Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 12: Trading Strategies Involving Options Multiple Choie Test !an": #uestions 1. Which Which of the follow following ing creates creates a bull bull spread? spread? A. Buy a low strike strike price call call and sell sell a high high strike strike price call call B. Buy a high strike price call call and sell sell a low strike price call call C. Buy a low strike strike price call call and sell sell a high high strike strike price put put D. Buy a low strike strike price price put and sell sell a high strike strike price price call 2. Which Which of the follow following ing creates creates a bear bear spread? spread? A. Buy a low strike strike price call call and sell sell a high high strike strike price call call B. Buy a high strike price call call and sell sell a low strike price call call C. Buy a low strike strike price call call and sell sell a high high strike strike price put put D. Buy a low strike strike price price put and sell sell a high strike strike price price call 3. Which Which of the follow following ing creates creates a bull bull spread? spread? A. Buy a low strike strike price put put and sell sell a high high strike strike price put put B. Buy a high strik strike e price price put and sell sell a low strike strike price put put C. Buy a high strike price call call and sell sell a low strike price put put D. Buy a high strike strike price price put and sell sell a low strike strike price price call . Which Which of the follow following ing creates creates a bear bear spread? spread? A. Buy a low strike strike price put put and sell sell a high high strike strike price put put B. Buy a high strik strike e price price put and sell sell a low strike strike price put put C. Buy a high strike price call call and sell sell a low strike price put put D. Buy a high strike strike price price put and sell sell a low strike strike price price call !. What is the nu"ber of di#erent di#erent option series used used in creating creating a butter$y butter$y spread? A. 1 B. 2 C. 3 D. %. A stock stock price price is currently currently &23. A re'erse re'erse (i.e (i.e short) short) butter$y spread is created created fro" options with strike prices of &2*+ &2!+ and &3*. Which of the following is true? A. ,he gain when the stock price is greater greater that &3* &3* is less less than the the gain when the stock price is less than &2* B. ,he gain when the stock price is greater greater that &3* &3* is greater greater than the gain when the stock price is less than &2* C. ,he gain when the stock price is greater greater that &3* &3* is the sa"e as the the gain when the stock price is less than &2* D. -t is incorrect incorrect to assu"e assu"e that there there is always a gain when the the stock price is greater than &3* or less than &2*
. Which Which of the following following is corr correct? ect?
A. A calendar spread can be created by buying a call and selling a put when the strike prices are the sa"e and the ti"es to "aturity are di#erent B. A calendar spread can be created by buying a put and selling a call when the strike prices are the sa"e and the ti"es to "aturity are di#erent C. A calendar spread can be created by buying a call and selling a call when the strike prices are di#erent and the ti"es to "aturity are di#erent D. A calendar spread can be created by buying a call and selling a call when the strike prices are the sa"e and the ti"es to "aturity are di#erent /. What is a description of the trading strategy where an in'estor sells a 30"onth call option and buys a one0year call option+ where both options ha'e a strike price of &1** and the underlying stock price is &!? A. eutral Calendar pread B. Bullish Calendar pread C. Bearish Calendar pread D. one of the abo'e . Which of the following is correct? A. A diagonal spread can be created by buying a call and selling a put when the strike prices are the sa"e and the ti"es to "aturity are di#erent B. A diagonal spread can be created by buying a put and selling a call when the strike prices are the sa"e and the ti"es to "aturity are di#erent C. A diagonal spread can be created by buying a call and selling a call when the strike prices are di#erent and the ti"es to "aturity are di#erent D. A diagonal spread can be created by buying a call and selling a call when the strike prices are the sa"e and the ti"es to "aturity are di#erent 1*.Which of the following is true of a bo4 spread? A. -t is a package consisting of a bull spread and a bear spread B. -t in'ol'es two call options and two put options C. -t has a known 'alue at "aturity D. All of the abo'e 11.5ow can a straddle be created? A. Buy one call and one put with the sa"e strike price and sa"e e4piration date B. Buy one call and one put with di#erent strike prices and sa"e e4piration date C. Buy one call and two puts with the sa"e strike price and e4piration date D. Buy two calls and one put with the sa"e strike price and e4piration date
12.5ow can a strip trading strategy be created? A. Buy one call and one put with the sa"e strike price and sa"e e4piration date B. Buy one call and one put with di#erent strike prices and sa"e e4piration date C. Buy one call and two puts with the sa"e strike price and e4piration date D. Buy two calls and one put with the sa"e strike price and e4piration date
13.5ow can a strap trading strategy be created? A. Buy one call and one put with the sa"e strike price and sa"e e4piration date B. Buy one call and one put with di#erent strike prices and sa"e e4piration date C. Buy one call and two puts with the sa"e strike price and e4piration date D. Buy two calls and one put with the sa"e strike price and e4piration date 1.5ow can a strangle trading strategy be created? A. Buy one call and one put with the sa"e strike price and sa"e e4piration date B. Buy one call and one put with di#erent strike prices and sa"e e4piration date C. Buy one call and two puts with the sa"e strike price and e4piration date D. Buy two calls and one put with the sa"e strike price and e4piration date 1!.Which of the following describes a protecti'e put? A. A long put option on a stock plus a long position in the stock B. A long put option on a stock plus a short position in the stock C. A short put option on a stock plus a short call option on the stock D. A short put option on a stock plus a long position in the stock 1%.Which of the following describes a co'ered call? A. A long call option on a stock plus a long position in the stock B. A long call option on a stock plus a short put option on the stock C. A short call option on a stock plus a short position in the stock D. A short call option on a stock plus a long position in the stock 1.When the interest rate is !6 per annu" with continuous co"pounding+ which of the following creates a principal protected note worth &1***? A. A one0year 7ero0coupon bond plus a one0year call option worth about &! B. A one0year 7ero0coupon bond plus a one0year call option worth about
& C. A one0year 7ero0coupon bond plus a one0year call option worth about &3 D. A one0year 7ero0coupon bond plus a one0year call option worth about &2 1/.A trader creates a long butter$y spread fro" options with strike prices &%*+ &%!+ and &* by trading a total of ** options. ,he options are worth &11+ &1+ and &1/. What is the "a4i"u" net gain (after the cost of the options is taken into account)? A. &1** B. &2** C. &3** D. &** 1.A trader creates a long butter$y spread fro" options with strike prices &%*+ &%!+ and &* by trading a total of ** options. ,he options are worth &11+ &1+ and &1/. What is the "a4i"u" net loss (after the cost of the options is taken into account)? A. &1** B. &2** C. &3** D. &**
2*.i40"onth call options with strike prices of &3! and &* cost &% and &+ respecti'ely. What is the "a4i"u" gain when a bull spread is created by trading a total of 2** options? A. &1** B. &2** C. &3** D. &**
