Investment Strategies - Review Questions 23 - 27
- Which of the following statements concerning options pricing is correct?
- The Black-Scholes model is a discrete time pricing model, whereas the binomial model is referred to as continuous time.
- Binomial options pricing starts by considering two possible outcomes and one discrete period with the possibility of both assumptions being relaxed to accommodate actual market scenarios.
- Both binomial options pricing and the Black-Scholes models represent an options-specific application of the multi-factor model.
- None of the foregoing.
- None of the following choices constitute an acceptable use of options, except:
- Gaining low cost exposure to the underlying.
- Income generation.
- None of the foregoing.
- Each of the following attributes characterize a low option premium, except:
- Close expiration date.
- Low stock price and the option is a call.
- High stock price and the option is a put.
- Deep in-the-money-call.
- An option that allows exercise only at expiration is referred to as:
- Arrange the following options by premium in ascending order. Assume that the month is September.
- January 60 call, underlying trades at 57
- October 44 put, underlying trades at 41
- July 53 call, underlying trades at 58
- April 27 call, underlying trades at 29
- IV, I, III, II
- I, II, III, IV
- I, IV, III, II
- I, IV, II, III
- II, I, IV, III
Options & FuturesBy John Summa, CTA, PhD, Founder of OptionsNerd.comMost traders generally think of the strike price in relation to the underlying price and how much time remains on the option as the key fundamentals ...
Options & FuturesBy John Summa, CTA, PhD, Founder of OptionsNerd.comImplied volatility levels were shown previously to move inversely to the price of most big cap stocks and options on major market averages. ...
Options & FuturesThe mystery of options pricing can often be explained by a look at implied volatility (IV).
Options & FuturesBy John Summa, CTA, PhD, Founder of OptionsNerd.comAs we've already learned, volatility comes in two forms: statistical (historical volatility) and implied (IV). We saw how past levels of IV ...
Fundamental AnalysisBinomial option pricing model, based on risk neutral valuation, offers a unique alternative to Black-Scholes. Here are detailed examples with calculations using Binomial model and explanation ...
Options & FuturesOption traders utilize various option price models to attempt to set a current theoretical value. Models use certain fixed knowns in the present – factors such as underlying price, strike ...
Options & FuturesThe ability to exercise only on the expiration date is what sets these options apart.
Options & FuturesThe following is intended as a review of basic option terminology, which can be used as a reference as needed: American Options - An option that can be at any point during the life of the contract. ...
Options & FuturesPerhaps the real cost of employee stock options is already accounted for in the expense of buyback programs.
Options & FuturesExotic options provide investors with new alternatives to manage their portfolio risks and speculate on various market opportunities. The pricing for such instruments is considerably complex, ...
An options valuation method developed by Cox, et al, in 1979. ...
Any model- or theory-based approach for calculating the fair ...
One of the four types of compound options, this is a "put" option ...
A variation of the popular Black-Scholes options pricing model ...
The difference in implied volatility (IV) across options with ...
An agreement that gives an investor the right (but not the obligation) ...
The correct answer is d. All the choices except II are specific requirements of the Act. In addition, the law places time-of-day ... Read Answer >>
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The correct answer is d) Hedge funds are extremely aggressive entities that engage in margin and short-selling. They are ... Read Answer >>
The correct answer is: a) (I) is incorrect because results that cover a period of less than a year must "not" be annualized. ... Read Answer >>
The correct answer is a. Fixed annuities are not considered securities, since the purchaser bears no investment risk. However, ... Read Answer >>