1.At the close yesterday IBM was down $2.64 per share from the day before. Also, at the close an IBM 138 call was priced yesterday at $ .98 bid, $1.01 ask, with a delta of .36.This morning, IBM was up $ .50 per share and the option is priced at $1.15 bid, $1.18 ask with a delta of .51. What was the option’s gamma if the theta was -.05?
2.Bull call spreads and bull put spreads are both credit spreads. T/F
3.The closer the options get to expiration, the more the deltas tend to approach 0 and +/-1.00, but only ATM gamma increases as expiry approaches. T/F
4.If an investor anticipates a significant rally in the stock market, the investor should
a.buy the S&P 500 futures contract.
b.sell the S&P 500 futures contract.
c.sell a call option on the S&P 500.
d.buy a put option on the S&P 500.
e.sell a put option on the S&P 500.
5.The cash price of wheat today is $4.10 per bushel, and the three-month futures price of the same is $4.21 per bushel. The basis is:
a.$0.11
b.-$0.11
c.$4.10
d.$4.21
6.Which of the following is not a difference between futures and forwards?
I.Futures are liquid, forwards are not.
II.Futures do not incur counterparty default, forwards can.
III.Futures are traded on established exchanges, forwards are traded over-the-counter.
III.Futures have standardized contract specifications, forwards do not.
a.Only III is not.
b.I, III and IV are not.
c.II and III are not
d.All are differences.
e.None are differences.
7.Both puts and calls decline in value when volatility decreases. T/F
8.American put options on stocks that pay no dividends are often worth more than corresponding European put options. T/F
9.The Black-Scholes-Merton model assumes(a) the stock price at a future time is normal; (b) the stock price at a future time is lognormal; and(c) the return from the stock is lognormal.
a.A only
b.B only
c.C only
d.None of these are assumptions
e.All of these are assumptions
10.The call option on the $15 strike is currently worth $1.02, and has a delta of 0.43. How much would the call option be worth if the underlying increases by $0.50?
11.Which of the following options (on the same expiry) has the largest vega when the stock is trading at 100?
a.Put of the 120 strike
b.Call of the 120 strike
c.Put on the 100 strike
d.Call on the 80 strike
12.At the close yesterday IBM was down $2.64 per share from the day before. Also at the close, an IBM 138 call was priced yesterday at $ .98 bid, $1.01 ask, with a delta of .36. This morning, IBM was up $ .50 per share and the option is priced at $1.15 bid, $1.18 ask with a delta of .51. What is the option’s gamma?
13.Tomorrow, you want to buy an option has a theta of -.13. If it has an ask price of $1.08 today, what will its price be tomorrow at the open, if the stock opens unchanged?
14.A stock is trading at $46.96 per share, and the 47.5 option is quoted at $5.60 bid and $6.00 ask. The next day the stock is up $2.87 on strong earnings. You see that the option had a theta of -.02 and a delta of .56. Based only on this information, how much extrinsic value should you expect the option's ask price to have?
15.You have been looking ESPR for some time, and you are willing to take a chance. The stock is at $ and you see that the following quotes that are of interest to you:
Call - Bid
|
Call - Ask
|
Strike
|
Put - Bid
|
Put - Ask
|
0.55
|
0.75
|
60
|
8.10
|
9.00
|
1.70
|
1.95
|
55
|
4.50
|
4.90
|
4.00
|
4.30
|
50
|
1.85
|
2.15
|
5.80
|
6.40
|
45
|
0.50
|
0.80
|
You decide to write a 60-55-50-45 iron condor. If the probabilities are 68.62% that the price of ESPR will remain within the inner bound of the spread, what is your expected percent returnagainst risk?
16.You reconsider the ESPR trade. Now you decide to buy the 55 call and sell the 60 call. This is called a _____________.
17.You are looking again at the ESPR trade. The chances of the stock being above breakeven are 24.16%, and of being above $60 per share is 14.19%. What is your expected maximum return against risk?
18.You are considering a butterfly spread for ZEUS (Olympic Steel) currently trading for $17.67 per share ask. You study these quotes:
Call-Bid
|
Call-Ask
|
Strike
|
Put-Bid
|
Put-Ask
|
.75
|
1.00
|
17.50
|
.65
|
.90
|
.10
|
.25
|
20.00
|
2.30
|
2.60
|
.05
|
.15
|
22.50
|
4.60
|
5.10
|
The one with the highest MAXIMUM payoff, regardless of probability is the[long/short], [call/put] butterfly, with the payoff of [amount]. (Round dollar answer to the nearestdollar).
19.The objective in credit spreads is to let theta work for the investor; the intent is to get all options to expire worthless.T/F
20.Options are said to be "wasting assets" because their extrinsic value is reduced to zero as expiry approaches.T/F