1. An American call option gives the owner
   1. the right to buy or sell the stock at the strike price on or before the expiration date.
   2. the right but not the obligation to buy the stock at the strike price on or before the expiration date.
   3. the right and the obligation to buy the stock at the strike price on or before the expiration date.
   4. the right but not the obligation to sell the stock at the strike price on or before the expiration date.

1. The maker of a put or call is the
   1. company which issued the underlying security.
   2. person who facilitates the trade on the floor of the exchange.
   3. party who writes the option.
   4. party who decides whether or not the option is exercised

1. Writers of option contracts
   1. have a limited liability specified in the contract.
   2. hope to exercise the option on favorable terms.
   3. earn a commission no matter what subsequently happens to the contract.
   4. earn a profit when the option expires without being exercised.

1. Warrants
   1. provide substantially less capital appreciation potential than the underlying stock.
   2. tend to be quite costly.
   3. have a stipulated price and expiration date
   4. are not traded in the secondary markets because of their low unit costs.

1. The writer of a put
   1. accepts the obligation to sell a predetermined number of shares at a predetermined price.
   2. is betting the price of the underlying security will increase in value
   3. is hoping that the put will be in-the-money prior to expiration.
   4. will pay the premium whether or not the option is exercised.

1. NZMA stock is currently selling for $128. Which of the following options is "in-the-money"?

1. March 130 call
2. February 125 call
3. March 125 put
4. February 100 put

1. 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.
   1. $10
   2. $12
   3. $8
   4. cannot be determined from the information provided

1. 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.

1. $15
2. $16
3. $14
4. cannot be determined from the information provided

1. The writer of a call option is theoretically exposed to an unlimited loss.
   1. True
   2. False

1. 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.
   1. buy a call
   2. write a put
   3. buy a put
   4. sell a put