chapter 4 Quiz

Which financial instrument allows market participants to ride the upside while restricting the downside?

• Forward contracts

• futures contract

• options contract

What is the distinguishing feature of a call option?

• It gives the holder the right to sell the underlying asset.

• It has unlimited profit potential for the seller.

• It gives the holder the right to buy the underlying asset.

What is the purpose of an opening purchase transaction in options trading?

• To create or increase a short position

• To reduce or eliminate an existing position

• To create or increase a long position

How is the premium for an option calculated?

• It is determined by the spot price of the underlying asset.

• It is equal to the strike price multiplied by the lot size.

• It is the price paid by the option seller to the option buyer.

• It is the price paid by the option buyer to the option seller.

How many trading cycles are typically available for stock options on the NSE?

• one month

• two months

• three months

• four months

If the total premium for a Nifty option contract is Rs 10,000 and the contract size is 50, what is the option premium per unit?

• 150

• 200

• 250

• 300

What characterizes an at-the-money (ATM) option?

• It has a strike price higher than the spot price.

• It has zero intrinsic value.

• It gives the option holder a positive cash flow if exercised immediately.

If the spot price of an asset is Rs. 50 and the strike price of a call option is Rs. 45, what is the intrinsic value of the call option?

• 15
• 5
• 20
• 10

A put option has a strike price of Rs. 80 and the spot price of the underlying asset is Rs. 70. What is the intrinsic value of the put option?

• Rs. 10
• Rs. 5
• Rs. 0
• Rs. 15

What does the time value of an option represent?

• The dividend yield of the underlying asset
• The volatility of the underlying asset
• The strike price of the option contract
• Time remaining until the expiration of the option contract