Derivatives Quiz 3 - Chapters 11,12,13 and 14

Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 200 options?

• 100

• 200

• 300

• 400

When the interest rate is 5% per annum with continuous compounding, which of the following creates a $1000 principal protected note?

• A. A one-year zero-coupon bond plus a one-year call option worth about $59

• B. A one-year zero-coupon bond plus a one-year call option worth about $49

• C. A one-year zero-coupon bond plus a one-year call option worth about $39

• D. A one-year zero-coupon bond plus a one-year call option worth about $29

Which of the following describes a covered call?

• A. A long call option on a stock plus a long position in the stock

• B. A long call option on a stock plus a short put option on the stock

• C. A short call option on a stock plus a short position in the stock

• D. A short call option on a stock plus a long position in the stock

1. A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net gain (after the cost of the options is taken into account)?

• A. $100

• B. $200

• C. $300

• D. $400

1. Which of the following describes a protective put?

• A. A long put option on a stock plus a long position in the stock

• B. A long put option on a stock plus a short position in the stock

• C. A short put option on a stock plus a short call option on the stock

• D. A short put option on a stock plus a long position in the stock

1. How can a strangle trading strategy be created?

• A. Buy one call and one put with the same strike price and same expiration date

• B. Buy one call and one put with different strike prices and same expiration date

• C. Buy one call and two puts with the same strike price and expiration date

• D. Buy two calls and one put with the same strike price and expiration date

1. How can a strap trading strategy be created?

• A. Buy one call and one put with the same strike price and same expiration date

• B. Buy one call and one put with different strike prices and same expiration date

• C. Buy one call and two puts with the same strike price and expiration date

• D. Buy two calls and one put with the same strike price and expiration date

1. How can a straddle be created?

• A. Buy one call and one put with the same strike price and same expiration date

• B. Buy one call and one put with different strike prices and same expiration date

• C. Buy one call and two puts with the same strike price and expiration date

• D. Buy two calls and one put with the same strike price and expiration date

1. How can a strip trading strategy be created?

• A. Buy one call and one put with the same strike price and same expiration date

• B. Buy one call and one put with different strike prices and same expiration date

• C. Buy one call and two puts with the same strike price and expiration date

• D. Buy two calls and one put with the same strike price and expiration date

1. Which of the following is true of a box spread?

• A. It is a package consisting of a bull spread and a bear spread

• B. It involves two call options and two put options

• C. It has a known value at maturity

• D. All of the above