Options Trading Options Pricing and Valuation

Question 1

What model is most commonly used to price European-style options?

Accepted Answer

Black-Scholes model

Answer

Binomial tree model

Answer

Monte Carlo simulation

Answer

CAPM model

Question 2

Which of the following is NOT an input into the Black-Scholes pricing model?

Accepted Answer

Expected future return of the stock

Answer

Current stock price

Answer

Strike price

Answer

Time to expiration

Question 3

What is 'intrinsic value' of an option?

Accepted Answer

The amount the option is in the money

Answer

The total premium of the option

Answer

The time value of the option

Answer

The implied volatility of the option

Question 4

The time value of an option is calculated as:

Accepted Answer

Option premium minus intrinsic value

Answer

Option premium plus intrinsic value

Answer

Strike price minus current price

Answer

Implied volatility times delta

Question 5

If a call option has a strike price of $100 and the stock is trading at $110, what is the intrinsic value?

Accepted Answer

$10

Answer

$0

Answer

$110

Answer

$100

Question 6

Put-call parity establishes a relationship between:

Accepted Answer

Call price, put price, stock price, and present value of strike

Answer

Delta and gamma of puts and calls

Answer

Vega and theta across different strikes

Answer

Open interest and volume of puts and calls