Risk to put option 2 permanent
Log in Sign up. How can we help? What is your email? Upgrade to remove ads. The breakeven point is: To compute the breakeven point for a call spread, add the net premium debit or credit to the lower strike price a net credit of 7 plus equals a breakeven point of put This is put bear spread. The customer will profit if the index is below at expiration. If an investor writes 2 Permanent Jan. If a customer believes that the market price of a stock will sharply rise or fall in the near future, which of the following strategies is best? A Write a call. B Buy a call. C Write a straddle. D Buy a straddle. Your answer, Buy a permanent. If the stock goes either up or down sharply, the investor will profit from owning a straddle. What are the breakeven points on the following position? Write 2 DWQ Apr 30 calls at 2. Write 2 DWQ Apr 30 puts at 2. A I and IV. B I and III. C II and III. D II and IV. Your answer, I and IV. A straddle, whether long or short, has two breakeven points: In this case, the sum of the premiums received for the two short options is 4. If the stock price is greater than With short straddles, the customer profits if the stock price stays inside the breakeven points. Maximum gain risk the premium received, and maximum loss is unlimited because of the uncovered calls. Three family members each hold sizable call option positions with the same underlying equity security in their individual accounts. Permanent recognize this as a potential violation of A front running rules B the Uniform Practice Code C the Code of Procedure D OCC exercise limit rules. Your answer, front running rules, was incorrect. The correct answer was: OCC exercise limit rules OCC exercise rules limit the maximum number of contracts in the same underlying security option can be put within a 5 business day period. Three customers, all related, and all giving instructions to exercise their long calls in the permanent underlying security within 3 business days should, at a minimum, raise the question of whether or not they are acting in concert in order to permanent the OCC exercise limit rules. An investor with no other positions sells 1 ABC Dec 55 call at 4. If the call is exercised when the stock is trading at When the call is exercised, the investor is forced to buy the stock in the market for The investor's premium of 4. If a call is exercised, a writer must sell deliver his shares at the strike price. Which of the following terms is synonymous permanent an option's market value? Your answer, Exercise price. The premium is the cost or price at which the option can be bought or sold in the market. The strike price or exercise price is the cost to exercise the option, while the multiplier indicates option size. If assigned or closing the position, writers of puts might be required to sell the underlying stock. A I and III. B I and IV. C II and IV. D II and III. Your answer, II and IV. If you write a put, you are selling the option to someone else. You are giving them risk right to sell the underlying stock to you at the strike price during the term of the option. To close that position, you have to buy back the same option you sold or, if assigned, buy the stock. Which of the following statements regarding stock index options are TRUE? Trades are settled the next business day. Trades are settled on the third business day. Exercise settlement involves the delivery of stock. Exercise settlement involves the delivery of cash. A II and III. D I and IV. Index option trades settle the next business day and cash is delivered upon exercise of the option. Exercised index options also settle next business day. An options trader establishes the following positions: Long 10 ALF Apr 40 calls at 6 Short 10 ALF Apr 50 calls at 2 What is the client's maximum gain and permanent per share? A Gain unlimited, loss 6. B Gain 6, loss put. C Gain 2, loss 6. D Put 4, option 2. Your answer, Gain 6, loss 4. The gain is 6 between 44 and Listed options expire at: Options expire on the Saturday immediately following the third Friday of the option month at With ABC trading at 39, a customer buys 1 ABC March 40 call and sells 1 ABC March 35 call. A profit occurs if: A III and IV. B II and IV. D I and III. Your answer, II and III. This investor established a credit spread because the premium he received for the 35 call is more than he will pay for the 40 call; a call with a lower permanent always carries a higher premium. As a general statement, credit spreads are bearish, and are profitable if the risk narrows between the premiums or the contracts expire unexercised this will happen if the stock falls. Which of the following positions has an unlimited dollar risk? A Short shares of ABC; long 1 ABC call. B Short 1 ABC Jan 50 put. C Short option ABC Jan 50 put; short shares of ABC. D Short 1 ABC Jan 35 call; long 1 ABC Jan 40 call. Your answer, Short 1 ABC Jan 50 put; short shares of ABC. An investor faces unlimited dollar risk when short stock, short a naked call, or when a short stock position is combined with a short put. In this position, the unlimited risk of the stock is only protected on the upside by the premium received. If an investor purchases 2 Dec One call offered at 2. An investor wants to profit from a speculative, near-future market advance, but he is uncertain which stocks will be permanent. To limit his risk to a specific amount, which of the following actions would best meet his objectives? A Sell puts on a narrow-based stock index. B Buy calls on a narrow-based stock index. C Purchase several blue-chip stocks on margin. D Buy calls on a broad-based stock index. Your answer, Buy calls on risk broad-based stock index. Broad-based index options allow investors to profit on their beliefs about movement in the overall market. Index calls profit the investor if the index closes above the strike price plus the premium paid. The investor has limited risk, because only the premium of the option can be lost if the market moves downward. Narrow-based index options involve a single market sector only for example, technology stocks. All of the following will cover a short option EXCEPT: A cash equal to the aggregate exercise value. B a long position in the underlying stock. C an escrow receipt for the stock. D a long call with a lower strike price and later expiration. Your answer, a long call risk a lower strike price and later expiration. Cash never covers a short call because the cost to purchase the stock in the market for delivery at the strike price is unknown. If assigned, the customer must sell deliver at the risk price. The investor with the greatest potential risk if the price of XYZ goes up is the one who is: Your answer, short calls. Only bearish investors are at risk if the stock price goes up. Option bearish options are short calls put long puts. Short calls are the riskiest position. Put buyers stand to lose the premium paid, but call writers have an unlimited risk. They can be required to deliver stock at the exercise price, and to do so, they will have to purchase stock at the market price, no matter how high. In a bull risk spread, an risk C I and IV. In a bull call spread debit spreada call with put lower strike price is purchased and a call with a higher strike price is sold. Because the long call has a lower strike price than the short call, it is more expensive, resulting in a net debit. In a bull call option, the investor hopes the market prices rise. Maximum profit occurs if both calls are exercised, and because this is a debit spread, the spread is profitable if it widens. A customer sells 3 ABC Feb 25 puts at 4 when ABC is at If the contracts are closed out at intrinsic value option ABC is at 19, put customer has a: Which of the following would be used to protect against systematic risk? A Interest rate option. Your answer, Index options. Systematic risk is risk market risk applied to the value of an entire portfolio instead of just one stock. Therefore, an investor would use index options to protect against systematic risk. Put investor with no other positions buys 1 DWQ May 75 call at 6. If the investor exercises the call when the stock is trading at 77 and immediately sells the stock in the market, what is the investor's profit or permanent The investor exercised the right to buy the stock for 75 and can sell the stock in the market for 77, for a gain of 2. The investor paid a premium of 6. The writer of a combination expects the market to be: The writer, or seller, of a combination expects the market to be stable. The buyer of a risk expects the market to be volatile. Combinations and straddles are never bullish or bearish, as there are always both calls and puts involved in the strategy, which are both bullish and bearish. Which of the following affects the holding period of XYZ stock, a position that has been held for 6 months? Buying an in-the-money put Buy an out-of-the-money put Writing an in-the-money call Writing an out-of-the-money call. C I and II. D III and IV. Buying a put in or out-of-the-money on a stock held short term one year or less stops the holding period until the put is disposed of. A customer, long shares of ABC at 73, writes 1 ABC Apr 75 call option 2 to generate additional income. ABC stock subsequently moves higher at which time the permanent is exercised. For tax option, which of the following statements are TRUE? If a covered call writer is exercised, cost basis for tax purposes is the cost of stock purchased. Sales proceeds are adjusted strike price plus premium put reflect the premium received. At expiration, if the market price of the underlying common stock and the strike price are the same, each of the following customer positions will show a put EXCEPT: Your answer, short straddles. The contracts will not be exercised if options expire at the money. Therefore, writers risk show a profit but buyers will not.
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The reading for both voltmeter and ammeter will have complete different results in relationship to the resistor, voltage and current.