The Oxford Princeton Programme - Options IV

HARNESS THE ENERGY OF TRAINING INSTRUCTOR-LED - CUSTOMISED ON-SITE - WEB-BASED

Options IV - Exotic Options - Eligibility Pre-Test

Princeton Energy Programme's Options IV - Exotic Options is an advanced workshop that requires that delegates enter with an understanding of certain basic concepts. Entering this workshop without a grasp of the prerequisites may keep you from getting the most out of the class. In addition, since a good portion of the course is devoted to team exercises, it is important that all team members enter on a similar level.

The test below is not "graded". It is meant to give you an idea of how comfortable you are with the prerequisite material. If this test comfortably takes you one hour or less and you get 85% of the questions correct, you are prepared to enter the course. If, however, this test takes you more than one hour to complete, or you answer less than 85% of the questions correctly, we strongly urge you to consider taking the prerequisite courses for this workshop. The Prerequisites for Options IV - Exotic Options are Energy Risk Management and Options I - Fundamentals of Energy Options.

We will review all of these tests to ensure all delegates are entering at a similar level.

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A Collar is the OTC equivalent of a:
1. Bull Call
2. Straddle
3. Fence
4. Strangle

How do OTC options differ from exchange-traded options?
1. Exchange-traded options are almost always exercised
2. Exchange-traded options are usually liquid
3. OTC options are customized instruments
4. OTC options are guaranteed by ISDA

The hedger's counterparty in OTC option transactions is usually
1. A Financial Intermediary (also known as a "Dealer")
2. Another hedger
3. A NYMEX or IPE futures trader
4. ISDA

Most OTC option transactions are cash settled.
1. True
2. False

Which poses the greatest risk to the hedger in an OTC options transaction?
1. Counterparty default
2. Basis Risk
3. Correlation Risk
4. Historical Volatility

All else being equal, which option exercise style would entail the highest premium?
1. European
2. Bermudan
3. Asian

Gamma risk does not apply to Exotic Options.
1. True
2. False

Manipulation of the OTC Options market is impossible.
1. True
2. False

Which of the following options positions could be converted to a profitable position in the underlying futures contract on exercise? (check all that apply)
1. Long put options
2. Short put options
3. Long call options
4. Short call options

With the underlying futures contract of commodity X trading at $19.50, a $19 call on commodity X would have an intrinsic value of __________
1. $-0.50
2. 0
3. $0.50

The underlying futures contract of commodity X is trading at $19.50, and the $20 call on commodity X has a premium of $0.32. $0.32 is the __________ value of this option.
1. intrinsic
2. extrinsic
3. futures vs. strike price
4. historical

With a futures price of $21.61, which of the following options is in-the-money?
1. $22 call = $0.53
2. $21 put = $0.39
3. $20 call = $1.79

With a futures price of $27.12, which of the following options is at-the-money?
1. $29 call = $0.19
2. $27 put = $0.67
3. $26 call = $1.36

With a futures price of $15.99, which of the following options is out-of-the-money? (check all that apply)
1. $19 call = $0.06
2. $16 put = $0.78
3. $15 put = $0.31

Name the strategy: 1 long call, with 1 long put at the same strike price is a ...
1. Long straddle
2. Long strangle
3. Bull fence

Name the strategy: 1 short put, 1 short call at a higher strike price is a ...
1. Short strangle
2. Long straddle
3. Short straddle

How would you construct a bear fence?
1. Buy calls at a lower strike price and sell puts at a higher strike price
2. Buy puts at a lower striker price and sell calls at a higher strike price
3. Buy calls at a higher strike price and sell puts at a lower strike price
4. Buy puts at a higher strike price and sell calls at a lower striker price

Which type of volatility is calculated from past prices?
1. Implied
2. Intrinsic
3. Open
4. Historical

Futures = $23.37
Implied volatility = 23%
$24 put = $0.96
What is the extrinsic value of the $24 put?
1. $0.33
2. $0.63
3. $0.96

If the average price of commodity X for one year was $20 per unit, and the volatility of commodity X was 10%, then variations in price for that year would be within ___________ of $20, ____________% of the time.
1. $1.00, 67
2. 10%, 67
3. 20%, 50

With commodity X futures trading at $19.00, a trader anticipates a $2.00 rise in the price of commodity X futures, and buys a commodity X $20 call, with 30 days until expiration for $0.32. Commodity X futures will have to rise to $______________ by expiration for the trader to break even.
1. 19.32
2. 20.32
3. 19.68

With commodity X futures trading at $19.00, a trader anticipates a $2.00 rise in the price of commodity X futures, and buys a commodity X $20 call, with 30 days until expiration for $0.32. By expiration, the commodity X futures have risen to $19.95. What is the trader's profit or loss?
1. $-0.32
2. $0.95
3. $-0.05

With commodity X futures trading at $20.00, a trader anticipates a decline in the price of commodity X futures and sells a commodity X $20 call, with 30 days until expiration, for $0.65. If commodity X futures actually rise to $20.55 at expiration, the trader's profit or loss is _________.
1. $0.65
2. $-0.55
3. $0.10

Which of the following is not a variable of the Black-Scholes model?
1. Option premium
2. Time to expiration
3. Interest rates
4. Open interest
5. Volatility

You purchase a $17 call for $0.83. What will your profit or loss be at expiration with a futures price of $18.69?
1. $0.83
2. $0.86
3. $1.69

You purchase a $22 put for $0.47 and sell a $21 put for $0.19. What will your profit or loss be at expiration with a futures price of $21.76?
1. $-0.04
2. no profit, no loss
3. $0.24

Which of the following trades will perform best in a sharply falling market?
1. Short futures
2. Short calls
3. Long calls

Which of the following trades will perform best in a sharply falling market?
1. Long futures
2. Short puts
3. Long calls

You hold a long position in out-of-the-money put options. Which of the following factors would increase the value of your options?
1. An increase in volatility of the underlying futures contract.
2. The passage of time towards the expiration date.
3. An increase in the price of the underlying futures contract.

Options have more risk than futures.
1. True
2. False

All energy options traded on the NYMEX are:
1. American style options
2. European style options
3. Asian style options
4. none of the above

All energy options traded on London's IPE are:
1. American style options
2. European style options
3. Asian style options
4. none of the above

Most OTC Options are:
1. American style options
2. European style options
3. Bermudan style options

An option's delta is:
1. the expected change in premium for each 1 percent change in implied volatility.
2. the expected change in the value of an option for each full point change in the value of the underlying.
3. the loss of option premium value each day due to time decay.

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