Frohlich
Fin 4504
Name___________
Investments
ALL WORK MUST BE SHOWN---DO NOT JUST CIRCLE THE ANSWER:
Use the following information to answer the next 2 questions:
A customer buys 1 XMI Feb 250 Put @ 4 when XMI closes at 247.
1. The time value in the premium is:
2. The intrinsic value of the contract is:
3. All of the following are standardized for listed option contracts EXCEPT:
a.
b.
c.
d.
strike price
contract size
premium
expiration
4. . Which contract will likely have the highest premium(option price) when ABC closes
at $38 per share?
a.
b.
c.
d.
ABC Jan 35 Call
ABC Jan 35 Put
ABC Jan 40 Call
ABC Jan 30 Put
SPREADS:
Use the following information to answer the next 3 questions:
On the same day a customer buys 1 ABC Feb 70 Call @ $4 and sells 1 ABC Feb 80 Call
@ $1 when the market price of ABC is $70.
5. The maximum potential loss is:
a.
b.
c.
d.
$300
$400
$7400
$7700
6. The breakeven point is (the price where all cash outflows are equal to the market):
a.
b.
c.
d.
73
74
76
77
7. The maximum potential gain is:
a.
b.
c.
d.
$300
$400
$700
unlimited
Use the following information to answer the next 3 questions:
On the same day a customer buys 1 ABC Jan 50 Call @ $2 and sells 1 ABC Jan 35 Call
@ $8 when the market price of ABC is $41.
8. The maximum potential gain is:
a.
b.
c.
d.
$600
$800
$4800
unlimited
9. The maximum potential loss is:
a.
b.
c.
d.
$600
$800
$900
unlimited
10. The breakeven point is:
a.
b.
c.
d.
37
41
44
48
Use the following information to answer the next 3 questions:
A customer buys ABC Jan 70 Put @ $5 and sells 1 ABC Jan 90 Put @ $19 when the
market price of ABC is $75
11. The maximum potential gain is:
a.
b.
c.
d.
$1400
$1900
$7100
$8000
12. The breakeven point is:
a.
b.
c.
d.
71
76
85
89
13. The maximum potential loss is:
a.
b.
c.
d.
$600
$1400
$1900
$2000
Speculative
Use the following information to answer the next 4 questions:
In November, a customer buys 1 ABC Jan 70 Call @ $4 when the market price of ABC is
$71.
14. If ABC falls to $67 and stays there through January, the customer will:
a.
b.
c.
d.
gain $400
lose $400
gain $6700
lose $6700
15. The breakeven point for the position is:
a.
b.
c.
d.
66
67
74
75
16. The customer's maximum potential gain is:
a.
b.
c.
d.
$400
$6600
$7400
unlimited
17. If the customer closes out the position prior to expiration by selling the call at $10,
the gain or loss is:
a.
b.
c.
d.
$400 gain
$400 loss
$600 gain
$1000 gain
Use the following information to answer the next 5 questions:
A customer sells 1 ABC Feb 50 Call @ $7 when the market price of ABC is $52.
18. If the market value of ABC falls to $48 and stays there through February, the
customer will:
a.
b.
c.
d.
gain $700
lose $700
gain $4300
lose $4300
19. The customer's breakeven point is:
a.
b.
c.
d.
43
45
57
59
20. The customer's maximum potential loss is:
a.
b.
c.
d.
$700
$4300
$5700
unlimited
21. The stock moves to $80 and the customer is exercised. The stock is bought in the
market for delivery. The gain or loss to the writer is:
a.
b.
c.
d.
$700 gain
$700 loss
$2300 loss
$3000 loss
22. If the stock stays at $52 and just prior to expiration, the writer closes out the position
with a closing purchase at intrinsic value, the gain or loss is:
a.
b.
c.
d.
$200 loss
$500 gain
$700 gain
$900 loss
Use the following information to answer the next 3 questions:
A customer buys 2 ABC Jan 60 Puts @ $4 when the market price of ABC is $59.
23. The maximum potential loss for the customer is:
a.
b.
c.
d.
$400
$800
$11,200
$12,000
24. The breakeven point is:
a.
b.
c.
d.
52
56
64
68
25. ABC stock falls to $40 and the customer buys the sock in the market and exercises
the put. The gain is:
a.
b.
c.
d.
$800
$1600
$3200
$4000
Income
Use the following information to answer the next 4 questions:
A customer buys 100 shares of ABC stock at $49 and sells 1 ABC Jan 50 Call @ $4.
26. The market rises to $55 and the call is exercised. The customer has a:
a.
b.
c.
d.
$100 profit
$400 profit
$500 profit
$900 profit
27. The breakeven point is:
a.
b.
c.
d.
45
46
53
54
28. The maximum potential loss is:
a.
b.
c.
d.
$400
$4500
$4900
unlimited
29. Prior to expiration, the customer closes the short call position at $1. He retains the
long stock position. The gain or loss on the option is:
a.
b.
c.
d.
$100 loss
$300 gain
$400 gain
$500 loss
Use the following information to answer the next 4 questions:
A customer buys 200 shares of XXX at $72 and sells 2 XXX 70 Calls @ $6.
30. The market rises to $80 and the calls are exercised. The customer has a:
a.
b.
c.
d.
$400 gain
$800 gain
$1200 gain
$2800 gain
31. The breakeven point is:
a.
b.
c.
d.
58
60
64
66
32. The maximum potential loss is:
a.
b.
c.
d.
$6400
$12,800
$13,200
$14,400
33. The maximum potential gain is:
a.
b.
c.
d.
$800
$1200
$7000
unlimited
Use the following information to answer the next 4 questions:
A customer sells short 100 shares of ABC stock at $60 and sells 1 ABC Oct 60 Put @ $6.
34. The market falls to $30 and the put is exercised. The gain or loss is:
a.
b.
c.
d.
$600 gain
$600 loss
$2400 gain
$2400 loss
35. The maximum potential loss is:
a.
b.
c.
d.
$600
$4400
$5000
unlimited
36. The breakeven point is:
a.
b.
c.
d.
54
60
66
70
37. The maximum potential gain is:
a.
b.
c.
d.
$600
$4400
$5000
unlimited
Use the following information to answer the next 2 questions:
A customer sells short 100 shares of PDQ at $49 and sells 1 PDQ Sep 50 Put @ $6.
38. The customer will have a loss at which of the following market prices for PDQ?
a.
b.
c.
d.
42
43
55
56
39. The maximum potential loss is:
a.
b.
c.
d.
$4300
$4400
$5500
unlimited
STRADDLES
Use the following information to answer the next 4 questions:
A customer buys 1 ABC Jan 50 Call @ $4 and buys 1 ABC Jan 50 Put @ $3 when the
market price of ABC = $51.
40. The market rises to $70 and the call is exercised. The stock is sold in the market.
The put expires. The customer's gain is:
a.
b.
c.
d.
$700
$1300
$2000
$2700
41. The breakeven points are:
a.
b.
c.
d.
46 and 53
47 and 54
43 and 57
45 and 55
42. The maximum potential gain is:
a.
b.
c.
d.
$700
$4300
$5700
unlimited
43. The maximum potential loss is:
a.
b.
c.
d.
$700
$4300
$5700
unlimited
Use the following information to answer the next 3 questions:
A customer sells 1 ABC Jul 30 Call @ $1 and sells 1 ABC Jul 30 Put @ $3 ½ when the
market price of ABC is $29.
44. The maximum potential gain is:
a.
b.
c.
d.
$450
$2550
$3450
unlimited
45. The maximum potential loss is:
a.
b.
c.
d.
$450
$2250
$3450
unlimited
46. The breakeven points are:
a.
b.
c.
d.
26 ½ and 31
25 ½ and 34 ½
27 ½ and 33 ½
29 and 35