricing model and the Black and Scholes model are similar because they are both discrete models.

Question 26

In a binomial option pricing model the initial value of the call can be determined by working backward through the tree and solving for each of the remaining intermediate option values.

Question 27

A money spread involves buying and selling call options in the same stock with

A) The same time period and exercise price.
B) The same time period but different exercise price.
C) A different time period but same exercise price.
D) A different time period and different exercise price.
E) Options in different markets.

Question 28

The delta in the Black-Scholes model is simply the slope of a line tangent to the call option price curve.

Question 29

If you were to purchase an October option with an exercise price of 50 for $8 and simultaneously sell an October option with an exercise price of 60 for $2,you would be

A) Bullish and taking a high risk.
B) Bullish and conservative.
C) Bearish and taking a high risk.
D) Bearish and conservative.
E) Neutral.

Question 30

It is always theoretically possible to use options as a perfect hedge against fluctuations in value of the underlying asset.

Question 31

Investors should purchase market index put options if they anticipate an increase in the index value.

Question 32

The most important input the investor must provide in determining option values is the strike price.

Question 33

Which of the following is not a factor needed to calculate the value of an American call option?

A) The stock price
B) The exercise price
C) The exchange on which the option is listed
D) The volatility of the underlying stock
E) The interest rate

Question 34

Buying a bear spread is equivalent to

A) Selling a bull spread.
B) Buying an out-of-the-money call and selling an in-the-money call on the same stock with the same exercise date.
C) Selling an out-of-the-money call and buying an in-the-money call on the same stock with a different exercise price.
D) Choices a and b only.
E) None of the above

Question 35

In a money spread,an investor would

A) Buy two in-the-money call options on the same stock with different exercise dates.
B) Buy two out-of-the-money call options on the same stock with different exercise dates.
C) Sell two in-the-money call options on the same stock with different exercise dates.
D) Sell an out-of-the-money call and purchase an in-the-money call on the same stock with the same exercise date.
E) Sell two out-of-the-money call options on the same stock with different exercise dates.

Question 36

The binomial model is a continuous method for valuing options.

Question 37

If you were to purchase an October option with an exercise price of 50 for 8 and simultaneously sell an October option with an exercise price of 60 for 2,you would be

A) Bullish and taking a high risk.
B) Bullish and conservative.
C) Bearish and taking a high risk.
D) Bearish and conservative.
E) Neutral.

Question 38

The underlying stock price and the value of the put option are factors that impact the value of an American call option.

Question 39

The binomial option pricing model approximates the price of an option obtained using the Black-Scholes option pricing model as the number of subintervals increases.

Question 40

A vertical spread involves buying and selling call options in the same stock with

A) The same time period and price.
B) The same time period but different price.
C) A different time period but same price.
D) A different time period and different price.
E) Options in different markets.

Question 41

Options on futures contracts are very popular because

A) They require the holder to purchase at a future date
B) Of their ability to create leverage
C) The seller of the futures contract is under no obligation
D) The amount of the underlying commodity is negotiable
E) None of the above

Question 42

The value of a call option is inversely related to:

A) Underlying stock price.
B) Time to expiration
C) Exercise price.
D) a and b
E) b and c

Question 43

In the Black-Scholes option pricing model,an increase in security price (S)will cause

A) An increase in call value and an increase in put value
B) An increase in call value and a decrease in put value
C) A decrease in call value and an increase in put value
D) A decrease in call value and a decrease in put value
E) An increase in call value and an increase or decrease in put value

Question 44

The Black-Scholes model assumes that stock price movements can be described by

A) Geometric moving averages.
B) Arithmetic moving averages.
C) Regression towards the mean.
D) Geometric Brownian motion.
E) Stochastic time lags.

Question 45

In the Black-Scholes option pricing model,an increase in security volatility (s)will cause

A) An increase in call value and an increase in put value
B) An increase in call value and a decrease in put value
C) A decrease in call value and an increase in put value
D) A decrease in call value and a decrease in put value
E) An increase in call value and an increase or decrease in put value

Question 46

In the Black-Scholes option pricing model,an increase in time to expiration (T)will cause

A) An increase in call value and an increase in put value
B) An increase in call value and a decrease in put value
C) A decrease in call value and an increase in put value
D) A decrease in call value and a decrease in put value
E) An increase in call value and an increase or decrease in put value

Question 47

In the Black-Scholes option pricing model,an increase in exercise price (X)will cause

A) An increase in call value and an increase in put value
B) An increase in call value and a decrease in put value
C) A decrease in call value and an increase in put value
D) A decrease in call value and a decrease in put value
E) An increase in call value and an increase or decrease in put value

Question 48

The value of a call option is positively related to:

A) Underlying stock price.
B) Time to expiration
C) Exercise price.
D) a and b
E) b and c

Question 49

Exhibit 22.1
Use the Information Below for the Following Problem(S)
$\begin{array}{|l|c|l|l|l|}\hline \text { Option Type } & & \text { Currency } &{\text { Canadian dollar }} \\\hline \text { Contract Size } & & 50000 & {\text { Canadian dollars }} \\\hline \text { Expiry } & & \text { April } & & \\\hline & & & & \\\hline \text { Strike } & \text { Call } & \text { Put } & & \\\hline \$ 0.815 & \$ 0.0118 & & & \\\hline \$ 0.820 & & \$ 0.0068 & & \\\hline\end{array}$

-Refer to Exhibit 22.1.How much must an investor pay for one put option contract?

A) $680
B) $815
C) $340
D) $625
E) $590

Question 50

A straddle is the simultaneous purchase (or sale)of a put and call option with the same underlying asset,

A) Same exercise price, and expiration date.
B) Same exercise price but different expiration date.
C) Same expiration date but different exercise price.
D) Either choices b or c.
E) None of the above.

Question 51

Options can be used to

A) Modify an equity portfolio's systematic risk.
B) Modify an equity portfolio's unsystematic risk.
C) Manage currency exposures in international equity portfolios.
D) Change a portfolio's exposure to a particular asset
E) All of the above

Question 52

A currency call is like being ____ in the currency futures.

A) Out-of-the-money
B) In-the-money
C) Long
D) Short
E) At-the-money

Question 53

The calculation of a weighted average of the implied volatility estimates from options on the Standard & Poor's 500 index using a wide range of exercise prices is known as

A) Spider.
B) QQQ.
C) VIX.
D) CIN.
E) VOL.

Question 54

A foreign currency option contract traded on U.S.exchanges allows for the sale or purchase of a set amount of

A) U.S. currency at a floating exchange rate
B) U.S. currency at a fixed exchange rate
C) Foreign currency at a floating exchange rate
D) Foreign currency at a fixed exchange rate
E) None of the above

Question 55

In the Black-Scholes option pricing model,an increase in the risk free rate (RFR)will cause

A) An increase in call value and an increase in put value
B) An increase in call value and a decrease in put value
C) A decrease in call value and an increase in put value
D) A decrease in call value and a decrease in put value
E) An increase in call value and an increase or decrease in put value

Question 56

The entity that acts as the guarantor of each CBOE-traded contract is the

A) Federal government
B) Securities and exchange commission
C) CBOE
D) Options clearing corporation
E) Federal reserve bank

Question 57

Exhibit 22.1
Use the Information Below for the Following Problem(S)
$\begin{array}{|l|c|l|l|l|}\hline \text { Option Type } & & \text { Currency } &{\text { Canadian dollar }} \\\hline \text { Contract Size } & & 50000 & {\text { Canadian dollars }} \\\hline \text { Expiry } & & \text { April } & & \\\hline & & & & \\\hline \text { Strike } & \text { Call } & \text { Put } & & \\\hline \$ 0.815 & \$ 0.0118 & & & \\\hline \$ 0.820 & & \$ 0.0068 & & \\\hline\end{array}$

-Refer to Exhibit 22.1.How much must an investor pay for one call option contract?

A) $680
B) $815
C) $625
D) $590
E) $340

Question 58

In the Black-Scholes model N(d₁)represents the

A) Hedge ratio.
B) Partial derivative of the call's value with respect to the stock price.
C) Change in the option's value given a one dollar change in the underlying security's price.
D) Option's delta.
E) All of the above.

Question 59

Which of the following is not a variable required to determine an option's value in the Black-Scholes valuation model?

A) Future security price.
B) Exercise price.
C) Time to expiration.
D) Risk-free rate.
E) Security price volatility.

Question 60

If the hedge ratio is 0.50,this indicates that the portfolio should hold

A) Two shares of stock for every call option written.
B) One share of stock for every two call options written.
C) Two shares of stock for every call option purchased.
D) One share of stock for every two call options purchased.
E) Two call options for every put option written.

Question 61

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long strip using the options with a 95 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $256.25 loss
B) $256.25 gain
C) $925.00 loss
D) $668.75 gain
E) $668.75 loss

Question 62

Exhibit 22.3
Use the Information Below for the Following Problem(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35.
Assume that you have just sold a stock for a loss at a price of $75,for tax purposes.You still wish to maintain exposure to the sold stock.Suppose that you buy a call with a strike price of $70 and a price of $6.75.Calculate the effective price paid to repurchase the stock if the price after 35 days is $65.

A) $71.75
B) $76.75
C) $58.25
D) $81.75
E) None of the above

Question 63

Exhibit 22.3
Use the Information Below for the Following Problem(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35.
Refer to Exhibit 22.3.Calculate the price of the put option.

A) $1.086
B) $0.862
C) $6.234
D) $0.623
E) $2.317

Question 64

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long straddle using the options with a 95 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $668.75 gain
B) $668.75 loss
C) $94.56 gain
D) $94.56 loss
E) $81.25 loss

Question 65

Exhibit 22.3
Use the Information Below for the Following Problem(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35.
Assume that you have just sold a stock for a loss at a price of $75,for tax purposes.You still wish to maintain exposure to the sold stock.Suppose that you sell a put with a strike price of $80 and a price of $7.25.Calculate the effective price paid to repurchase the stock if the price after 35 days is $85.

A) $77.75
B) $87.25
C) $82.25
D) $72.75
E) None of the above.

Question 66

Exhibit 22.1
Use the Information Below for the Following Problem(S)
$\begin{array}{|l|c|l|l|l|}\hline \text { Option Type } & & \text { Currency } &{\text { Canadian dollar }} \\\hline \text { Contract Size } & & 50000 & {\text { Canadian dollars }} \\\hline \text { Expiry } & & \text { April } & & \\\hline & & & & \\\hline \text { Strike } & \text { Call } & \text { Put } & & \\\hline \$ 0.815 & \$ 0.0118 & & & \\\hline \$ 0.820 & & \$ 0.0068 & & \\\hline\end{array}$

-Refer to Exhibit 22.1.If the spot rate at expiration is $0.75 and the put option was purchased,what is the dollar gain or loss?

A) $0
B) $200 loss
C) $200 gain
D) $3160 gain
E) $1187 loss

Question 67

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long straddle using the options with an 85 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $18.75 loss
B) $18.75 gain
C) $1,668.75 gain
D) $1,668.75 loss
E) $1,687.50 loss

Question 68

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long strap using the options with a 95 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $81.25 loss
B) $1,606.25 gain
C) $1,606.25 loss
D) $268.75 loss
E) $268.75 gain

Question 69

Exhibit 22.3
Use the Information Below for the Following Problem(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35.
Assume that you have just sold a stock for a loss at a price of $75,for tax purposes.You still wish to maintain exposure to the sold stock.Suppose that you sell a put with a strike price of $80 and a price of $7.25.Calculate the effective price paid to repurchase the stock if the price after 35 days is $70.

A) $77.75
B) $87.25
C) $82.25
D) $72.75
E) None of the above

Question 70

Exhibit 22.1
Use the Information Below for the Following Problem(S)
$\begin{array}{|l|c|l|l|l|}\hline \text { Option Type } & & \text { Currency } &{\text { Canadian dollar }} \\\hline \text { Contract Size } & & 50000 & {\text { Canadian dollars }} \\\hline \text { Expiry } & & \text { April } & & \\\hline & & & & \\\hline \text { Strike } & \text { Call } & \text { Put } & & \\\hline \$ 0.815 & \$ 0.0118 & & & \\\hline \$ 0.820 & & \$ 0.0068 & & \\\hline\end{array}$

-Refer to Exhibit 22.1.If the spot rate at expiration is $0.90 and the call option was purchased,what is the dollar gain or loss?

A) $0
B) $3750 gain
C) $3660 gain
D) $4650 loss
E) $2680 loss

Question 71

Exhibit 22.1
Use the Information Below for the Following Problem(S)
$\begin{array}{|l|c|l|l|l|}\hline \text { Option Type } & & \text { Currency } &{\text { Canadian dollar }} \\\hline \text { Contract Size } & & 50000 & {\text { Canadian dollars }} \\\hline \text { Expiry } & & \text { April } & & \\\hline & & & & \\\hline \text { Strike } & \text { Call } & \text { Put } & & \\\hline \$ 0.815 & \$ 0.0118 & & & \\\hline \$ 0.820 & & \$ 0.0068 & & \\\hline\end{array}$

-Refer to Exhibit 22.1.If the spot rate at expiration is $0.80 and the call option was purchased,what is the dollar gain or loss?

A) $123 gain
B) $590 loss
C) $312 gain
D) $237 gain
E) $0

Question 72

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If XYZ were trading at $90/share and you formed a bull money spread,what is your profit if XYZ is trading at $110 at expiration?

A) $912.50 loss
B) $87.50 gain
C) $87.50 loss
D) $1,000.00 gain
E) $1,000.00 loss

Question 73

Exhibit 22.3
Use the Information Below for the Following Problem(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35.
Assume that you have just sold a stock for a loss at a price of $75,for tax purposes.You still wish to maintain exposure to the sold stock.Suppose that you buy a call with a strike price of $70 and a price of $6.75.Calculate the effective price paid to repurchase the stock if the price after 35 days is $80.

A) $81.75
B) $73.25
C) $86.75
D) $76.75
E) None of the above

Question 74

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long strap using the options with an 85 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $1,687.50 loss
B) $3,362.50 loss
C) $3,675.50 gain
D) $13.00 gain
E) $13.00 loss

Question 75

Exhibit 22.1
Use the Information Below for the Following Problem(S)
$\begin{array}{|l|c|l|l|l|}\hline \text { Option Type } & & \text { Currency } &{\text { Canadian dollar }} \\\hline \text { Contract Size } & & 50000 & {\text { Canadian dollars }} \\\hline \text { Expiry } & & \text { April } & & \\\hline & & & & \\\hline \text { Strike } & \text { Call } & \text { Put } & & \\\hline \$ 0.815 & \$ 0.0118 & & & \\\hline \$ 0.820 & & \$ 0.0068 & & \\\hline\end{array}$

-Refer to Exhibit 22.1.If the spot rate at expiration is $0.85 and the put option was purchased,what is the dollar gain or loss?

A) $340 loss
B) $125 gain
C) $750 gain
D) $750 loss
E) $200 loss

Question 76

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long straddle using the options with a 90 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $68.75 loss
B) $68.75 gain
C) $37.50 loss
D) $1,200.00 loss
E) $1,200.00 gain

Question 77

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long strap using the options with a 90 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $37.50 loss
B) $37.50 gain
C) $100.00 loss
D) $100.00 gain
E) $2,437.50 loss

Question 78

Exhibit 22.3
Use the Information Below for the Following Problem(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35.

-Refer to Exhibit 22.3.Use the Black-Scholes option pricing model to calculate the price of a call option.

A) $5.19
B) $4.35
C) $3.93
D) $6.19
E) $8.17

Question 79

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long strip using the options with an 85 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $1,668.75 gain
B) $1,700.00 gain
C) $1,700.00 loss
D) $31.25 gain
E) $31.25 loss

Question 80

Exhibit 22.2
Use the Information Below for the Following Problem(S)
$$\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\& \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\\hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\& \text { OCT } & 90 & 12 & 101\quad11 / 16 \\& \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\\text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\& \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\& \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16\end{array}$$

-Refer to Exhibit 22.2.If you establish a long strip using the options with a 90 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $106.25 gain
B) $106.25 loss
C) $1,275.00 loss
D) $1,275.00 gain
E) $75.00 loss