mastery exam 2 questions and answers graded A+

mastery exam 2 questions and answers graded A+ A customer buys 1 ABC Jul 40 Put at $6 when the market price of ABC is $38. The breakeven point is: - $34 long put= strike price - premium Which positions are profitable in rising markets? -I Long put spread -II Short put spread -III Short straddle -IV Short stock - Short put spread Short put spreads, like simply selling a put, are profitable if the market rises. Long put spreads, like simply buying a put, are profitable if the market falls. Short straddles are profitable if the market stays flat. Short stock positions are profitable when the market falls. A customer sells 1 ABC Jul 30 Call @ $1 and sells 1 ABC Jul 30 Put @ $3.50 when the market price of ABC is $29. The maximum potential loss is: - unlimited Short put spreads are profitable in all of the following circumstances EXCEPT: A the spread between the premiums widens above the credit received B the spread between the premiums narrows below the credit received C both positions expire D the market falls by an amount that is less than the credit received - the spread between the premiums widens above the credit received credit spreads are profitable only if the spread narrows below the credit received. A customer sells short 100 shares of ABC at $35 and buys 1 ABC Jul 35 Call @ $3. The stock falls to $30 and the customer closes the option contract at $1 and buys the stock at the current market price. The customer has a: - $300 gain -The customer sold the stock for $35 bought a call, paying a premium of $3 per share. The customer closes the stock position by purchasing the stock in the market at $30 for a gain of 5 points ($35 sale; $30 purchase). The customer closes the option position by selling the option at $1, for a loss of 2 points ($3 purchase; $1 sale). The net gain is: 5 - 2 = 3 points or $300. A customer who is long 1 ABC Jan 40 Call wishes to create a "long call spread." The second option position that the customer must take is: - short 1 ABC Jan 50 Call -A spread is a buy and a sell of the same type of option. Long the stock and short the call is an appropriate strategy in a: - stable market A customer buys 200 shares of ABC at $68 and sells 2 ABC 70 Calls @ $3. The market rises to $80 and the calls are exercised. The customer has a: - $1,000 gain -If the calls are exercised, the stock (which cost $68 per share) must be sold at the $70 strike price for a $2 gain x 200 shares = $400. The customer also received $300 per contract for selling the calls, for a total of $600 in premiums received. Therefore, the total gain is $400 + $600 = $1,000. A customer sells 1 ABC Jan 55 Call. To cover the position, the customer could: - buy 1 ABC Jan 50 Call An American manufacturer has contracted to sell parts to a Canadian automobile manufacturer. The contract calls for payment to be made in Canadian dollars. To hedge against an adverse currency price movement, the appropriate options strategy is to sell: - sell Canadian dollar Calls Trades of foreign currency options settle: -I Cash -II Spot -III Forward