1. The price of a four-month GE call option with an exercise price of $35 is $6. The current price of GE stock is $40 per share. The call holder exercises the call at expiration when the price of GE stock is $43. What is the payoff to the call holder? (Each contract is for 100 shares of stock)
A) $200
B) $300
C) $500
D) $800
2. Suppose that an investor believes the price of CNA stock, which is currently $50 per share, will increase substantially in the next six months. Six-month CNA call options with an exercise price of $50 are selling at a premium of $5. The investor has $5,000 to invest. Which one of the following strategies would be most profitable if the investor's expectations are accurate?
A) Invest $5,000 in CNA stock
B) Invest $5,000 in CNA stock and write covered calls
C) Invest $5,000 in six-month CNA calls
D) Invest $2,500 in CNA stock and $2,500 in six-month CNA calls
3. A three-month HP put option with an exercise price of $60 sells for a premium of $8. The put is in the money only if the price of HP stock is ______________.
A) greater than $68 per share
B) greater than $60 per share
C) less than $60 per share
D) less than $52 per share
4. The price of a two-month AT&T put option with an exercise price of $45 is $7. The current price of AT&T stock is $40 per share. The put holder exercises the put at expiration when the price of AT&T stock is $35. What is the profit per share to the put holder?
A) $2
B) $3
C) $10
D) $12
5. You just purchased a three-month BP call option (exercise price $75) and a three-month BP put option (exercise price $75). The call premium is $6 and the put premium is $2. Your maximum potential loss from this position is ______________. (Assume each contract is for 100 shares of stock)
A) $200
B) $600
C) $800
D) unlimited