DRM Test-1

1) On the maturity day the stock price is 100 and strike price is 85 and call premium is 15. Using this information, find
out (or calculate) the long call payoff? (2 Points)
Answer: 15
2) Choose the correct statement from the below statements. (2 Points)
A) American long call position has unlimited exposure
B) American long put position has unlimited exposure
C) European long call position has unlimited exposure
D) European long put position has unlimited exposure
E) European short call position has unlimited exposure
3) Mr. DRM is option seller and he owns one unit of XYZ stock and whose current price is 155, strike price 148 and the
call premium is 7. Based on this information, what we can say about Mr. DRM in terms of moneyness? (2 Points)
A) In the money
B) Out of the money
C) At the money
D) Due to lack of sufficient information, we can’t say anything about Mr. DRM.
4) Find out the odd one out from the below information. (2 Points)
A) Mr. DRM is a trader, therefore he cannot be allowed to take a short position SBIN stock warrants.
B) Mr. DRM is a trader, therefore he cannot be allowed to take a short position SBIN stock convertible.
C) Mr. DRM is a trader, therefore he cannot be allowed to take a short position SBIN stock employee stock option.
D) Mr. DRM is a trader, therefore he cannot be allowed to take a short position SBIN stock options.
5) Stock price is 95, strike price 96.25, call premium is 5.25 and the time value of the call option is 5.25. What will be the
intrinsic value of the call option? (2 Points)
A) 5.25
B) 1.25
C) 0.00
D) None of the above/below
6) Taking a short position in an option is known as writing / selling (2 Points)
7) Whenever the stock price is greater than the strike price, only in that scenario, the short call position can become the
counter party to the short put. (True or false)

8) Mr. DRM shorts 25 naked call option contracts on XYZ stock. Each contract size is 10 shares. The option price is 7, the
strike price is 108, and the stock price is 108. Calculate the right/correct margin amount.
250 X (7+0.2X108) = 7150

9) Mr. DRM shorts 25 naked put option contracts on XYZ stock. Each contract size is 10 shares. The option price is 7, the
strike price is 108, and the stock price is 100. Calculate the right/correct margin amount.
250 X (7+0.2X100) = 6750
10) Consider a call option to buy 500 shares of a company for 50 per share. Suppose the company makes a 5-for-4 stock
split. The new strike price will be……………..

. n= 5; m=4. ➔ 4/5*50 ➔ 40.

11) Consider a put option to sell 250 shares of a company for 25 per share. Suppose the company declares a 50% stock
dividend. The new number of shares will be……………..

. n= 1.5; m=1. ➔ 1.5/1*250 ➔ 375.