ADA1 Exam Qs with 100% Correct
Answers
To be eligable for franking credits attached to a dividend, a stock holding must? -
ANSWER-*the 45 day holding period rule*
Be at least 30% at risk to price movement for 45 days
According to the ATO, you will only be entitled to franking credits if the net position has
a positive delta of at least 0.3 (or 30% at risk).
*What is the likely adjustment to the terms of a 600 call option over 100 shares in BIG
limited in the event of a 2 for 1 bonus issue?* - ANSWER-Section 2, 3.2
This means that the company will issue one bonus share for every 2 shares held by the
existing shareholders.
if the ratio is 2:1, we must always read it as 2 (free) for every 1 (share held).
An investor buys 100 shares at 6.00 per share and writes a 6.50 call option over that
stock for 0.15 per share. What is the maximum that the investor can make on the
combined position (excluding transaction fees)? - ANSWER-$65 how did you get this
answer?
max profit you can make is the premium you receive plus the difference between the
exercise price and the share price when you write the call. You make this profit if at
expiry the share price is above the exercise price.
0.15 + (6.50-6.00=.50)
0.15 + 0.50 = 0.65 x 100 = $65
How is the settlement price for index options calculated? - ANSWER-Using the opening
prices of the individual stocks that make up the relevant index on expiry day
What is the difference between American and European style options - ANSWER-
American style can be exercised anytime prior to or at expiry, European can only be
exercised at expiry
Delta is a measure of an options sensitivity to? - ANSWER-Changes in the price of the
underlying asset
,How would you describe a Mar 1100 call when the underlying share price Is 10.00? -
ANSWER-out of the money
Which of the following regarding equity options is correct? - ANSWER-Equity options
premiums are expressed in dollars and index option premiums are expressed in points
What are the courses of action available to an assigned call option writer who does not
want to deliver their shares? - ANSWER-Delivery of the shares cannot be avoided once
you have received an assignment notice
Exchange-traded options are standardized contracts set by the Australian Securities
Exchange. Which term of an option contract is set by market forces? - ANSWER-the
premium
When is a call option in the money? - ANSWER-When the exercise price is lower than
the price of the underlying
Which of the following regarding settlement of index options is correct? - ANSWER-
Index options are cash-settled based on the opening price index calculation (OPIC)
In relation to options what is the difference between a covered write and a buy write
strategy? - ANSWER-In a buy write strategy, the stock is bought simultaneously when
the option is written whereas
a covered write involves bought stock and written options
The buy and write strategy reflects the same market view as that held by a covered call
writer, the only difference being that the covered writer already holds the underlying
shares at the time the option is written.
*What is the maximum profit an investor can make on a per share basis if the investor
buys 100 XYZ shares at $10.10 and sell 1 XYZ 1000 call option at $0.37?* - ANSWER-
Topic 3 section 4.1 break even profit and losses
max profit you can make is the premium you receive plus the difference between the
exercise price and the share price when you write the call. You make this profit if at
expiry the share price is above the exercise price.
0.37 + (10.00 - 10.10 = -0.10)
0.37 + -0.10 = 0.27c
in which of the following circumstances would asx clear not make an adjustment to the
terms of an option class? - ANSWER-A corporate event that affects shares
disproportionately are excluded from an option adjustment
, Corporate events that do not strictly affect shares in a pro-rata manner,i.e.
proportionally, are generally excluded from an option adjustment. For instance,an
entitlement issue of 500 shares for each shareholder (irrespective of the number of
shares held by a shareholder) is not strictly a pro rata issue. But a bonus issue of one
for one would result ordinarily in an adjustment because it is a pro-rata issue of100 new
shares for each 100 of old shares held.
Which of the following is not a reason to buy a call option - ANSWER-Earn premium
income
what is the limit to the profit potential of a bought put - ANSWER-Exercise price less
premium
On the 1 of April XYZ limited is trading at 10.00. A client holds 100 of these shares and
is considering 2 option strategies.
Strategy 1 is to sell 1 XYZ June 10.00 call at 0.50 cents
and
strategy 2 is to buy 1 XYZ June 100.00 put at 0.40 cents.
Which of the following statement regarding these strategies is correct? - ANSWER-Only
strategy 1 provides the client with income - why?
It's a covered call strategy, investor holds the underlying and is looking to write a call
option in which they will receive a premium (income) from the taker
The settlement price used to cash settle index options at expiry is based on the? -
ANSWER-The OPIC - is based on the opening price of each stock in the index of the
morning of the expiry day
If a call option has a delta of 0.6 and the price of the underlying stock rises by 0.20
cents, how would you expect the price of the call to change? - ANSWER-see topic 2
section 6.2, the greeks
Share price movement x option delta = likely change in option price
So, if your option has a delta of 0.6,
and
the share price rises by $0.20, you would expect your option to rise by = .20 x 0.6 =
$0.12.
If the share price falls by $0.20, you would expect your option to fall by $0.12
Answers
To be eligable for franking credits attached to a dividend, a stock holding must? -
ANSWER-*the 45 day holding period rule*
Be at least 30% at risk to price movement for 45 days
According to the ATO, you will only be entitled to franking credits if the net position has
a positive delta of at least 0.3 (or 30% at risk).
*What is the likely adjustment to the terms of a 600 call option over 100 shares in BIG
limited in the event of a 2 for 1 bonus issue?* - ANSWER-Section 2, 3.2
This means that the company will issue one bonus share for every 2 shares held by the
existing shareholders.
if the ratio is 2:1, we must always read it as 2 (free) for every 1 (share held).
An investor buys 100 shares at 6.00 per share and writes a 6.50 call option over that
stock for 0.15 per share. What is the maximum that the investor can make on the
combined position (excluding transaction fees)? - ANSWER-$65 how did you get this
answer?
max profit you can make is the premium you receive plus the difference between the
exercise price and the share price when you write the call. You make this profit if at
expiry the share price is above the exercise price.
0.15 + (6.50-6.00=.50)
0.15 + 0.50 = 0.65 x 100 = $65
How is the settlement price for index options calculated? - ANSWER-Using the opening
prices of the individual stocks that make up the relevant index on expiry day
What is the difference between American and European style options - ANSWER-
American style can be exercised anytime prior to or at expiry, European can only be
exercised at expiry
Delta is a measure of an options sensitivity to? - ANSWER-Changes in the price of the
underlying asset
,How would you describe a Mar 1100 call when the underlying share price Is 10.00? -
ANSWER-out of the money
Which of the following regarding equity options is correct? - ANSWER-Equity options
premiums are expressed in dollars and index option premiums are expressed in points
What are the courses of action available to an assigned call option writer who does not
want to deliver their shares? - ANSWER-Delivery of the shares cannot be avoided once
you have received an assignment notice
Exchange-traded options are standardized contracts set by the Australian Securities
Exchange. Which term of an option contract is set by market forces? - ANSWER-the
premium
When is a call option in the money? - ANSWER-When the exercise price is lower than
the price of the underlying
Which of the following regarding settlement of index options is correct? - ANSWER-
Index options are cash-settled based on the opening price index calculation (OPIC)
In relation to options what is the difference between a covered write and a buy write
strategy? - ANSWER-In a buy write strategy, the stock is bought simultaneously when
the option is written whereas
a covered write involves bought stock and written options
The buy and write strategy reflects the same market view as that held by a covered call
writer, the only difference being that the covered writer already holds the underlying
shares at the time the option is written.
*What is the maximum profit an investor can make on a per share basis if the investor
buys 100 XYZ shares at $10.10 and sell 1 XYZ 1000 call option at $0.37?* - ANSWER-
Topic 3 section 4.1 break even profit and losses
max profit you can make is the premium you receive plus the difference between the
exercise price and the share price when you write the call. You make this profit if at
expiry the share price is above the exercise price.
0.37 + (10.00 - 10.10 = -0.10)
0.37 + -0.10 = 0.27c
in which of the following circumstances would asx clear not make an adjustment to the
terms of an option class? - ANSWER-A corporate event that affects shares
disproportionately are excluded from an option adjustment
, Corporate events that do not strictly affect shares in a pro-rata manner,i.e.
proportionally, are generally excluded from an option adjustment. For instance,an
entitlement issue of 500 shares for each shareholder (irrespective of the number of
shares held by a shareholder) is not strictly a pro rata issue. But a bonus issue of one
for one would result ordinarily in an adjustment because it is a pro-rata issue of100 new
shares for each 100 of old shares held.
Which of the following is not a reason to buy a call option - ANSWER-Earn premium
income
what is the limit to the profit potential of a bought put - ANSWER-Exercise price less
premium
On the 1 of April XYZ limited is trading at 10.00. A client holds 100 of these shares and
is considering 2 option strategies.
Strategy 1 is to sell 1 XYZ June 10.00 call at 0.50 cents
and
strategy 2 is to buy 1 XYZ June 100.00 put at 0.40 cents.
Which of the following statement regarding these strategies is correct? - ANSWER-Only
strategy 1 provides the client with income - why?
It's a covered call strategy, investor holds the underlying and is looking to write a call
option in which they will receive a premium (income) from the taker
The settlement price used to cash settle index options at expiry is based on the? -
ANSWER-The OPIC - is based on the opening price of each stock in the index of the
morning of the expiry day
If a call option has a delta of 0.6 and the price of the underlying stock rises by 0.20
cents, how would you expect the price of the call to change? - ANSWER-see topic 2
section 6.2, the greeks
Share price movement x option delta = likely change in option price
So, if your option has a delta of 0.6,
and
the share price rises by $0.20, you would expect your option to rise by = .20 x 0.6 =
$0.12.
If the share price falls by $0.20, you would expect your option to fall by $0.12
