3.12 Options payoffs Q: A stock currently sells at 120. The put option to sell the stock sells at Rs.

134 costs Rs.18.
The time value of the option is
1. Rs.18 2. Rs.4

47

.
3. Rs.14 4. Rs.12

A: The correct answer is number 2.

Q: An in-the-money option contract would generate
1. positive cash flow 2. pre-determined amount of cash flow

upon exercise for the buyers.
3. no cash flow 4. negative cash flow

A: The correct answer is number 1.

Q: A put option gives the
asset at a specified price.
1. seller, buy 2. seller, sell

the right but not the obligation to
3. owner, buy 4. owner, sell

the underlying

A: The correct answer is number 4.

Q: By buying index futures one can make
1. unlimited profits or loss since market may go up or down 2. limited profit but unlimited losses

.
3. limited profits or losses

4. unlimited profit but limited loss

48 A: The correct answer is number 1.

Introduction to futures and options

Q: An index put option at a strike of Rs. 1176 is selling at a premium of Rs. 36. At what
index level will it break even for the buyer of the option ?
1. Rs. 1,870 2. Rs. 1,140 3. Rs. 1,212 4. Rs. 1,940

A: The correct answer is number 2.