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An American call option gives the owner the right to buy or sell the stock at the strike price on or before the expiration date.
- An American call option gives the owner
- the right to buy or sell the stock at the strike price on or before the expiration date.
- the right but not the obligation to buy the stock at the strike price on or before the expiration date.
- the right and the obligation to buy the stock at the strike price on or before the expiration date.
- the right but not the obligation to sell the stock at the strike price on or before the expiration date.
- The maker of a put or call is the
- company which issued the underlying security.
- person who facilitates the trade on the floor of the exchange.
- party who writes the option.
- party who decides whether or not the option is exercised
- Writers of option contracts
- have a limited liability specified in the contract.
- hope to exercise the option on favorable terms.
- earn a commission no matter what subsequently happens to the contract.
- earn a profit when the option expires without being exercised.
- Warrants
- provide substantially less capital appreciation potential than the underlying stock.
- tend to be quite costly.
- have a stipulated price and expiration date
- are not traded in the secondary markets because of their low unit costs.
- The writer of a put
- accepts the obligation to sell a predetermined number of shares at a predetermined price.
- is betting the price of the underlying security will increase in value
- is hoping that the put will be in-the-money prior to expiration.
- will pay the premium whether or not the option is exercised.
- NZMA stock is currently selling for $128. Which of the following options is "in-the-money"?
- March 130 call
- February 125 call
- March 125 put
- February 100 put
- Andrea wrote a three-month call on Echo stock. The option cost $200 and the strike price was $10. What does the market price of Echo have to be for Andrea to break-even on this investment if the option is exercised? Ignore transaction cost and taxes.
- $10
- $12
- $8
- cannot be determined from the information provided
- Jason purchased a six-month put on ABC stock at a cost of $100. The strike price was $15. At what market price does Jason just break-even on this investment? Ignore transaction costs and taxes.
- $15
- $16
- $14
- cannot be determined from the information provided
- The writer of a call option is theoretically exposed to an unlimited loss.
- True
- False
- Kyle believes the price of Ajax stock is about to decrease. If he wants to profit from the decline in price, he should ________ on Ajax stock.
- buy a call
- write a put
- buy a put
- sell a put
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