Options Questions

JackRab said:
C,C,D.. but the #2 C isn't going to happen... would be nice... but not likely.

That said though... When I was trading German Gov Bond options, some guy forgot to manually exercise (no auto ex. possible) his longs in time. We made about 300k on it. I reckon he lost about 25+ mln...

So I guess, yeah.. people can also mark the wrong ones and exercise the wrong options...
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Thank you
 
xandman said:
A terribly worded question that leaves you to assume what "a desirable stock purchase price" is.

A) No. It might be easier to just wait for a paycheck.
B) No. Highly speculative and will probably expire wortheless AND leave you with a more expensive stock to buy.
C) Maybe. Assumes you are a reasonable person that will accept market price at anytime. Why are we doing this hedging exercise then?
D) No. Again could expire worthless and still produce a more expensive stock.

So, C. But the should have worded it: "to lock in the current market price". That is straight out of exchange marketing vocabulary.

Obviously, what is desirable is the cheapest price possible for the stock but the equivalent low strike call would not necessitate the use of options. The easy money really is in trading... education!
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Thank you
 
vanzandt said:
If your professor wrote these questions... tell him HE needs to go back to school.
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Agree! The choices for these questions are completely ridiculous, and some are nonsensical. Obviously written by someone who doesn't trade.

Such a shame for students these days, paying exorbitant rates for this kind of "education" ...
 
Ryan81 said:
Agree! The choices for these questions are completely ridiculous, and some are nonsensical. Obviously written by someone who doesn't trade.

Such a shame for students these days, paying exorbitant rates for this kind of "education" ...
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I am a whole lot more sympathetic, having ended up teaching 30-50 students at a shot, and having multiple classes' tests to grade..... and ending up having to write the test I thought *least* telling of student uptake: The Multiple Choice.

My solution? The *partial*credit* Multiple choice. "Woot!"
So (and I guess, my point...), some of these answers are *supposed* to be baldly wrong, and obviously so. (The ones that are more open-ended, and invite speculation about otherwise-objective judgment/criteria -- those are more problematic....)
 
tommcginnis said:
I am a whole lot more sympathetic, having ended up teaching 30-50 students at a shot, and having multiple classes' tests to grade..... and ending up having to write the test I thought *least* telling of student uptake: The Multiple Choice.

My solution? The *partial*credit* Multiple choice. "Woot!"
So (and I guess, my point...), some of these answers are *supposed* to be baldly wrong, and obviously so. (The ones that are more open-ended, and invite speculation about otherwise-objective judgment/criteria -- those are more problematic....)
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I just think these questions and answers are just... poor, and would be a poor way to test someone's knowledge... lets take this one for example:

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2.) You sell to open ten ABC 40 puts for $2 each. What's the best thing that can happen now?

A) ABC stock stays at $40, and the puts expire worthless
B) ABC stock stays at $40, and you buy back the puts for a profit
C) ABC's price rises to $50, and you're assigned to buy the stock at $40 per share
D) ABC stock falls to $20, and you exercise the puts to sell the stock at $40 per share
-----

Certainly, I would say the "best thing" that would happen would be to have the stock price rise to 50 and get assigned anyway! Would be kind of hilarious for someone to exercise those out of the money puts and sell me the stock for 40... so sure, that is the "Best thing" that "could" happen, but in practice, never ever happens unless someone screws up big time...

Hell, even then, that's not the "Best thing" that "could" happen... best thing that can possibly happen is that the stock goes to $INFINITY and then the counterparty exercises those $40 puts anyway!! Lol...


So as a student trying to prove my "knowledge" with this question, do I pick that answer?
The question in and of itself isn't really a problem, but the possible answers given make it very difficult to try to pick what the teacher is getting at. A knowledgeable teacher wouldn't word a question this way with these possible answers.
 
Ryan81 said:
I just think these questions and answers are just... poor, and would be a poor way to test someone's knowledge... lets take this one for example:

-----
2.) You sell to open ten ABC 40 puts for $2 each. What's the best thing that can happen now?

A) ABC stock stays at $40, and the puts expire worthless
B) ABC stock stays at $40, and you buy back the puts for a profit
C) ABC's price rises to $50, and you're assigned to buy the stock at $40 per share
D) ABC stock falls to $20, and you exercise the puts to sell the stock at $40 per share
-----

Certainly, I would say the "best thing" that would happen would be to have the stock price rise to 50 and get assigned anyway! Would be kind of hilarious for someone to exercise those out of the money puts and sell me the stock for 40... so sure, that is the "Best thing" that "could" happen, but in practice, never ever happens unless someone screws up big time...

Hell, even then, that's not the "Best thing" that "could" happen... best thing that can possibly happen is that the stock goes to $INFINITY and then the counterparty exercises those $40 puts anyway!! Lol...


So as a student trying to prove my "knowledge" with this question, do I pick that answer?
The question in and of itself isn't really a problem, but the possible answers given make it very difficult to try to pick what the teacher is getting at. A knowledgeable teacher wouldn't word a question this way with these possible answers.
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"Okay, Smart Guy!" (written in jest, just to be clear... but seriously, then,...)
What would you propose? (Not to hijack the thread....)
The question requires you to:
"sell to open": recognize you now have a responsibility for the premium received
"ABC @$40": determine strike, AND to recognize that you don't have mkt.
"...@$2": *possibly* determine B/E (absent commissions) of $38 -- but certainly, Life Is Good above $39.99, and less so, below.

So, give us four answers (and only 1 correct choice) that don't insult your intelligence, that require you to recognize *some*mix* of responsibility(ies), rights, and differing ranges of profit & loss.

"HA! Not so *eassssy* now, is it?!?!?" [cue evil laugh...]
 
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Umm, simply adding a qualifier to the question such as: "Assume holders of OTM options do not choose to exercise.")
 
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