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A call option is "in the money" when the. A put option is "out of the money" when the.

When the market price of the underlying security exceeds the exercise price, the. When the exercise price exceeds the market price of the underlying security, the. Sellers writers of call options can offset their position at any point in time by. Chicago Board of Options Exchange CBOE. The Options Clearing Corporation OCC serves as a guarantor on option contracts traded in the United States.

The speculator will exercise the option on the expiration date if it is feasible to do so. What is the speculator's profit per unit?

What is the stock price at which the speculator would break even? What is the maximum profit per unit to the speculator who owned the put option assuming he or she exercises the option at the ideal time? The sale of a call option on a stock the seller already owns is referred to as.

The pension fund sells a call option on the stock it owns. Put options are typically used to hedge. A savings institution has long-term fixed rate mortgages supported by short-term funds. A put option on Treasury bond futures could be used to ignore the premium paid for the option when you answer this question. A speculator purchases a put option on Treasury bond futures with a September delivery date with a strike price of The option has a premium of Assume that the price of the futures contract decreases to on the expiration date and the option is exercised at that point if it is feasible.

What is the net gain? If the index on the futures contract increases to , what is the gain on the sale of the futures contract? What was the return to the speculator? When a stock index option is exercised, the cash payment is equal to a specified dollar amount.

Long-term equity anticipations LEAPS represent. Options on stock indexes representing non-U. Which of the following is not a difference between purchasing an option and purchasing a futures contract? The fulfillment of futures contracts is regulated by exchanges, while the fulfillment of options is not. Marcie purchases a call option on interest rate futures with an exercise price of The premium on the call option is Just before the expiration date, the price of Treasury bond futures is At this time, Marcie decides to exercise the option and closes out the position by selling an identical futures contract.

Reese Insurance company sold a call option on interest rate futures with an exercise price of At this time, the option was exercised as the buyer closed out the position by selling an identical futures contract. Vince, a speculator, expects interest rates to increase and purchases a put option on Treasury bond futures with an exercise price of The premium paid for the put option is Just prior to the expiration date, the price of the Treasury bond futures contract is valued at Vince exercises the option and closes out the position by purchasing an identical futures contract.

Which of the following is not an assumption underlying the Black-Scholes option-pricing model? The world is risk-neutral. Which of the following is not true with respect to market makers? They are not subject to the risk of loss on their positions in options.

Option trading is regulated by the. Securities and Exchange Commission. On an exchange, option trades can be executed. When investors purchase an option that does not hedge their existing investments, the option can be referred to as "naked. Backdating implies that CEO or other executives reset the date that their options were granted to a different date when the stock price was lower.

The motive for a CEO to backdate options is that it allowed them to exercise the options at a lower exercise price.

FIN , CH 14 Flashcards | Quizlet

Stock options can be used by speculators to benefit from their expectations and by financial institutions to reduce their risk. The writer of a put option is obligated to provide the specified financial instrument at the price specified by the option contract if the owner exercises the option.

A call option is said to be at the money when the market price of the underlying security exceeds the exercise price.

What are the maqamat?

Market makers can execute stock option transactions for customers and do not trade stock options for their own account. American-style stock options can be exercised only just before expiration. An option with a higher exercise price has a higher call option premium and a lower put option premium. Several call options are available for a given stock, and the risk-return potential will vary among them.

The greater the existing market price of the underlying financial instrument relative to the exercise price, the higher the put option premium, other things being equal. The longer a call option's time to maturity, the lower the call option premium, other things being equal. The results with covered call writing are better than without covered call writing when the stock performs poorly and better when the stock performs well.

Put options are more typically used to hedge when portfolio managers are mainly concerned about a temporary decline in a stock's value. An increase in uncertainty results in a higher implied standard deviation for the stock, which means that the writer of an option requires a higher premium to compensate for the anticipated increase in the stock's volatility.

Speculators who anticipate a sharp increase in stock market prices overall may consider purchasing put options on one of the market indexes.

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Speculators who anticipate a decline in interest rates may consider writing a call option on Treasury bond futures. Speculators sell call options on currencies that they expect to strengthen against the dollar. Which of the following statements is least correct regarding corporations involved in international business transactions? They may purchase currency call options to hedge future receivables denominated in a foreign currency.

Brad expects interest rates to increase and purchases a put option on Treasury bond futures with an exercise price of Brad exercises the option and closes out the position by purchasing an identical futures contract. Which of the following statements is incorrect? Firms readily promote their option compensation programs and are more than willing to acknowledge that the options are an expense.