Test
- Explain the risk/reward parameters of an option seller?
- Describe the risk/reward characteristics of an option buyer?
- What is an option?
- What is the definition of a call?
- What is the definition of a put?
- What is parity and give another term for it?
- Give the definition of extrinsic value and another name for it.
- Explain the following terms:
- Describe how much of the following options prices are intrinsic or extrinsic.
- XYZ MAY 40 Call. State what each term is and briefly explain its meaning:
- Are the following options in-the-money, out-of-the-money, or at-the-money?
What is parity for each option? - Consider the XYZ MAY 90 put. What does this option give you the right to do?
- Given the following starting positions, is the transaction opening or closing?
If you have a remaining position, what would you want the stock to do to be profitable? - Give three ways to accomplish (a) a long position, (b) a short position.
- Based on the following, answer the questions below:
- What are the two components that combine to form an options premium?
- What is the definition of option class?
- What is the definition of option series?
- Which type of option has only extrinsic value as a component of its price?
- Which type of option has intrinsic value as part of its price?
- Identify the breakeven point for each of the following examples:
- For each of the following options, identify the underlying, the exercise price, and the approximate expiration date.
- Which of the following options are in-the-money and by how much?
Which are out-of-the-money and by how much? - Given the following options, option prices, and underlying prices, identify each option’s premium, intrinsic value, and extrinsic value:
In-the-money:
At-the-money:
Out-of-the-money:
| Intrinsic | Extrinsic | ||||||
|---|---|---|---|---|---|---|---|
| a. | Feb | 30 Calls @ | 1.60 | with stock | 29.75 | ||
| b. | May | 15 Calls @ | 2.10 | with stock | 15.50 | ||
| c. | Oct | 60 Puts @ | .85 | with stock | 66.25 | ||
| d. | Nov | 45 Calls @ | 1.30 | with stock | 43.75 | ||
| e. | June | 40 Puts @ | 1.75 | with stock | 39.25 | ||
| f. | Aug | 35 Puts @ | 1.10 | with stock | 35.80 | ||
| g. | Jul | 12.5 Puts @ | .60 | with stock | 14.10 | ||
| h. | Jan | 15 Calls @ | 2.90 | with stock | 17.30 | ||
| i. | Dec | 10 Calls @ | 3.80 | with stock | 12.60 | ||
| j. | Mar | 17.5 Calls @ | 1.55 | with stock | 18.20 | ||
| k. | Apr | 22.5 Calls @ | 1.80 | with stock | 21.70 |
a) XYZ -
b) MAY -
c) 40 -
What does this option give you the right to do?
| Stock Price | >Option | ITM, OTM, ATM | Parity | |
|---|---|---|---|---|
| a | 55.30 | FEB 55 C | ||
| b | 20.70 | FEB 30 P | ||
| c | 36.50 | FEB 45 C | ||
| d | 8.90 | FEB 10 P | ||
| e | 75 | FEB 75 P | ||
| f | 75 | FEB 75 C | ||
| g | 40.50 | FEB 40 C | ||
| h | 40.50 | FEB 40 P |
| Initial Position | Transaction | Open or Close | Remaining | |
|---|---|---|---|---|
| a) | -10 MAY 30 Calls | +5 MAY 30 C | ||
| b) | No position | +27 MAY 10 P | ||
| c) | +15 MAY 15 C | +10 MAY 15 C | ||
| d) | +25 MAY 15 C | -15 MAY 15 C | ||
| e) | -25 MAY 40 C | +15 MAY 40 C | ||
| f) | +30 MAY 30 P | -30 MAY 30 P | ||
| g) | No position | -10 MAY 25 C |
a) Buy MAY 50 call for $3.00
b) Sell MAY 40 call for $2.50
c) Buy MAY 45 put for $2.00
d) Sell MAY 35 put for $1.50
In examples (a) through (d) above, at what stock price do you break even?
In examples (a) & (c), at what stock price do you lose the most money? How much money can you possibly make?
In examples (b) & (d), at what stock price do you make the most money? How much money can you possibly lose?
In (a), how much money do you make or lose if the stock is $51.20 at expiration?
In (b), how much money do you make or lose if the stock is $41.25 at expiration?
In (c), how much money do you make or lose if the stock is $43.10 at expiration?
In (d), how much money do you make or lose if the stock is $33.20 at expiration?
| Stock Price | Strike Price | Option Price | Breakeven Point |
|---|---|---|---|
| 10.00 | MAY 7.5 C | 2.80 | |
| 12.00 | MAY 15 P | 3.20 | |
| 17.75 | MAY 20 C | .25 | |
| 5.10 | MAY 7.50 P | 2.90 | |
| 24.25 | MAY 25 C | .90 | |
| 17.50/td> | MAY 17.5 P | 1.20 | |
| 16.40 | MAY 12.50 C | 4.00 | |
| 42.80 | MAY 45 P | 2.50 | |
| 14.90 | MAY 15 C | .85 | |
| 52.60 | MAY 45 P | .30 | |
| 21.20 | MAY 20 C | 1.70 | |
| 26.70 | MAY 30 P | 3.50 | |
| 16.30 | MAY 15 C | 1.60 | |
| 20.10 | MAY 17.50 P | 2.25 | |
| 20.00 | MAY 22.50 C | 1.25 |
a) HD Jan 40 call
b) PG May 70 put
c) ABT Aug 60 call
| a) JPM Jul 35 call JPM Jul 35 put |
with the stock at $36.50 |
| b) LOW Jan 65 call LOW Apr 60 call |
with the stock at $63.20 |
| c) PG May 70 call PG May 70 put |
with the stock at $74.75 |
| d) LEH Dec 70 call LEH Jul 75 put |
with the stock at $72.40 |
| e)MO Jan 45 call MO Feb 40 put |
with the stock at $42.35 |
| a) LLY Apr 90 call | $10.25 | $98.50 |
| b) HD May 35 put | $2.50 | $34.25 |
| INTC Jan 30 call | $1.00 | $28.75 |
| JPM Nov 35 put | $1.05 | $36.10 |
| PG Jul 65 call | $9.60 | $72.70 |
| TYC Dec 25 put | $2.25 | $22.75 |
For correct answers to these questions, Click Below to open in a new window:
