Fundamentals Of Futures And Options Markets 9th Edition By John C. Hull – Test Bank

Fundamentals Of Futures And Options Markets 9th Edition By John C. Hull – Test Bank

Chapter 11: Trading Strategies Involving Options
Multiple Choice Test Bank

1. Which of the following creates a bull spread?
A. Buy a low strike price call and sell a high strike price call
B. Buy a high strike price call and sell a low strike price call
C. Buy a low strike price call and sell a high strike price put
D. Buy a low strike price put and sell a high strike price call

Answer: A

2. Which of the following creates a bear spread?
A. Buy a low strike price call and sell a high strike price call
B. Buy a high strike price call and sell a low strike price call
C. Buy a low strike price call and sell a high strike price put
D. Buy a low strike price put and sell a high strike price call

Answer: B

3. Which of the following creates a bull spread?
A. Buy a low strike price put and sell a high strike price put
B. Buy a high strike price put and sell a low strike price put
C. Buy a high strike price call and sell a low strike price put
D. Buy a high strike price put and sell a low strike price call

Answer: A

4. Which of the following creates a bear spread?
A. Buy a low strike price put and sell a high strike price put
B. Buy a high strike price put and sell a low strike price put
C. Buy a high strike price call and sell a low strike price put
D. Buy a high strike price put and sell a low strike price call

Answer: B

5. What is the number of different option series used in creating a butterfly spread?
A. 1
B. 2
C. 3
D. 4

Answer: C

6. A stock price is currently $23. A reverse (i.e short) butterfly spread is created from options with strike prices of $20, $25, and $30. Which of the following is true?
A. The gain when the stock price is greater that $30 is less than the gain when the stock price is less than $20
B. The gain when the stock price is greater that $30 is greater than the gain when the stock price is less than $20
C. The gain when the stock price is greater that $30 is the same as the gain when the stock price is less than $20
D. It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20

Answer: C

7. Which of the following is correct?
A. A calendar spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different
B. A calendar spread can be created by buying a put and selling a call when the strike prices are the same and the times to maturity are different
C. A calendar spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different
D. A calendar spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different

Answer: D

8. What is a description of the trading strategy where an investor sells a 3-month call option and buys a one-year call option, where both options have a strike price of $100 and the underlying stock price is $75?
A. Neutral Calendar Spread
B. Bullish Calendar Spread
C. Bearish Calendar Spread
D. None of the above

Answer: B

9. Which of the following is correct?
A. A diagonal spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different
B. A diagonal spread can be created by buying a put and selling a call when the strike prices are the same and the times to maturity are different
C. A diagonal spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different
D. A diagonal spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different

Answer: C

10. Which of the following is true of a box spread?
A. It is a package consisting of a bull spread and a bear spread
B. It involves two call options and two put options
C. It has a known value at maturity
D. All of the above

Answer: D