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Ch20 1_ Option Markets

Authored by Mohd Alnajjar

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Ch20 1_ Option Markets
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7 questions

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1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following best describes an option?

A right and an obligation to buy or sell an asset in the future

A financial instrument whose value depends on another asset

A guaranteed way to make profits in stock markets

A type of government bond

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A call option gives the holder the right to:

Buy the asset at the strike price

Sell the asset at the strike price

Buy the asset at the market price only

Sell the asset only on the expiration date

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A put option is valuable when:

The stock price goes above the strike price

The stock price goes below the strike price

The stock price equals the strike price

The premium is zero

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

At the money (ATM)

Out of the money (OTM)

In the money (ITM)

Worthless

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following is an example of using options for hedging (not speculation)?

A trader buys calls on Tesla to bet on a price increase.

An airline buys oil call options to protect against rising fuel costs.

An investor buys puts to profit from a market crash.

A speculator sells options to collect premiums.

6.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the maximum loss for a buyer of a call option?

Unlimited

The stock price minus the strike price

The premium paid

Zero

7.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Options are considered “derivatives” because:

They have a maturity date.

They are traded on exchanges.

Their value is derived from another asset’s price.

They can be used for speculation.

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