Online Quiz for Options

Question: A call option on a stock is said to be out of the money if

Correct Answer:

the exercise price is higher than the stock price.

Question: Suppose you purchase one RIO Jan 100 call contract at $5 and write one RIO Jan
105 call contract at $2. The option contract size is 1000 shares per contract. If, at expiration,
the price of a share of RIO stock is $103, your profit would be
Correct Answer:

zero

Question: The price that the buyer of a stock put option receives for the underlying asset if
she exercises her option is the
Correct Answer:

exercise price

Question: The price that the writer of a stock put option receives for the underlying asset if
the option is exercised is the
Selected
Answer:

none of the above as the writer does not receive the underlying asset if
the option is exercised

Correct
Answer:
Response
Feedback:

stock price at the time when the underlying asset is sold

If the option is exercised, the price that the writer of a put option receives for
the underlying asset is the stock price at the time when the stock is sold via
the stock market.

Question: You write one RIO February 70 put for a premium of $5. Ignoring transactions
costs, what is the breakeven price of this position?
Correct Answer:

$65

Question: Stock options are called derivative securities because

Correct Answer:

their payoffs depend on the prices of the underlying asset.

Question: A covered call position is

Correct
Answer:

the purchase of a share of stock with a simultaneous sale of a call on

that stock.

Question: The price that a trader receives from writing a stock option is the
Correct Answer:

premium

Question: The intrinsic value of an out-of-the-money call option is equal to

Correct Answer:

zero.

Question: A trader who has purchased an American call option may

Selected
Answer:

buy the underlying asset at the exercise price on or before the

expiration date.

Correct Answer:
Response
Feedback:

B and C.

An American call option may be exercised (allowing the holder to buy the
underlying asset) on or before expiration; the option contract also may be sold
prior to expiration.

Question: The maximum loss for a writer of a naked stock call option is
Correct Answer:

unlimited.

Question: Suppose the price of a share of Google stock is $500. An April call option on
Google stock has a premium of $5 and an exercise price of $500. Ignoring commissions, the
holder of the call option will earn a profit if the price of the share
Correct Answer:

increases to $506.

Question: The intrinsic value of an in-the-money put option is equal to

Selected Answer:

zero.

Correct Answer:

the exercise price minus the stock price.

Response
Feedback:

The intrinsic value of an in-the-money put option contract is the strike price less
the stock price, since the holder can buy the stock at the market price and
exercise the option to sell the stock for the strike price.

Question: A protective put strategy is

Correct Answer:

a long put plus a long position in the underlying asset.

Question: Call options on BHP Billiton listed stock options are

Selected Answer:

A and C.

Correct Answer:

B and C.

Response
Feedback:

Options are merely contracts between buyer and seller and sold primarily
on an organized exchange.

Question: A European put option allows the holder to

Question: Suppose you purchase one RIO Dec 100 call contract at $5 and write one RIO Dec
105 call contract at $2. The option contract size is 1000 shares per contract. The maximum
potential profit of your strategy is

Correct Answer:

$2000