Options: Put & Call

If a call option is far 'out of the money' the value of the option will be:

• Equal to the value of a put option with the same exercise price

• Greater than the value of a put option with the same exercise price

• Zero

• Less than the value of a put option with the same exercise price

A/An ______ gives the buyer the right, but not the obligation, to exercise the option at any time before the expiration or maturity date:

• American Option

• At-The-Money Option

• European Option

• Asian Option

In the Black and Scholes option pricing formula, an increase in a stock's volatility:

• Increases the associated call option value

• Decreases the associated put option value

• Increases or decreases the option value, depending on the level of interest rates

• Does not change either the put or call option value because put-call parity holds

An American option is more valuable than a European option on the same dividend-paying stock with the same terms because the:

• European option contract is not adjusted for stock splits and stock dividends

• American option can be exercised from date of purchase until expiration, but the European option can be exercised only at expiration

• American options are traded on US exchanges, which offer much more volume and liquidity

• Dividend will be in USD and this is a more universally acceptable currency than the EUR

Which one of the following transactions would be considered a protective strategy?

• Sell a call against a stock you sold short

• Buy a call on a stock you own

• Buy a put on a stock you own

• Sell a put on a stock you own