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Chapter 2 Essay

1749 words - 7 pages

CHAPTER 2: STRUCTURE OF OPTIONS MARKETS

MULTIPLE CHOICE TEST QUESTIONS

1. Options are traded on which of the following exchanges?
a. NYSE Amex
b. NYSE Euronext (Arca)
c. Chicago Board Options Exchange
d. International Securities Exchange
e. all of the above

2. A call option priced at $2 with a stock price of $30 and an exercise price of $35 allows the holder to buy the stock at
a. $2
b. $32
c. $33
d. $35
e. none of the above

3. A put option in which the stock price is $60 and the exercise price is $65 is said to be
a. in-the-money
b. out-of-the-money
c. at-the-money
d. exercisable
...view middle of the document...

purchase order
b. limit order
c. execution order
d. floor order
e. all of the above

10. The exercise price can be set at any desired level on each of the following types of options except
a. FLEX options
b. equity options
c. over-the-counter options
d. all of the above
e. none of the above

11. An investor who owns a call option can close out the position by any of the following types of transactions except
a. exercise
b. offset
c. expiring out-of-the-money
d. buying a put
e. none of the above

12. Which type of trader legitimately practices dual trading?
a. floor brokers
b. off–floor option traders
c. board brokers
d. designated primary market makers
e. none of the above

13. The option price is also referred to as the
a. strike
b. spread
c. premium
d. fee
e. none of the above

14. Index options trading on organized exchanges expire according to which of the following cycles?
a. March, June, September, and December
b. each of the next four consecutive months
c. the current month, the next month, and the next two months in one of the other cycles
d. every other month for each of the next nine months
e. none of the above

15. An investor who exercises a call option on an index must
a. accept the cash difference between the index and the exercise price
b. purchase all of the stocks in the index in their appropriate proportions from the writer
c. immediately buy a put option to offset the call option
d. immediately write another call option to offset
e. none of the above

16. Which of the following are long-term options?
a. Bond options
b. LEAPS
c. currency options
d. Nikkei put warrants
e. none of the above

17. The exchange with the largest share of the options market is the
a. American Stock Exchange
b. Boston Options Exchange
c. Chicago Board Options Exchange
d. Pacific Stock Exchange
e. Philadelphia Stock Exchange

18. A writer selected to exercise an option is said to be
a. marginal
b. assigned
c. restricted
d. designated
e. none of the above

19. All of the following are forms of options except
a. convertible bonds
b. callable bonds
c. warrants
d. mutual funds
e. none of the above

20. Which of the following index options is the most widely traded?
a. S&P 500
b. Nikkei 225
c. Technology Index
d. New York Stock Exchange Index
e. none of the above

21. In which city did organized option markets originate?
a. New York
b. Chicago
c. Philadelphia
d. San Francisco
e. none of the above

22. Who determines whether options on a company’s stock will be...

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