Reference no: EM132500989

1. You purchase one SDB $125 strike price call contract (equaling 100 shares) for a premium of $5. You hold the option until the expiration date, when SDB stock sells for $123 per share. What will be your payoff at expiry? What will be your profit/loss?

2. You write one SDB $120 strike price put contract (equaling 100 shares) for a premium of $4. You hold the option until the expiration date, when SDB stock sells for $121 per share. What will be your payoff at expiry? What will be your profit/loss?

3. An American put option gives its holder the right to ________.

A) buy the underlying asset at the exercise price on or before the expiration date

B) buy the underlying asset at the exercise price only at the expiration date

C) sell the underlying asset at the exercise price on or before the expiration date

D) sell the underlying asset at the exercise price only at the expiration date

4. You invest in the stock of Rayleigh Corp. and a call option on Rayleigh Corp. This strategy is called a ________.

A) covered call

B) long straddle

C) naked call

D) money spread