1. Roselle paid $250 to buy one put option with a strike price of $35. What is the maximum profit Roselle can earn on her option contract?
   1. $100
   2. $350
   3. $3,250
   4. Her profit potential is unlimited.

1. The price of ABC stock is currently $42 per share, but in six months you expect it to rise to $50. ABC does not pay a dividend. You buy a six-month call on ABC, with a strike price of $45. The option cost $200. What holding period return do you expect on this call? Ignore transaction costs and taxes.
   1. 150%
   2. 200%
   3. 250%
   4. 300%

1. Fred bought 600 shares of Edgewood stock at a price of $19. The stock is currently selling for $53 a share. To protect his profits, Fred should buy
   1. 600 call options with a strike price of $55.
   2. 600 put options with a strike price of $50.
   3. 6 call options with a strike price of $55.
   4. 6 put options with a strike price of $50.

1. Which one of the following actions would be the most appropriate hedge to a short sale of common stock?
   1. sale of a call
   2. purchase of a call
   3. sale of a put
   4. purchase of a put

1. Allison bought 100 shares of MIKO, Inc. stock at a price of $35 a share. In addition, she bought a 35 put on MIKO at a cost of $125. Which of the following are true about Allison's position from now until the option expiration date?

I. Her maximum loss is $3,625.

II. Her maximum loss is $125.

III. Her minimum gain is $125.

IV. Her maximum profit is unlimited.

1. I and IV only
2. II and III only
3. II and IV only
4. II, III and IV only

1. Mathew simultaneously sold a July 40 put on ZXY stock for $200 and bought a July 35 put for $75. His maximum loss is ________ and his maximum gain is ________.
   1. $375, $125
   2. $375, unlimited
   3. $500, $125
   4. $275, $125

1. Matt owns 500 shares of IKM stock. The market price of IKM is $51.74. Matt just sold five calls on IKM with a strike price of $50. This is known as
   1. writing a naked call.
   2. writing a covered call
   3. creating a naked cover.
   4. covering a short position.

1. Bob's DJIA Index option had a strike price of 125. When he exercised the option, the Dow was at 13,050.
   1. Bob received $5,500 from the writer of the contract.
   2. Bob paid $550 to the writer of the contract.
   3. Bob received $550 from the writer of the contract.
   4. Bob received $55,000 from the writer of the contract.

1. ETF options are settled in
   1. cash.
   2. ETF shares.
   3. share of the companies in the index.
   4. The writer has the choice of settling in either cash or ETF shares.

1. The currency option strike price of 163 means that

1. $1 is worth 1.63 units of the foreign currency.
2. $1 is worth 163 units of the foreign currency.
3. one unit of the foreign currency is worth $1.63.
4. one unit of the foreign currency is worth $163.