Free Printable Options Worksheet (Calls and Puts)

1.

The intrinsic value of a call option is given by which formula?

a)

$S_0 - X$

b)

$\max(0, S_0 - X)$

c)

$\max(0, X - S_0)$

d)

$X - S_0$

2.

When is the intrinsic value of a call option equal to 0?

a)

When $S_0 > X$

b)

When $S_0 = X$

c)

When $S_0 < X$

d)

Both when $S_0 = X$ and when $S_0 < X$

3.

The time value of a call option reflects what?

a)

The current stock price

b)

The interest rate level

c)

The uncertainty (volatility) of the stock price

d)

The strike price

4.

At expiration of a call option, its time value equals:

a)

$S_T - X$

b)

$X - S_T$

c)

$0$

d)

$C$

5.

How does an American call option differ from a European call option?

a)

It is always more expensive

b)

It can be exercised before expiration

c)

It can only be exercised at expiration

d)

It has no time value

6.

The lowest possible value of an American call option is:

a)

$0$

b)

$S_0$

c)

$\max(0, S_0 - X)$

d)

$X$

7.

The maximum possible value of a call option is:

a)

$X$

b)

$S_0$

c)

$S_T$

d)

$C$

8.

If a call option’s price is greater than the stock price, what occurs?

a)

No issue

b)

An arbitrage opportunity exists

c)

The price is fair

d)

The market is in equilibrium

9.

A call option is at the money (ATM) when:

a)

$S_0 > X$

b)

$S_0 < X$

c)

$S_0 = X$

d)

$T = 0$

10.

The time value of a call option is usually largest when it is:

a)

Deep in the money (ITM)

b)

Deep out of the money (OTM)

c)

At the money (ATM)

d)

At expiration

11.

When the interest rate rises, the price of a call option will:

a)

Decrease

b)

Stay the same

c)

Increase

d)

Go to $0$

12.

The lower bound for a European call option is:

a)

$S_0$

b)

$\max(0, S_0 - X)$

c)

$\max\big(0, S_0 - X e^{-rT}\big)$

d)

$X$

13.

If the stock pays dividends, to price the option you should:

a)

Add the dividend

b)

Ignore the dividend

c)

Subtract the present value of dividends

d)

Receive the dividend

14.

For a non-dividend-paying stock, an American call option should be:

a)

Optimally exercised early

b)

Always exercised early

c)

Never exercised early

d)

Worthless

15.

As stock price volatility increases, a call option becomes:

a)

Less attractive

b)

Unchanged

c)

More attractive

d)

Worthless

16.

The price of a call option consists of:

a)

Market price

b)

Intrinsic value

c)

Time value

d)

Both intrinsic value and time value

17.

An out-of-the-money (OTM) call option has intrinsic value that is:

a)

Negative

b)

Positive

c)

Zero

d)

Undefined

18.

If a call option is priced below its intrinsic value, then:

a)

There is no effect

b)

There is an arbitrage opportunity

c)

The price is fair

d)

The market is stable

19.

A call option’s price cannot be negative because:

a)

The stock price is nonnegative

b)

The buyer is not obligated to exercise

c)

Interest rates are always positive

d)

It has time value

20.

The price of a call option at expiration time $T$ is denoted by:

a)

$C(S_0, T, X)$

b)

$C(S_T, 0, X)$

c)

$P(S_T, 0, X)$

d)

$S_T$

21.

The intrinsic value of a put option is:

a)

$\max(0, S_0 - X)$

b)

$\max(0, X - S_0)$

c)

$S_0 - X$

d)

$X - S_0$

22.

A put option is in the money (ITM) when:

a)

$S_0 > X$

b)

$S_0 = X$

c)

$S_0 < X$

d)

$T = 0$

23.

The lowest possible value of a put option is:

a)

Negative

b)

$X$

c)

$0$

d)

$S_0$

24.

The maximum possible value of an American put option is:

a)

$S_0$

b)

$X$

c)

$X$

d)

$P$

25.

At expiration of a put option, its value equals:

a)

$X - S_T$

b)

$\max(0, X - S_T)$

c)

$S_T - X$

d)

$0$

26.

The time value of a put option is:

a)

$P$

b)

$P - \max(0, X - S_0)$

c)

$\max(0, X - S_0)$

d)

$S_0 - X$

27.

When the risk‑free interest rate increases, the price of a put option:

a)

Increases

b)

Decreases

c)

Stays the same

d)

Becomes $0$

28.

When volatility increases, the price of a put option:

a)

Decreases

b)

Stays the same

c)

Increases

d)

Becomes worthless

29.

The lower bound of a European put option is:

a)

$X - S_0$

b)

$\mathrm{PV}(X)$

c)

$\max\big(\mathrm{PV}(X) - S_0,\,0\big)$

d)

$S_0$

30.

The intrinsic value of an out‑of‑the‑money put option is:

a)

Negative

b)

Positive

c)

Zero

d)

Undefined

31.

Put–call parity is based on:

a)

The law of supply and demand

b)

The law of one price

c)

The law of probability

d)

The efficient market hypothesis

32.

The put–call parity equation is:

a)

$C + P = S_0$

b)

$S_0 + P = C + \mathrm{PV}(X)$

c)

$C = P + X$

d)

$P = C - S_0$

33.

By put–call parity, the call price equals:

a)

$P + S_0 - \mathrm{PV}(X)$

b)

$P - S_0 + \mathrm{PV}(X)$

c)

$S_0 + P$

d)

$X - P$

34.

By put–call parity, the put price equals:

a)

$C + S_0$

b)

$C - S_0 + \mathrm{PV}(X)$

c)

$X - C$

d)

$S_0 - C$

35.

Owning a call option is equivalent to:

a)

Owning a put option

b)

Owning the stock

c)

Owning a put option plus the stock minus a bond (present value of $X$ )

d)

Shorting the stock

36.

Owning a put option is equivalent to:

a)

Owning a call option and buying the stock

b)

Owning a call option, shorting the stock, and buying a bond (present value of $X$ )

c)

Owning the stock

d)

No equivalence

37.

If put–call parity is not satisfied, then:

a)

The market is stable

b)

Arbitrage opportunities exist

c)

Prices are fair

d)

There is no effect

38.

In put–call parity, $X$ (discounted) represents:

a)

The strike price

b)

The stock price

c)

The present value of the strike price

d)

The option price

39.

Put–call parity applies to:

a)

American options

b)

European options

c)

Both types

d)

Neither type

40.

If the risk‑free interest rate increases, then according to parity the price of a put option will:

a)

Increase

b)

Decrease

c)

Stay the same

d)

Be zero

41.

An option’s price cannot be negative because:

a)

The stock price is nonnegative

b)

The buyer can refuse to exercise

c)

The interest rate is always positive

d)

It has time value

42.

If a call option’s price is lower than its intrinsic value, then:

a)

It is acceptable

b)

It is fairly priced

c)

Arbitrage exists

d)

The market is balanced

43.

If two call options differ only in strike price, then:

a)

The lower‑strike call is always cheaper

b)

The lower‑strike call is always more expensive

c)

They cannot be compared

d)

They are equal in price

44.

The difference between call option premiums cannot exceed:

a)

The stock price

b)

The option price

c)

The difference in strike prices

d)

The interest rate

45.

If option price bounds are violated, the result is:

a)

Risk

b)

Arbitrage

c)

Certain loss

d)

No effect

46.

A portfolio with income that is never negative implies:

a)

A high portfolio price

b)

No arbitrage

c)

Arbitrage exists

d)

An inefficient market

47.

An option with a longer time to expiration is generally:

a)

Less valuable

b)

Equal in value

c)

More valuable

d)

Worthless

48.

An option’s time value will:

a)

Increase as expiration nears

b)

Stay unchanged

c)

Decline to $0$ at expiration

d)

Always be $0$

49.

A deep in‑the‑money option usually has time value that is:

a)

Very high

b)

Average

c)

Low

d)

Undefined

50.

A deep out‑of‑the‑money option usually has time value that is:

a)

High

b)

Average

c)

Low

d)

Negative

51.

Which factor does NOT affect option prices?

a)

Time to expiration

b)

Strike price

c)

Risk‑free interest rate

d)

Number of shares outstanding

52.

When stock price volatility increases, which effect occurs?

a)

Call price decreases

b)

Put price decreases

c)

Both call and put prices increase

d)

No effect

53.

When the time to expiration increases, what happens to an option’s price?

a)

The option price decreases

b)

The option price increases

c)

The option price is unchanged

d)

The option loses all value

54.

If the strike price increases, what happens to a call option’s price?

a)

Increase

b)

Decrease

c)

No change

d)

Equal to $0$

55.

If the strike price increases, what happens to a put option’s price?

a)

Decrease

b)

No change

c)

Increase

d)

Equal to $0$

56.

When interest rates increase, what happens to a call option’s price?

a)

Decrease

b)

No change

c)

Increase

d)

Negative

57.

When interest rates increase, what happens to a put option’s price?

a)

Increase

b)

Decrease

c)

No change

d)

Negative

58.

If the underlying stock pays dividends, what happens to a call option’s price?

a)

Increase

b)

Decrease

c)

No change

d)

Negative

59.

If the underlying stock pays dividends, what happens to a put option’s price?

a)

Increase

b)

Decrease

c)

No change

d)

Equal to $0$

60.

The primary objective of option valuation is to determine which component?

a)

Forecast the stock price

b)

Determine the time value

c)

Determine brokerage fees

d)

Compute stock profit

61.

The intrinsic value of a call option is considered to be which of the following?

a)

Expected value

b)

Exercise value

c)

Speculative value

d)

Time value

62.

Intrinsic value is also called which of the following?

a)

Time value

b)

Present value

c)

Parity value

d)

Market value

63.

Which characteristic applies to an in-the-money (ITM) call option?

a)

Intrinsic value equals $0$

b)

Positive intrinsic value

c)

No value

d)

Always expires worthless

64.

An out-of-the-money (OTM) put option has what intrinsic value?

a)

Negative

b)

Positive

c)

$0$

d)

Undefined

65.

The time value of an option reflects which factor most directly?

a)

The stock price level

b)

The strike price level

c)

The degree of future uncertainty

d)

The interest rate

66.

As the time remaining to expiration gradually decreases, what happens to time value?

a)

Increase

b)

No change

c)

Decrease

d)

Negative

67.

At the instant an option reaches expiration, which statement is true?

a)

Time value is at its maximum

b)

Intrinsic value is at its maximum

c)

Time value equals $0$

d)

The option price is undefined

68.

The value of an option at expiration depends on which factor?

a)

The current stock price

b)

The stock price at expiration

c)

The interest rate

d)

Time remaining

69.

When the stock price rises well above the strike price, a call option is best described as which moneyness?

a)

OTM

b)

ATM

c)

Deep ITM

d)

Worthless

70.

When the stock price is far below the strike price, a call option is best described as which moneyness?

a)

ITM

b)

ATM

c)

Deep OTM

d)

Has high intrinsic value

71.

A deep ITM call option usually has what level of time value?

a)

High

b)

Medium

c)

Low

d)

Undefined

72.

A deep ITM put option usually has what level of time value?

a)

High

b)

Medium

c)

Low

d)

Negative

73.

An at-the-money (ATM) option is best compared to which situation?

a)

A balanced match, less attractive

b)

A balanced match, tense

c)

A one-sided match

d)

A finished match

74.

A call option’s price cannot exceed the stock price because this would cause which outcome?

a)

No demand

b)

Investment irrationality

c)

Arbitrage opportunities

d)

Stock price controls

75.

If a call option’s price is greater than the stock price, what should an investor do?

a)

Buy the option

b)

Sell the option

c)

Buy the stock

d)

Do nothing

76.

A call option can be viewed as which of the following?

a)

An insurance instrument

b)

An indirect way to buy stock

c)

A bond

d)

A futures contract

77.

A put option is primarily used to:

a)

Speculate on rising prices

b)

Hedge against downside price risk

c)

Replace holding the stock

d)

Avoid taxes

78.

When a stock price drops sharply, the value of a put option will:

a)

Lose value

b)

Remain unchanged

c)

Increase in value

d)

Become worthless

79.

The intrinsic value of an at-the-money (ATM) put option is:

a)

Negative

b)

Positive

c)

Zero

d)

Undefined

80.

A put option attains its maximum value when the current stock price is:

a)

$S_0 = X$

b)

$S_0 > X$

c)

$S_0 = 0$

d)

$T = 0$

81.

The maximum possible value of a European put option equals:

a)

$X$

b)

$S_0$

c)

the present value of $X$ (i.e., $X e^{-rT}$ )

d)

$P$

82.

The maximum possible value of an American put option equals:

a)

the present value of $X$ (i.e., $X e^{-rT}$ )

b)

$S_0$

c)

$X$

d)

$P$

83.

At expiration, the payoff of a put option equals:

a)

$X - S_0$

b)

$X - S_T$

c)

$\max(0, X - S_T)$

d)

$\max(0, S_T - X)$

84.

The minimum value of an American put option is:

a)

$0$

b)

$X - S_0$

c)

$\max(0, X - S_0)$

d)

$S_0$

85.

When the stock does not pay dividends, an American put option:

a)

Is never exercised early

b)

May be exercised early

c)

Has no value

d)

Is always exercised early

86.

The lower bound of a European put option is:

a)

$X - S_0$

b)

$\max(0, X e^{-rT} - S_0)$

c)

$X$

d)

$S_0$

87.

If the stock pays dividends, the lower bound of a put option will:

a)

Remain unchanged

b)

Increase

c)

Decrease

d)

Become negative

88.

When interest rates rise, the price of a put option will:

a)

Increase

b)

Decrease

c)

Remain unchanged

d)

Be zero

89.

As stock price volatility increases:

a)

Only call values increase

b)

Only put values increase

c)

Both call and put values increase

d)

There is no effect

90.

The single most important factor determining an option’s price is:

a)

The stock price

b)

The strike price

c)

Time to expiration

d)

The volatility of the underlying asset

Options Worksheet (Calls and Puts)

Total questions: 90

Worksheet time: 45mins

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