Question

our Section: 1. Which of the following trading strategy prefers the options to be out-of-the-money! A. Selling Put B. Selling Call C. Covered Call D. All above E. None above 2. Which of the following option strategy requires the SAME exercise price of options? A. Bearish spread B. Bullish spread C. Straddle D. All above E. None above 3. An European put option gives its holder the right to : A. buy the underlying asset at the exercise price on or before the expiration date B. buy the underlying asset at the exercise price only at the expiration date C. sell the underlying asset at the exercise price on or before the expiration date D. sell the underlying asset at the exercise price only at the expiration date E. None above The writer of a put option : A. agrees to sell shares at a set price if the option holder desires B. agrees to buy shares at a set price if the option holder desires C. has the right to buy shares at a set price D. has the right to sell shares at a set price E. None above An investor paid $10 for an option that is currently in-the-money with payoff of $ nderlying is priced at $90, which of the following is correct?

Answer 1

1]

D - all of the above.

Options which are out-of-the money have a higher chance of expiring worthless, hence selling out-of-the-money options is preferred.

2]

C - Straddle

A straddle involves buying/selling options of the same strike price.

Spreads involve options with different strike prices.

3]

D - A put option gives the holder the right to sell the underlying asset. European options can be exercised only on the expiration date.

4]

B - The writer of a put option agrees to buy the underlying asset at the strike price if the option holder wishes to exercise the option.