4. If you __________, then you may be forced to buy the underlying stock. a) Buy

Question

4. If you __________, then you may be forced to buy the underlying stock.

a)         Buy a Call Option

b)         Buy a Put Option

c)         Sell a Call Option

d)         Sell a Put Option

5. Lower volatility results in __________ Put Option prices and ______ Call Option Prices.

a)         Higher, Higher

b)         Higher, Lower

c)         Lower, Lower

d)         Lower, Higher

6. You need a barrel of oil next month. You could either wait and buy the oil in a month, you could enter into a futures contract to buy oil at the current futures price $82, or you can pay $3 for a call option that gives you the right to buy oil for $80. The current spot price is $78. The risk free rate is 1%, and carrying costs are $3. If the price ends up being $81 next month, then you should have ______________.

a)Waited to buy the oil

b)Entered into a futures contract

c)Bought a call option

d)Bought the oil today and held it.

7. You just paid $3 for a call option that gives you the right to buy oil for $80. The current spot price is $77. If the price ends up being $81 next month, then what was your total profit or loss from buying the option?

a) Lost $4           b) Lost $2       c) Made $1     d) Made $4

Explanation / Answer

4)

Correct option is (d)

Under put option writer is under obligation to buy stock if the option buyer exercises is right.

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.