SIE Options and Derivatives 2

Question 1

What is the intrinsic value of a call option with a $50 strike price when the stock is trading at $55?

Accepted Answer

$5

Answer

$0

Answer

$50

Answer

$55

Question 2

A futures contract obligates the buyer to:

Accepted Answer

Purchase the underlying asset at a specified price on a future date

Answer

Have the option to buy at a fixed price

Answer

Sell the underlying asset immediately at market price

Answer

Pay a premium for the right to sell

Question 3

What is a 'naked' (uncovered) call option?

Accepted Answer

Selling a call without owning the underlying stock

Answer

Buying a call with no hedge

Answer

A call option with no time value

Answer

A call on a stock that pays no dividend

Question 4

Which options strategy profits when the underlying stock remains relatively flat?

Accepted Answer

Short straddle

Answer

Long call

Answer

Long put

Answer

Long straddle

Question 5

At expiration, an option that is 'out of the money' will typically:

Accepted Answer

Expire worthless

Answer

Be exercised at a loss

Answer

Be automatically converted to shares

Answer

Be assigned to the seller

Question 6

What is the 'time value' component of an option premium?

Accepted Answer

The portion of premium beyond intrinsic value reflecting time until expiration

Answer

The option's intrinsic value

Answer

The strike price minus current stock price

Answer

The dividend expected before expiration