1.a trader buys a put option for $6 that gives the right to sell a share of stoc

Question

1.a trader buys a put option for $6 that gives the right to sell a share of stock for $100. The stock price is $98. in this situation the option is

a.ATM

b.OTM

c.ITM by $2

d. ITM by $4

e.ITM by $6

2.A person that takes the option position to sell the right to sell an underlying stock is a

a.call option buyer

b.call option seller

c.put option buyer

d. put option seller

e.none of the above

3.Which of the following option transactions do not need a margin deposit? A margin is needed when the transaction involves possible default

a.long call

b.short call

c.covered call

d. a and b

e.a and c

f.all fo the above

4. Which of the following is/are volatility trading strategies?

a.bull spread

b.covered call

c.straddle

d.butterfly spread

e. none of the above

f. a and b

g. a and c

h. c and d

5. which one of the following option is/are path-dependent?

a. binary option

b.asian option

c. lookback option

d. american option

e.a and b

f. a and c

g. b and c

h. b, c, and d

i. all of the above

Explanation / Answer

1

Ans) in case of a put option In the money situation comes when the Strike price is above the market price of the underlying Asset. So in the given case since it is a put option and also strike price is more than market price by $2 the above asset is said to be in the money by $ 2. So answer is c)

2.

Ans) A person who has takes the option position to sell the right to sell an underlying stock is known as Put option buyer . So answer is Option c)

3.

Ans) Long Call always reqiure margin deposit, where as if short calls are covered then additionally no margin deposit is required to be deposited .So assuming in the given problem short call is not covered , answer is option d)

4.

Ans) Butterfly spread and straddle are volaitlity trading Strategies . So answer is Option h)

5.)

Ans) A path dependent option payoff is determined by the path of the underlying asset's price.In asian , lookback, american optioshave the right to buy or sell the underlying asset depending on the path dependent payoff , where as in binary option there is no such facility , thus asian , lookback and american options are path dependent options but not binary option so answer is Option h)

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