1. It is April and a trader buys 100 September put options with a strike price o
ID: 2757288 • Letter: 1
Question
1. It is April and a trader buys 100 September put options with a strike price of $21. The stock price is $17.2 and the option price is $4.44. At the expiration, the stock price becomes $18.8. Calculate the option profit to the trader.
2. When one buys an option, he has to find another trader who wants to write the option. True False
3. ________ is tranches created from a pool of mezzanine tranches. ABS ABS CDO Synthetic CDO Credit Default Swap
4. 2 months ago, you paid $7 for a put option with a strike price of $30. The put option expires today and the stock price is $22. You should exercise because the stock price is lower than the strike price. True False
5. Lehman Bros went bankrupted in 2008 financial crisis. True False
6. BBB-rated ABS CDOs have the same riskiness as BBB-rated ABSs. True False
7. It is July and a trader buys 100 December call options with a strike price of $26. The stock price is $26 and the option price is $5.5. At the expiration, the stock price becomes $31.64. Calculate the option profit to the trader.
8. Which is a right to sell a stock at a strike price on a maturity date? European call option American call option European put option American put option
9. Exercise price of an option is fixed. True False
Explanation / Answer
1)
Profit/(Loss) on put options:
= 100×($21-$18.8-$4.44)
= ($224)
oss on exercise of put options is $224
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