An investor who is long XYZ stock would consider going long an XYZ call to:

A) hedge the long position.

B) obtain income from the premium.

C) protect against an increase in the market price of XYZ stock.

D) protect against a decrease in the market price of XYZ stock.

Answer: C) protect against an increase in the market price of XYZ stock.

An option that may be exercised prior to its expiration date is said to be:

A) Premature style.

B) Flexible style.

C) American style.

D) European style.

Answer: C) American style.

An investor would write a call option to:

A) protect the premium.

B) fix the purchase price to add stock to his portfolio.

C) seek long-term capital gain.

D) obtain income.

Answer: D) obtain income.

You have a client who has sold short 100 shares of RIF, a stock listed on the NYSE. If the client wished to use options to protect against unlimited loss, you would suggest the client:

A) buy 1 RIF put.

B) sell 1 RIF call.

C) sell 1 RIF put.

D) buy 1 RIF call.

Answer: D) buy 1 RIF call.

Options positions can either create rights or obligations. In which option position has the investor created the possible obligation to purchase stock?

A) Selling a put.

B) Purchasing a put.

C) Purchasing a call.

D) Selling a call.

Answer: A) Selling a put.

Purchasers of options can have a number of different objectives. One of your clients who is a soft drink fan already has a long position in KO. What would be a possible reason for this client to go long a KO call option?

A) To complete the other side of a spread.

B) Owning a long call on stock you already own offers a hedge against a market decline.

C) This would generate additional income.

D) To fix the cost of acquiring additional stock to the portfolio.

Answer: D) To fix the cost of acquiring additional stock to the portfolio.