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Quantitative Finance

# Options: Level 1-2 Challenges

True, False or It depends?

If you own a call option on a stock, your potential profit is unlimited.

FB's current stock price is $75.89. A broker's market for the put option on the$80 strike expiring in 2 days is $3.75 bid at$4.00. Assuming no execution risk, what trade do you want to execute?

Note: The image does not reflect the prices stated in the problem.

###### Image credit: Thinkorswim

Sally expects that APPL stock will rise from its current price of $129 to$135 on March 20th. Assuming that her prediction comes true, which of the following option strategies would yield the most profit?

Note: No other corresponding trades are done. In particular, she does not hedge her delta exposure.

###### Image credit: Thinkorswim

Which option is worth more (more than or equal to)?

A) An American call on the $10 strike that expires in January B) An European call on the$10 strike that expires in January

True or False?

Because a call has unlimited profit potential, hence there is no upper bound on the price of a call

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