Question

11.Which of the following is not a characteristic of put and call options?

a.         They are contracts to buy or sell 100 shares of common stock.

b.         There is always a specified price.

c.         There is always a specified time period.

d.         All of the above are characteristics.

12.A major disadvantage of using call options to hedge a short position is

a.         hedging increases the risk of loss on the short sale

b.         the option premium and commissions reduce profit potential

c.         the price of the stock may go up

d.         none of the above

13.On June 30. 2003 the October ABC 40 call option sold for 2 and 1/2 whi1e the underlying stock sold for 38 and 3/4. Which of the following statements about the above ABC can option is false?

a.         option premium was 2 and 1/2

b.         striking price is 40

c.         the option expires on Saturday following the third Friday in October 20003

d.         the speculative premium was 2 and 1/2

e.         none of the above

21. Each of the following is a bullish strategy except

a.         a long call

b.         a short put

c.         a short stock

d.         both a and b

e.         none of the above

Answer 1

11.(d) All of the following statements are correct as call and put provides you with the right to buy & sell 100 shares of a common stock which is the underlying asset. it is to be executed on a specified date and it has a strike price.

Call and put options related statements are all true.

12(.b). The option premium and commissions reduce profit potential as then premium premium paid is a certain expense as it is definitely payable under any circumstances so it is bound to decrease the overall profits.

13.on June 30,2003 the October ABC40 call option sold for 2 and 1/2 while the underlying stock sold 38 and 3/4.So the option which is false is -

  d. The speculative premium was 2 and 1/2 as it was the option premium was 2.5 not speculative premium and rest of the statements are true.

14.(C) Shorting a stock means going bearish on the stock so it is betting for the downside amd hence it is not a bullish strategy.

A long call and short put are both bullish in nature so they mean for they are betting on the upside so they are bullish.