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?

Assume that the risk-free interest rate is 0%, FB does not issue dividends, and that there are no transaction costs.

Sally expects that APPL stock will rise from its current price of $129.00 to $135.00 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.
Ignore interest rate and transaction costs.
There are no dividends.
The image doesn't show the price of options when AAPL is at $129.00.

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?

Assume that the price of a stock is $100.
Consider a call option (of any strike) on the stock. Because the call option has unlimited profit potential, hence there is no upper bound on the price of the call.


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