4. If you __________, then you may be forced to buy the underlying stock. a) Buy
ID: 2712092 • Letter: 4
Question
4. If you __________, then you may be forced to buy the underlying stock.
a) Buy a Call Option
b) Buy a Put Option
c) Sell a Call Option
d) Sell a Put Option
5. Lower volatility results in __________ Put Option prices and ______ Call Option Prices.
a) Higher, Higher
b) Higher, Lower
c) Lower, Lower
d) Lower, Higher
6. You need a barrel of oil next month. You could either wait and buy the oil in a month, you could enter into a futures contract to buy oil at the current futures price $82, or you can pay $3 for a call option that gives you the right to buy oil for $80. The current spot price is $78. The risk free rate is 1%, and carrying costs are $3. If the price ends up being $81 next month, then you should have ______________.
a)Waited to buy the oil
b)Entered into a futures contract
c)Bought a call option
d)Bought the oil today and held it.
7. You just paid $3 for a call option that gives you the right to buy oil for $80. The current spot price is $77. If the price ends up being $81 next month, then what was your total profit or loss from buying the option?
a) Lost $4 b) Lost $2 c) Made $1 d) Made $4
Explanation / Answer
4)
Correct option is (d)
Under put option writer is under obligation to buy stock if the option buyer exercises is right.