Chapter 5 Practice Questions
1. Sally purchases an ABC Apr 30 call @ 2.50. The stock is currently selling at 31. What is her maximum gain?
A. Unlimited
B. $250
C. $3,000
D. $150
2. Sally purchases three ABC Apr 30 calls @ 2.50. The stock is currently trading at 31. What is her breakeven point?
A. $30
B. $32.50
C. $37.50
D. $33.50
3. Jon shorts three ABC Apr 50 calls @ 3.50. He has no other positions in the stock. The stock is currently selling at 51. What is his maximum gain?
A. Unlimited
B. $1,050
C. $750
D. $3,950
4. Jessica purchases an ABC Apr 30 put @ 2.50. The stock is currently selling at 31. What is her maximum gain?
A. Unlimited
B. $250
C. $3,000
D. $2,750
5. Sandy shorts four ABC Apr 30 puts @ 2.50. The stock is currently selling at 31. What is her maximum loss?
A. $700
B. $1,000
C. $12,000
D. $11,000
6. Sandy shorts four ABC Apr 30 puts @ 2.50. The stock is currently selling at 31. Which of the following is true?
A. The options are in the money.
B. The options are out of the money.
C. The options are at the money.
D. We cannot tell whether the options are in or out of the money until the option is exercised.
7. Jon shorts three ABC Apr 50 calls @ 3.50. He has no other positions in the stock. The stock is trading at 51. Which of the following is true?
A. The intrinsic value of the option is $1.
B. The intrinsic value of the option is $2.50.
C. The intrinsic value of the option is $0.
D. The intrinsic value of the option cannot be determined until the option is exercised.
8. Sandy shorts an ABC Apr 30 put @ 2.50 when the stock is selling at 31. Which of the following is true about the intrinsic value of the option at the time of the transaction?
A. The intrinsic value of the option is $1.
B. The intrinsic value of the option is $1.50.
C. The intrinsic value of the