SIE Mastery Exam 2 Review Questions and answers correct

SIE Mastery Exam 2 Review Questions and answers correct The holder of a put on a listed stock exercises. The holder must: - Deliver stock An investor writes 1 ABC Jan 45 Put @ $3. The contract subsequently is exercised. The writer is obligated to: - Buy stock at $45 per share If an equity put writer is exercised, the writer has the obligation to: - Buy stock in 2 business days at the strike price The premium on a call or put option is the: - Cost of the contract The purchase of a call has what advantage over buying the underlying security? - Lower Capital Requirement A customer is short an ABC Jan 60 Call. The position has a profit that the customer wishes to capture. The proper order to enter is a(n): - Closing purchase A customer is short an ABC Jan 60 Put. The position has a profit that the customer wishes to capture. The proper order to enter is a(n): - Closing purchase A customer is short an ABC Jan 60 Put. The position has a profit that the customer wishes to capture. The proper order to enter is a(n): - Closing Sale In November, a customer buys 1 ABC Jan 70 Call @ $4 when the market price of ABC is $71. The breakeven point for the position is: - $74 The sale of an "at the money" call is a: - bear/neutral strategy The sale of a call has all of the same characteristics as selling stock short EXCEPT: A. unlimited loss potential in a rising market B. limited gain potential in a falling market C. low liquidity risk if the position is to be liquidated D. no erosion of value as the position is held - D. no erosion of value as the position is held Which options strategy provides a gain equal to the premium in a bear market? - Short Call A customer sells 1 ABC Feb 50 Call @ $7 when the market price of ABC is $52. The stock moves to $80 and the customer is assigned. The stock is bought in the market for delivery. The gain or loss to the writer is: - $2,300 loss In January, a customer sells 1 ABC Jun 55 Call @ $6 when the market price of ABC is $56. If ABC rises to $62 and the writer is assigned, the customer will: - lose $100 A customer sells 1 ABC Feb 50 Call @ $7 when the market price of ABC is $52. If the market value of ABC falls to $48 and stays there through February, the customer will: - Gain $700 A customer buys 1 ABC Jul 70 Put at $9 when the market price of ABC is $66. ABC stock falls to $62 per share and the customer exercises the put and buys the stock at the market for delivery. The customer: - loses $100 A customer buys 1 ABC Jul 45 Put at $4 when the market price of ABC is $46. The customer's maximum potential gain is: - $4,100 The sale of a put has all of the same characteristics as buying stock EXCEPT: A. limited loss potential in a falling market B. unlimited gain potential in a rising market C. low liquidity risk if the position is to be D. both are bull market strategies - B. unlimited gain potential in a rising market A customer sells 1 ABC Jul 70 Put at $5 when the market price of ABC is $75. The market falls and the customer is exercised. Months later, the customer then sells the stock in the market at $72. The customer has: - $700 profit The maximum loss for the writer of a put is: - strike price minus premium received The maximum loss for the holder of a put is: - the premium paid A customer buys 100 shares of ABC stock at $58 and buys 1 ABC Jul 55 Put @ $2.50 on the same day. If the stock falls to $50 and the put is exercised, the customer will have a: - $550 loss A customer buys 100 shares of ABC at $71 and buys 1 ABC Jan 75 Put @ $8. ABC goes to $61 and the customer exercises the put. The customer's loss is: - $400 A customer buys 100 shares of XYZ at $51 and buys 1 XYZ Jan 50 Put @ $5. The maximum potential loss is: - $600 A customer sells short 100 ABC at $46 and buys 1 ABC Jan 45 Call @ $3. ABC goes to $30 and the customer lets the call expire and closes out the stock position at the market. The customer has a: - $1,300 gain A customer buys 100 shares of ABC stock at $49 and sells 1 ABC Jan 50 Call @ $4. The market rises to $55 and the call is exercised. The customer has a: - $500 profit A customer buys 100 shares of ABC stock which is now trading at $63. A month later the market goes to $65. The customer thinks the market will remain near $65 in the following months, so he decides to sell 1 ABC Sept 65 Call @ $3. ABC then goes to $60 and the customer's call contract expires and the customer decides to liquidate his stock position at the current market price. The customer has: - no gain or loss A customer buys 300 shares of ABCD stock at $67 per share and then writes 3 ABC Jul 70 Calls @ $2.25. The breakeven point is: - $64.75 A customer buys 200 shares of ABC at $68 and sells 2 ABC Jan 70 Calls @ $3. The maximum potential gain is: - $1,000 A customer owns a 5 ABC convertible bonds, convertible into common stock at a 20:1 ratio. The common stock is currently trading at $29. The customer believes that the stock will rise during the next 6 months, but does not think that it will rise above $45 per share. The customer wishes to use options to profit from his belief, but wishes to minimize any additional capital outlay. Which strategy is the best recommendation to the customer?