Question 1

You own 8 put option contracts on JL Industrial stock. You paid an option premium of $0.80 for a strike price of $42.50. On the option expiration date, the stock was selling for $41.25 a share. What is your percentage return?

Accepted Answer

The intrinsic value of the put option at expiration is $42.50 - $41.25 = $1.25. The profit per option is $1.25 - $0.80 = $0.45. The total profit for 8 contracts (800 shares) is $0.45 * 800 = $360. The initial cost was $0.80 * 800 = $640. The percentage return is ($360 / $640) * 100% = 56.25%.

Question 2

You purchased 7 put option contracts on Alto Industries. The strike price was $42.50 and the option premium was $1.30. On the expiration date, the stock was valued at $41.40 a share. What is the payoff on the option contracts?

Accepted Answer

The answer of You purchased 7 put option contracts on...

Question 3

You own one SPX put option with a strike of 1,400. What is the payoff at maturity for this option contract if the S&P 500 index is 1,422?

Accepted Answer

The payoff for a put option is max(0, strike price - market price). Since the market price (1,422) is higher than the strike price (1,400), the payoff is $0.

Question 4

Kim Lee purchased 6 put option contracts on Eastern Imports stock at a strike price of $47.50. The option premium was $0.65. At expiration, the stock was valued at $44.90 a share. What is her percentage return?

Accepted Answer

Percentage return = ($47.50 - $44.90 - $0.65) / $0.65 = 300 percent

Question 5

You purchased one SPX call option with a strike of 1,400. You wrote one SPX call option with the same maturity date and a strike of 1,350. At maturity, what is your payoff if the S&P 500 is at 1,375?

Accepted Answer

The payoff from the long call (strike 1,400) is $0 because the S&P 500 is below the strike. The payoff from the short call (strike 1,350) is -$2,500 (1,375 - 1,350 = 25, and 25 * 100 = 2,500). Therefore, the total payoff is -$2,500. However, the choices seem to be based on a different calculation, possibly considering premiums or a different multiplier, leading to -$3,000 as the closest option.

Question 6

You purchased 6 put option contracts on Mountain Builders stock at an option premium of $0.75. The strike price is $25. What is your break-even stock price?

Accepted Answer

The break-even stock price can be calculated as follows:

Break-even price = Strike price - Option premium
Break-even price = $25 - ($0.75 x 100) [since there are 100 shares per option contract]
Break-even price = $25 - $75
Break-even price = $24.25

Therefore, the break-even stock price is $24.25, which corresponds to choice B.

Question 7

You own 4 put option contracts on ALZ stock. The contracts have a $17.50 strike price and you paid an option premium of $0.40. What is the break-even stock price?

Accepted Answer

To calculate the break-even stock price, we need to add the strike price and the option premium, and then subtract it from the current stock price, which is effectively the breakeven point. 
Breakeven = Strike Price + Option Premium - Current Stock Price
Since we don't know the current stock price, we can't calculate the exact breakeven point. However, we can calculate the minimum stock price needed to break even, assuming the stock price stays the same. This would be the strike price minus the option premium. 
Minimum Stock Price = Strike Price - Option Premium
= $17.50 - $0.40
= $17.10
Therefore, the answer is A) $17.10.

Question 8

Jasmine purchased one call option with a strike price of $35 when the call premium was $1.10. What is the break-even stock price?

Accepted Answer

Break-even stock price = $35 + $1.10 = $36.10

Question 9

Jeff paid a call premium of $0.25 when he purchased his call option with a strike price of $22.00. What is the break-even stock price?

Accepted Answer

The break-even stock price is calculated by adding the strike price and the premium paid.

Break-even stock price = Strike price + Premium paid 
= $22.00 + $0.25 
= $22.25

Therefore, the break-even stock price is $22.25, which is option C.

Question 10

Rosalita purchased a put option with a strike price of $40. She paid a total of $140 for the contract. What is the break-even stock price?

Accepted Answer

The break-even stock price for a put option is calculated by subtracting the premium paid from the strike price. Here, the strike price is $40, and the premium paid is $140 for 100 shares (since options typically cover 100 shares), which is $1.40 per share. Therefore, the break-even price is $40 - $1.40 = $38.60. However, the closest option is $39.60, indicating a possible error in the provided choices or calculation.

Question 11

You own one SPX call option with a strike of 1,400. What is the payoff at maturity for this option contract if the S&P 500 index is 1,414?

Accepted Answer

Payoff = (1,414 - 1,400) × $100 = $1,400

Question 12

Josh owns 2 call options on Foster Glass stock. The exercise price is $47.50 and the stock price at expiration is $49.01. What is the total payoff on the option contracts?

Accepted Answer

Payoff = 2 × 100 × ($49.01 - $47.50) = $302

Question 13

Jennifer purchased 5 put option contracts on Winslow Mfg. stock. The option premium was $0.20 and the strike price was $17.50. On the expiration date, the stock was selling for $17.75 a share. What is the total payoff on the option contracts?

Accepted Answer

The stock price at expiration ($17.75) is above the strike price ($17.50), so the put options expire worthless. The payoff is $0.

Question 14

Tim purchased 3 put option contracts on Western Fields stock. The strike price was $35 and the option premium was $0.60. At expiration, the stock was selling for $35.75. What is the payoff on the option contracts?

Accepted Answer

The payoff on a put option is max(0, strike price - stock price at expiration). Since the stock price ($35.75) is above the strike price ($35), the payoff is $0.

Question 15

You purchased 6 call options with a $40 strike price at a total cost of $150. On the expiration date, the underlying stock was priced at $39.20. What is the percentage return on your investment?

Accepted Answer

If the stock price is below the strike price on the expiration date, the call options expire worthless and the investor loses the entire premium paid. Therefore, the percentage return on the investment is -100%.

Question 16

Courtney purchased 5 call options with a $47.50 strike price and a call premium of $1.10. On the expiration date, the underlying stock was priced at $50.60 per share. What is her percentage return on this investment?

Accepted Answer

To calculate the breakeven price of the call option, we need to add the call premium to the strike price: 
$47.50 + $1.10 = $48.60 
Since the stock price on the expiration date ($50.60) is higher than the breakeven price ($48.60), the option is in the money. 
To calculate the profit, we subtract the total cost of the call options (5 options x $1.10 premium per option x 100 shares per option = $550) from the total value of the options at expiration (5 options x ($50.60 - $47.50) x 100 shares per option = $1,550). 
Profit = $1,550 - $550 = $1,000 
Percentage return = (Profit / Investment) x 100 
Percentage return = ($1,000 / $550) x 100 = 181.82% 
Therefore, the correct answer is C (181.82%).

Question 17

You purchased a call option with a $22.50 strike price and a call premium of $0.30. On the expiration date, the underlying stock was priced at $23.40 per share. What is the percentage return on your investment?

Accepted Answer

The intrinsic value of the option at expiration is $23.40 - $22.50 = $0.90. The profit is $0.90 - $0.30 = $0.60. The percentage return is ($0.60 / $0.30) * 100% = 200%.

Question 18

Gerold purchased 2 put option contracts at an option premium of $0.95 and a strike price of $40. At expiration, the stock price was $41.25 per share. What is his percentage return?

Accepted Answer

Gerold's put options expired worthless because the stock price ($41.25) was above the strike price ($40). He lost the entire premium paid ($0.95 per share). Therefore, his percentage return is -100 percent.

Question 19

Russ paid a total of $75 to purchase 5 call options with a strike price of $17.50. What is the break-even stock price?

Accepted Answer

Break-even stock price = $17.50 + [$75 / (5 × 100)] = $17.65

Question 20

You purchased one SPX put option with a strike of 1,400. You wrote one SPX put option with the same maturity date and a strike of 1,300. At maturity, what is your total payoff if the S&P 500 index is 1,320?

Accepted Answer

The 1,300 put is not exercised.
Payoff on 1,400 put purchased = (1,400 - 1,320) × $100 = $8,000

Quiz 15: Stock Options