Test Yourself / Final Exam 1. Explain the risk/reward parameters of an option seller? 2. Describe the risk/reward characteristics of an option buyer? 3. What is an option? 4. What is the definition of a call? 5. What is the definition of a put? 6. What is parity and give another term for it? 7. Give the definition of extrinsic value and another name for it. 1
8. Explain the following terms: In-the-money At-the-money Out-of-the-money 9. Describe how much of the following options prices are intrinsic or 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 j. Apr 22.5 Puts @ 1.80 with stock 21.70 Int Ext 10. XYZ MAY 40 Call. State what each term is and briefly explain its meaning: a) XYZ - b) MAY - c) 40 - What does this option give you the right to do? 2
11. Are the following options in-the-money, out-of-the-money, or at-the-money? What is parity for each option? 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 12. Consider the XYZ MAY 90 put. What does this option give you the right to do? 13. 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? 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 14. Give three ways to accomplish (a) a long position, (b) a short position. 3
15. Based on the following, answer the questions below: 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? 4
16. What are the two components that combine to form an options premium? 17. What is the definition of option class? 18. What is the definition of option series? 19. Give another name for exercise price. 20. Which type of option has only extrinsic value as a component of its price? 21. Which type of option has intrinsic value as part of its price? 22. Which type of option has the highest amount of extrinsic value? 5
23. Identify the breakeven point for each of the following examples. Stock Price Strike Price Option Price Breakeven Point 1) 10.00 MAY 7.5 C 2.80 2) 12.00 MAY 15 P 3.20 3) 17.75 MAY 20 C.25 4) 5.10 MAY 7.50 P 2.90 5) 24.25 MAY 25 C.90 6) 17.50 MAY17.5 P 1.20 7) 16.40 MAY 12.50 C 4.00 8) 42.80 MAY 45 P 2.50 9) 14.90 MAY 15 C.85 10) 52.60 MAY 45 P.30 11) 21.20 MAY 20 C 1.70 12) 26.70 MAY 30 P 3.50 13) 16.30 MAY 15 C 1.60 14) 20.10 MAY 17.50 P 2.25 15) 20.00 MAY 22.50 C 1.25 24. For each of the following options, identify the underlying, the exercise price, and the approximate expiration date. a) HD Jan 40 call b) PG May 70 put c) ABT Aug 60 call 6
25. Which of the following options are in-the-money and by how much? Which are out-of-the-money and by how much? a) JPM Jul 35 call with the stock at $36.50 JPM Jul 35 put b) LOW Jan 65 call with the stock at $63.20 LOW Apr 60 call c) PG May 70 call with the stock at $74.75 PG May 70 put d) LEH Dec 70 call with the stock at $72.40 LEH Jul 75 put e) MO Jan 45 call with the stock at $42.35 MO Feb 40 put 26. Given the following options, option prices, and underlying prices, identify each option s premium, intrinsic value, and extrinsic value: Option Option Price Stock Price a) LLY Apr 90 call $10.25 $98.50 b) HD May 35 put $2.50 $34.25 c) INTC Jan 30 call $1.00 $28.75 d) JPM Nov 35 put $1.05 $36.10 e) PG Jul 65 call $9.60 $72.70 f) TYC Dec 25 put $2.25 $22.75 For correct answers to these questions, and for additional commentary please log-in to the members only site using your user name and password: www.options-university.com/members/test_answers.htm 7