Which of the following about options contracts is not true? One only side has an obligation; the other side has a right to exercise O Options contracts can provide substantial leverage O All of these are true O Holders of options contracts can have limited loss but potentially unlimited gains O Options contracts don't have expiration dates

Which of the following about options contracts is not true? One only side has an obligation; the other side has a right to exercise O Options contracts can provide substantial leverage O All of these are true O Holders of options contracts can have limited loss but potentially unlimited gains O Options contracts don't have expiration dates

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter21: Risk Management

Section: Chapter Questions

Problem 7QTD

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Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.
The potential loss incurred from purchasing a call option is finite, but the potential loss to the seller is unbounded. Explain why the potential loss that the seller may occur is unbouned.
True/false An option is a financial contract that gives the owner the right to buy or sell some asset at a fixed price on or before a given date. The put-call parity is derived based on the principal of no arbitrage. That is, the put-call parity equation holds only when the market is reasonably good enough so that arbitrage opportunities are not allowed. Today Jim bought a call option and Jill wrote a call option. The options are exactly the same (with the same underlying asset, same exercise price, same expiration date, same in every aspect). When the underlying stock price changes, for every dollar Jim gains, Jill loses a dollar, and vice versa. In reality, stock option contracts are based on the unit of 100 shares and expire on the third Friday of the month. An out of the money option means that if you exercise the option now you will be able to get money out of it.
? Which of the following is NOT true. An options contract is a contractual agreement between two parties. is based on the value of an underlying security. obliges the holder to exercise it at the expiration date. gives a trader the right to buy or sell the underlying security.
If the underling is a liability rather than an asset, then the option premium should become negative. O True False
Why are interest rates the least important factor that affects options contracts?
If the underling is a liability rather than an asset, then the strike price of the option should be negative. True False
The pay off from an option depends on the market price of the underlying asset a) a put holder benefits from increase in the price b)a put writer benefits from an increase in the price c) a call holder benefits from decrease in price d) none of these are true
True/ False There is a possibility of unlimited loss to put option buyer.
Choose which sentance is false. A. When you own a call option, you have the right to buy the asset. B. A option contract gives the writer the right, but not the obligation, to buy or sell a particular asset on or before a specifice date in the furture at a specific price. C. When you own a put option, you have the right to sell the asset. D. When you own a stock option, you have right, but not the obligation, to buy or sell a share of stock on or before a given date for a given price.
Which of the following is True? a. Call option and Put option are identical derivatives contracts b. Short Put option is identical to Long Call option c. Short Call option is identical to Long Put option d. None of the above
If instead of an unguaranteed residual value, there is a purchase option which is so low that it is expected Lessee will exercise it then Lessee adds the present value of the option as an additional payment to be made, but Lessor does not add it into the receivable. Both parties add in the present value of the option to the liability or receivable. Lessor adds the present value of the option as an additional payment to be received, but Lessee does not add it into the liability. Neither party considers the present value of the option for the liability or receivable.