Call Option and Price

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Student: ___________________________________________________________________________

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You purchase one September 50 put contract for a put premium of $2. What is the maximum profit that you could gain from this strategy? A. $4,800 B. $200 C. $5,000 D. $5,200 E. None of these is correct The following price quotations on IBM were taken from the Wall Street

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Journal. The premium on one IBM February 90 call contract is A. $4.1250 B. $418.00 C. $412.50 D. $158.00 E. None of these is correct 3. A put on Sanders stock with a strike price of $35 is priced at $2 per share, while a call with a strike price of $35 is priced at $3.50. The maximum per-share loss to the writer of an uncovered put is __________, and the maximum per-share gain to the writer of an uncovered call is _________. A. $33; $3.50 B. $33; $31.50 C. $35; $3.50 D. $35; $35 You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes:

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To establish a bull money spread with calls, you would _______________. A. buy the 55 call and sell the 45 call B. buy the 45 call and buy the 55 call C. buy the 45 call and sell the 55 call D. sell the 45 call and sell the 55 call

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You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes:

To establish a bull money spread with puts, you would _______________. A. sell the 55 put and buy the 45 put B. buy the 45 put and buy the 55 put C. buy the 55 put and sell the 45 put D. sell the 45 put and sell the 55 put 6. A covered call strategy benefits from what environment? A. Falling interest rates B. Price stability C. Price volatility D. Unexpected events You own $75,000 worth of stock, and you are worried the price may fall by year-end in 6 months. You are considering using either puts or calls to hedge this position. Given this, which of the following statements is (are) correct? I. One way to hedge your position would be to buy puts. II. One way to hedge your position would be to write calls. III. If major stock price declines are likely, hedging with puts is probably better than hedging with short calls. A. I only B. II only C. I and III only D. I, II, and III 8. The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4. How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? A. Buy the call, sell the put; lend the present value of $40. B. Sell the call, buy the put; lend the present value of $40. C. Buy the call, sell the put; borrow the present value of $40. D. Sell the call, buy the put; borrow the present value of $40. 9. You own a stock portfolio worth $50,000. You are worried that stock prices may take a dip before you are ready to sell, so you are considering purchasing either at-the-money or out-of-the-money puts. If you decide to purchase the out-of-the-money puts, your maximum loss is __________ than if you buy at-themoney puts and your maximum gain is __________. A. greater; lower B. greater; greater C. lower; greater D. lower; lower

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10. A hedge ratio for a call is always A. equal to one. B. greater than one. C. between zero and one. D. between minus one and zero. E. of no restricted value. 11. A hedge ratio for a put is always A. equal to one. B. greater than one. C. between...
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