Series 7: Exercise

Taken from our Series 7 Online Guide

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Exercise

Answer the following questions.

1. The maximum profit an investor can earn with a short straddle is equal to:

A. The difference between the two strike prices

B. The sum of the two premiums received

C. The difference between the two strike prices less the difference between the two premiums

D. The difference between the premium bought and the premium sold

2. Jeanine writes an ABC Jun 40 call @ 5 and buys an ABC Jun 50 call @ 3. Characterize the position she has just acquired.

A. Bear debit spread

B. Bear credit spread

C. Bull debit spread

D. Bull credit spread

3. Sam has the following positions, long XYZ Jul 50 call and short XYZ Jul 45 call. The combination of these two positions is called a:

A. Bear call spread

B. Married call

C. Protective call

D. Bull call spread

4. Your customer writes an XYZ Apr 50 call @ 2.50 and writes an XYZ Apr 50 put @ 3.75. If the stock is trading at $57 on the expiration date, what will his total gain or loss on the options contract?

A. $75 loss

B. $450 gain

C. $75 gain

D. $450 loss

5. An investor writes a call and a put at the same strike price on Kayser Steel. The investor is expecting the price of the underlying stock to:

A. Rise dramatically

B. Remain stable

C. Drop dramatically

D. Move erratically in either direction

6. What is the position formed by a customer with the following two options: short ABC Apr 70 put @ 5 and long ABC Apr 60 put @ 1?

A. Bear debit spread

B. Bear credit spread

C. Bull debit spread

D. Bull credit spread

7. Your customer is short 100 ABC @ $55 and wants to hedge his position by putting a floor on his possible losses. To protect him from the risk that ABC’s stock price may rise, you recommend that he:

A. Buy a put

B. Sell a put

C. Sell a call

D. Buy a call

8. Danielle owns 100 shares of Company XYZ, which she bought f

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