Question

5. Indicate which statement is True (T) or False (F). a. _____When making a market on an option the bid is less than the offer. b. _____If the stock price is greater than the strike price the the call option is “out-of-the money” c. ______ Puts and Calls leveage profits and losses. d. ______ For the same stock and strike price an option with a more distant expiration will be worth less than an option with a nearer expiration. e. ______ A straddle involves both calls and puts of the same expiration and strike. f. ______ Short a Put is “bearish”. g. ______The “butterfly” involves both calls and puts. h. ______An out of the money option has no “intrinsic value”. i. ______ The greater the price of the stock the greater should be the price of a call option. j. _______ The lesser the price of stock the lesser should be the price of a put option.

Answer 1

a. _____When making a market on an option the bid is less than the offer.
True

b. _____If the stock price is greater than the strike price the the call option is “out-of-the money”
False as the call is in the money

c. ______ Puts and Calls leveage profits and losses.
True

d. ______ For the same stock and strike price an option with a more distant expiration will be worth less than an option with a nearer expiration.
False as options are directly related to time to expiry

e. ______ A straddle involves both calls and puts of the same expiration and strike.
True

f. ______ Short a Put is “bearish”.
False as short a put is "bullish"

g. ______The “butterfly” involves both calls and puts.
False-only calls or only puts

h. ______An out of the money option has no “intrinsic value”.
True

i. ______ The greater the price of the stock the greater should be the price of a call option.
True

j. _______ The lesser the price of stock the lesser should be the price of a put option.
False as put is negatively related to stock price