CFA 1 Der Option

Mosaks, Inc., has a put option with an exercise price of $105. If Mosaks stock price is $115 at expiration, the value of the put option is

• $0
• $10
• $105

In a credit default swap (CDS), the buyer of credit protection

• makes a series of payments to a credit protection seller
• exchanges the return on a bond for a íxed or îoating rate return
• issues a security that is paid using the cash îows from an underlying bond

A call option has a strike price of $35 and the stock price is $47 at expiration. What is the expiration day value of the call option?

• $35
• $0
• $12

Credit default swaps are least accurately characterized as

• contingent claims
• insurance
• forward commitments

Basil, Inc., common stock has a market value of $47.50. A put available on Basil stock has a strike price of $55.00 and is selling for an option premium of $10.00. The put is

• out-of-the-money by $2.50
• in-the-money by $7.50
• in-the-money by $10.00

Which of the following statements regarding call options is most accurate? The

• call holder will exercise (at expiration) if the exercise price exceeds the stock price
• breakeven point for the buyer is the exercise price plus the option premium
• breakeven point for the seller is the exercise price minus the option premium

Jimmy Casteel pays a premium of $1.60 to buy a put option with an exercise price of $145. If the stock price at expiration is $128, Casteel's profit or loss from the options position is

• $1.6
• $18.4
• $15.4

An investor buys a call option that has an option premium of $5 and an exercise price of $22.50. The current market price of the stock is $25.75. At expiration, the value of the stock is $23.00. The net profit/loss of the call position is closest to

• -$4.5
• $4.5
• -$5

Biomian Limited is a Mumbai-based biotech company with common stock and listed futures and options on the National Stock Exchange (NSE). The Viswan Family Office (VFO) currently owns 10,000 Biomian common shares. VFO would like to reduce its long Biomian position and diversify its equity market exposure but will delay a cash sale of shares for tax reasons for six months. Which of the following derivative contracts available to VFO’s chief investment officer is best suited to reduce exposure to a decline in Biomian’s stock price in the next six months?

• A short put position on Biomian stock that expires in six months
• A long call position on Biomian stock that expires in six months
• A short futures position in Biomian stock that settles in six months

Biomian Limited is a Mumbai-based biotech company with common stock and listed futures and options on the National Stock Exchange (NSE). The Viswan Family Office (VFO) currently owns 10,000 Biomian common shares. VFO would like to reduce its long Biomian position and diversify its equity market exposure but will delay a cash sale of shares for tax reasons for six months. VFO’s market strategist believes that Biomian’s share price will rise over the next six months but would like to protect against a decline in Biomian’s share price over the period. Which of the following positions is best suited for VFO to manage its existing Biomian exposure based on this view?

• A long put position on Biomian stock that expires in six months
• A short call position on Biomian stock that expires in six months
• A long futures position in Biomian stock that settles in six months