9. Suppose you short one AndySun.com's June 85 call contract with a premium of $9 and long one AndySun.com's June 70 put contract with a premium of $8. If, at expiration, the price of a share of AndySun.com's stock is $79, you will be making ______________.

Multiple Choice

a) a loss of $300

b) a profit of $400

c) a profit of $100

d) a loss of $800

10. __________ is the most risky transaction to undertake in the stock-index option markets if the stock market is expected to increase substantially after the transaction is completed.

Multiple Choice

a) Longing a call option

b) Writing a put option

c) Shorting a straddle

d) Longing a straddle

e) Longing a call option and longing a put option

11. You will be making a profit when the underlying security's price stays stable by using which of the following combinations?

Multiple Choice

a) long call and short put

b) long call and long put

c) short call and short put

d) short call and long put

12. You will be making a profit when the stock price drops and having a loss when the stock price jumps by using which of the following combinations.

Multiple Choice

a) long call and short put

b) long call and long put

c) short call and short put

d) short call and long put

13. Which of the following statements is (are) true if you are afraid that the price of the stock that you own may drop in the following months, and you are thinking about using either put options or call options to hedge your stock position?

I. One way to hedge your position would be to short puts.

II. One way to hedge your position would be to write calls.

III. One way to hedge your position would be to buy a straddle.

IV. Hedging with shorting call options is better than hedging with buying put options should the decline in stock price is likely.

Multiple Choice

a) I only

b) II only

c) I and III only

d) I, II, and IV

14) ______ option can only be exercised on the expiration date.

Multiple Choice

a) A Mexican

b) An Asian

c) An American

d) A European