. Assume that futures and option traders cannot trade in the underlying spot market. Which of the following is the riskiest derivatives trading strategy? (A) Short Call (Uncovered Call) (B) Long Call (C) Long Straddle (D) Long Futures Answer: _______________

Q6. Speculators should consider a Bear Call Spread based on the prediction of: (A) No change in the price of the underlying (B) Increase in the price of the underlying (C) Decrease in the price of the underlying (D) None of the above Answer: _______________

Q7. Assume no dividends. The Lower Bound of European Put Option Price (Ke-rT S0) is 150. The actual European Put Option Price (p) is 120. Which of the following is correct? (A) There is an arbitrage opportunity with this put option (B) This put option is correctly priced based on no arbitrage (C) There is no arbitrage opportunity with this put option (D) All of the above Answer: _______________

Q8. If volatility () of the underlying stock return increases: (A) Both Put option price and Call option price increase (B) Call option price decreases and Put option price increases (C) Put option price decreases and Call option price increases (D) Both Put option price and Call option price decrease Answer: _______________