 Show Gov. Body : Economy and Finance ENFORCEMENT DECREE OF THE INCOME TAX ACTSearch by Pages ※ The links provided by an automatic program for the convenience of users may have some errors.
Updated September 15, 2022 A LEAP (long-term equity anticipation security) is a call or put option that allows the holder to buy or sell shares of stock at a set strike price. Expiration dates on LEAPs can range from nine months to three years, which is longer than the holding period for a traditional call or put option. Because of their long-term nature, LEAPs are often sold by the same investor who originally purchased the contracts. When LEAPs are sold at a profit, the gain is taxable. The seller of the LEAP is taxed at the long-term capital gain rate if they held the contract for at least a year and a day. If they held the contract for a shorter period, they would be subject to short-term capital gains rates. Selling a LEAP option contract is not the only way that an investor can incur tax consequences with this instrument. An investor who exercises a LEAP call option and then sells the stock purchased immediately would be subject to short-term capital gains rates even if LEAP contract was held for more than 12 months. Once a LEAP call option is exercised, the investor must hold the stock purchased for more than 12 months from the exercise date in order to qualify for the long-term capital gains tax rate. For a put, the investor who sells the stock at the LEAP's strike price and subsequently makes a profit would similarly pay capital gains tax based on the amount of time the actual shares were owned without regard to the length of time the contract was held. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. The Options Clearing Corporation is responsible for all of the following EXCEPT: A. standardization of listed options contracts The best answer is B. The Options Clearing Corporation is the technical issuer and guarantor of listed options contracts. The O.C.C. standardizes the options contracts that it will issue to increase potential investor participation. If there is an exercise of an option contract, it is the O.C.C. who assigns the exercise notice to a writer of that contract. Trading of listed options
contracts takes place on exchange floors, under the rules of the exchange. The O.C.C. does not establish options trading rules - these are established by the exchanges. The O.C.C. is responsible for which of the following? I Standardization of listed options contracts A. I and II only The best answer is C. The Options Clearing Corporation is the technical issuer and guarantor of listed options contracts. The O.C.C. standardizes the options contracts that it will issue to increase potential investor participation. If there is an exercise of an
option contract, it is the O.C.C. who assigns the exercise notice to a writer of that contract. Trading of listed options contracts takes place on exchange floors, under the rules of the exchange. The O.C.C. does not establish options trading rules - these are established by the exchanges. An opening trade in a call option contract takes place on the American exchange (AMEX) between a buyer
at ABCD Securities and a writer at PDQR Securities. The issuer of the contract is: A. American Stock Exchange The best answer is D. The Options Clearing Corporation (O.C.C.) is the legal issuer and guarantor of all exchange traded options. Thus, the purchaser of an option contract is
relieved of the worry that a writer will not perform on an exercise - since technically, the O.C.C. is the writer of the contract. (The O.C.C. requires that member firms deposit daily monies to ensure that the firms, if their customers are writers who have been exercised, can perform on the exercise.) Which of the following are standardized for listed option contracts? I Contract
size A. I and II only The best answer is D. Exchange traded option contracts have standardized contract sizes (e.g., 100 shares of stock), standardized expiration date and time (11:59 PM Eastern Standard Time on the 3rd Friday of the
month), and standardized strike price intervals (generally 5 point intervals). The premium or "price" of the option is determined minute by minute in the trading market. The January stock option contracts of a company assigned to Cycle 3 have just expired. Which contracts will commence trading on the CBOE? A. February The best answer is D. The options cycles are: Cycle 1 Jan Apr Jul Oct Cycle 3 contracts are issued for the months of Mar - Jun - Sept - Dec. One can always get a contract for this month, next month, and the next 2 months in the Cycle. In January, prior to expiration, the contracts that will trade are January (this month),
February (next month), March and June (the next 2 months in the cycle). After January contracts expire, the contracts that will trade are February (this month), March (next month), June and September (the next 2 months in the cycle). The December stock option contracts of a company assigned to Cycle 2 have just expired. Which contracts will commence trading on the CBOE? A.
January The best answer is D. The options cycles are: Cycle 1 Jan Apr Jul Oct Cycle 2 contracts are issued for the months of Feb - May - Aug - Nov. One can always get a contract for this month, next month, and the next 2 months in the Cycle. In December, prior to
expiration, the contracts that will trade are December (this month), January (next month), February and May (the next 2 months in the cycle). After December contracts expire, the contracts that will trade are January (this month), February (next month), May and August (the next 2 months in the cycle). If it is now December, regular options contracts could be traded with all of the following
expirations EXCEPT: A. January The best answer is D. The maximum life of a regular stock option contract is 8 months (this may be tested as 9 months, though). Longer term stock options, known as LEAPs (Long Term Equity AnticiPation options) have a maximum life of 28 months. The maximum "legal" life on a regular stock option contract is: A. 6 months The best answer is B. Legally, the maximum life of a regular stock option contract is 9 months. Currently, the way that options are issued, the actual maximum life is 8 months.
Longer term stock options, known as LEAPs (Long Term Equity AnticiPation options) have a maximum life of 28 months. All of the following statements are true about stock options contracts EXCEPT they: A. are American style The best answer is C. The very first options contracts were single stock options, which started trading on the CBOE in 1973. All single stock options are "American Style" - these are options that can be exercised at any time. In contrast, European style options can only be exercised at expiration and not before. All options contracts can be traded anytime until expiration. Options contracts cannot be redeemed and they can only
be issued based on the cycles set by the Options Clearing Corporation. Stock options contracts: I are American style A. I and III The best answer is B. The very first options contracts were single stock options, which started trading on the CBOE in 1973. All single stock options are "American Style" - these are options that can be exercised at any time. In contrast, European style options can only be exercised at expiration and not before. All options contracts can be traded anytime until expiration. Options contracts can only be issued based on the cycles set by the Options
Clearing Corporation. Regular way trades of options settle: A. same business day The best answer is B. Regular way trades of stock options are settled next business day. Do not confuse this
with an exercise of a stock option. If an exercise occurs, this results in a regular way stock trade that settles 2 business days after exercise date. The last time to trade expiring equity options is: A. 4:00 PM Eastern Standard Time; 3:00 PM Central Time; on the day prior to expiration The best answer is B. Listed equity options trade until 4:00 PM Eastern Standard Time on the third Friday of the expiration month. The contracts expire at 11:59 PM Eastern Standard Time, on the third Friday of the month. Note that Central Time is included in the question because both the CBOE and OCC are located in Chicago, which is on Central Time. Equity options for a given month expire at: I 4:00 PM EST A. I and III The best answer is C. Listed equity options trade until 4:00 PM Eastern Standard Time on the third Friday of the expiration month. The contracts expire at 11:59 PM Eastern Standard Time that same day - the third Friday of the month. Equity options contracts for a given month expire: I on the 2nd Friday of the month A. I and III The best answer is D. Equity options contracts for a given month expire on third Friday of the month at 11:59 PM Eastern Standard Time. The trading cut-off is 4:00 PM ET on the same day. After exercising an equity options contract, the trade settles: A. next business day after trade date The best answer is B. Exercise of an option results in a regular way trade. Stocks trades settle regular way 2 business days after trade date. A customer purchases an equity option contract in a regular way trade at 1:00 PM Eastern Standard Time on Tuesday, October 10th, and files an exercise notice at 3:00 PM on the same day. The option contract will first be assigned by the Options Clearing Corporation: A. immediately The best answer is B. An exercise notice may be placed by a customer immediately upon the purchase of a call or put contract. However, the Options Clearing Corporation does not handle the exercise until the morning of the next business day (which is also the day that the customer must pay for the option contract in a regular way settlement). This procedure is followed because the Options Clearing Corporation does not receive the report of the purchase of the option until the close of trading on the day that the contract is purchased. The O.C.C. opens the next day with the customer recorded as being "long" that contract, and can now assign an exercise notice to a writer. A customer purchases an equity option contract at 1:00 PM Eastern Standard Time on Tuesday, October 10th in a cash trade, and files an exercise notice at 3:00 PM on the same day. The option contract will first be exercised by the Options Clearing Corporation: A. immediately The best answer is A. An exercise notice may be placed by a customer immediately upon the purchase of a call or put contract. The Options Clearing Corporation does not assign the exercise until the transaction settles, which is the same day for a cash trade. Once the assignment occurs, the stock must be delivered to the holder of the call; or the stock must be delivered to the writer of the put; 2 business days after assignment. A customer buys a listed stock option in a cash trade and exercises that same day. The Options Clearing Corporation will assign the exercise notice to a writer on: A. that day The best answer is A. An exercise notice may be placed by a customer immediately upon the purchase of a call or put contract. The Options Clearing Corporation will not assign the exercise notice until the purchase of the option settles - and this occurs the same day for a cash options trade. Once the assignment occurs, the stock must be delivered to the holder of the call; or the stock must be delivered to the writer of the put; 2 business days after assignment. o receive a dividend, the holder of a call contract may exercise the contract on all of the following days EXCEPT: A. two business days prior to record date The best answer is C. To receive a dividend, the holder of a call contract must exercise the contract prior to the ex date. Settlement of exercise takes place in 2 business days. In Choice A, if the customer exercises 2 business days prior to record date, the holder would be entitled to the dividend since the trade settles on the Record Date (the date that the list of holders of record are taken to be sent the dividend). In Choice B, if exercise occurs two business days prior to ex date, the trade settles on the ex date. Since the ex date is 1 business day prior to the Record Date, the customer has settled in time to receive the distribution. In Choice C, if the customer exercises one business day prior to Record Date, the trade settles on the business day following the Record Date and the customer will not receive the dividend. In Choice D, the customer has effected the trade on the last day possible to receive the dividend - which is the business day prior to the ex date. This is 2 business days prior to the Record Date (the ex date is 1 business day prior to Record Date), so the trade will settle on the Record Date and the customer will receive the dividend. In order to receive a dividend distribution, the last time for the holder of a call option to exercise is: A. at least 2 business days prior to the ex date The best answer is B. Exercise of an option results in a regular way trade. Stocks settle regular way 2 business days after trade date. Since the ex date is set at 1 business day prior to the record date, to receive the dividend, the stock must be bought 2 business days prior to the record date (or just prior to the ex date). Exercising the call just prior to the ex date is the same as buying the stock just prior to the ex date. A customer is long 10 ABC Jan 60 Call contracts. ABC Corporation has just declared a $1 per share dividend. To receive the dividend, the customer must: A. sell the contracts prior to the ex date The best answer is C. To receive a dividend, the holder of a call contract must exercise the contract prior to the ex date. Since settlement of exercise takes place in 2 business days, the customer will have settled the exercise on, or before, the record date, and will receive the dividend. A put is assigned prior to the ex date for a cash dividend. The customer: A. will receive the dividend The best answer is A. If the put is "assigned," it means that the OCC (Options Clearing Corporation) has selected that put writer to receive the exercise notice (because a holder of that contract has chosen to exercise), obligating the writer of the put to buy the stock in a regular way trade. Because the writer of the put is assigned prior to the ex date, the writer is buying the stock in time to get the dividend. If the put is assigned on the ex date or after, the writer would not get the dividend. A customer owns 100 shares of ABC stock and owns 1 ABC Put option. The customer wishes to sell the stock by exercising the put, but wishes to retain a recently declared cash dividend. In order to receive the dividend, the customer could NOT exercise the put: A. before the ex date The best answer is A. Because exercise settlement of listed stock options occurs 2 business days after trade date, in order to retain the cash dividend, the holder of the shares cannot sell them before the ex date (which is 1 business day prior to record date). If the put is exercised on the ex date or later, the trade will settle after the record date, and the customer will be on record to receive the cash dividend. On the other hand, if the long put were exercised before the ex date, the trade would settle on the record date or before, and the customer would be selling the stock, taking him- or herself off the record book on the record date or before, so that client would not receive the dividend. A customer owns 100 shares of ABC stock and owns 1 ABC Put option. The customer wishes to sell the stock by exercising the put, but wishes to retain a recently declared cash dividend. The first date that the customer can exercise the put and still retain the dividend is: A. any date before the ex date The best answer is B. Because exercise settlement of listed stock options occurs 2 business days after trade date, in order to retain the cash dividend, the holder of the shares cannot sell them before the ex date (which is 1 business day prior to record date). If the put is exercised on the ex date or later, the trade will settle after the record date, and the customer will be on record to receive the cash dividend. On the other hand, if the long put were exercised before the ex date, the trade would settle on the record date or before, and the customer would be selling the stock, taking him- or herself off the record book on the record date or before, so that client would not receive the dividend. The O.C.C. assigns exercise notices on a: A. first in; first out basis The best answer is C. If an option contract is exercised by a holder, a writer is selected by the Options Clearing Corporation to perform on the contract on a random order basis. Exercise limits on stock option contracts cover a time period of: A. 5 business days The best answer is A. Exercise limits are applied to all exercises occurring within a 5 business day period - the same as 1 calendar week. In determining whether there has been a violation of position limits, long calls will be aggregated with: I
Long Puts A. I only The best answer is C. Long calls and short puts constitute the "up" side of the market. Long puts and short calls constitute the "down" side of the market. Position limits are applied to each "side" of the market. To determine if position limits have been violated, the O.C.C. would combine: A. long calls and long puts The best answer is B. To determine if position limits are violated, the O.C.C. aggregates options positions (not stock positions) on the same stock that are on the same "side" of the market. The "up side" of the market consists of long calls and short puts. The "down side" of the market consists of short calls and long puts. John and Joe are successful business associates and have been good friends for many years. John has an options account at BD "A," while Joe has his options account at BD "B." John and Joe have given each other full power of attorney over their respective accounts. John and Joe have been discussing ABCD stock and they are both bullish. John buys 150,000 ABCD call contracts in his account at BD "A." Joe buys 175,000 ABCD call contracts in his account at BD "B." The position limit for ABCD is 250,000 contracts. Which statement is TRUE about their actions? A. This is not a violation of position limits because the positions were taken
in accounts at different broker-dealers The best answer is D. Any accounts that are under "common control" are aggregated to determine if there is a position limit violation. Control is deemed to exist for: ***all owners in a joint account; The most common situation where this comes up is a registered representative who exercises discretionary authority over a number of customer accounts - these would be aggregated to see if there is a violation of position limits. In this case, because the 2 individuals have trading authority over each other's account, they are deemed to be under common control and are aggregated. With a 250,000 position limit (on each side of the market), the 150,000 long calls and 175,000 long calls in the 2 accounts are aggregated to 325,000 contracts on the up-side of the market and exceed the 250,000 contract limit. If an issue listed on the NYSE stops trading, which of the following statements are TRUE regarding the option on that particular stock? I The option can be traded A. I and III The best answer is C. If the exchange where the stock is listed stops trading, the option stops trading on its exchange (since there is no way to price the option, if the stock is not being "priced" on the exchange). Existing holders can still exercise or let the option expire, since these actions take place through the Options Clearing Corporation - not the exchange floor. A customer owns 1 XYZ Jul 30 Put. XYZ goes ex dividend $.50. As of the morning of the ex date, the contract will cover: A. 100 shares at $29.50 The best answer is B. Listed option contracts are not adjusted for cash dividends. They are only adjusted for 2:1 and 4:1 stock splits. For other types of stock splits and stock dividends, there is no adjustment to the contract. However, if the contract is exercised, the "deliverable" is adjusted accordingly. ABC Corporation, after many profitable years, declares a one-time special cash dividend of $10.00 per share. After the announcement, the stock is trading at $100 per share. Your customer holds 1 ABC Jan 110 Call. As of the ex date, the customer will have: A. 1 ABC Jan 90 Call The best answer is B. While the OCC does not adjust the strike prices of listed options contracts for regular quarterly cash dividends, since they are a "known quantity" that the market prices into options premiums, "special cash dividends" are a one-time event that the market does not know about. Therefore, the OCC does adjust listed options for special cash dividends that amount to at least $12.50 per contract. Since this special cash dividend amounts to $10 per share x 100 shares = $1,000 value per contract, it will be adjusted. The new strike price will be 110 - $10 cash dividend = 100. The number of shares covered by the contract does not change. DEF Corporation, after many profitable years, declares a one-time special cash dividend of $5.00 per share. After the announcement, the stock is trading at $50 per share. Your customer holds 1 DEF Jan 55 Call. As of the ex date, the customer will have: A. 1 DEF Jan 45 Call The best answer is B. While the OCC does not adjust the strike prices of listed options contracts for regular quarterly cash dividends, since they are a "known quantity" that the market prices into options premiums, "special cash dividends" are a one-time event that the market does not know about. Therefore, the OCC does adjust listed options for special cash dividends that amount to at least $12.50 per contract. Since this special cash dividend amounts to $5 per share x 100 shares = $500 value per contract, it will be adjusted. The new strike price will be 55 - $5 cash dividend = 50. The number of shares covered by the contract does not change. An investor holds 1 ABC Jan 40 Call. ABC splits 2 for 1. On the ex date, the holder will have: A. 2 ABC Jan 20
Calls covering 50 shares The best answer is B. For 2:1 and 4:1 whole share splits, the number of contracts is increased and the strike price reduced proportionately. 1 ABC Jan 40 Call becomes (after the 2 for 1 split) 2 ABC Jan 20 Calls (the new strike price is 40/2), with each contract covering 100 shares. Note that the aggregate exercise value of the contracts remains unchanged. An investor holds 1 ABC Jan 40 Call. ABC splits 4 for 1. On the ex date, the contract becomes: A. 1 ABC Jan 40 Call The best answer is C. For 2:1 and 4:1 whole share splits, the number of contracts is increased and the strike price reduced proportionately. 1 ABC Jan 40 Call becomes (after the 4 for 1 split) 4 ABC Jan 10 Calls (the new strike price is 40/4). ABC corporation is trading in the market for $51. The corporation declares a 25% stock dividend. After the ex date, the holder of 1 ABC Jan 50 Call will have: A. 1 ABC Jan 50 Call The best answer is A. This is a stock dividend of 25%. The OCC does not adjust the contract on ex date. Only if there is an exercise, then the OCC adjusts the "deliverable." The contract holder owns 1 ABC Jan 50 Call. If the contract is exercised, the holder will receive 100 x 1.25 = 125 shares; at a price of $50/1.25 = $40. An investor has 1 ABC Jan 50 Call contract. ABC declares a 25% stock dividend. Which statement is TRUE regarding the option contract after adjustment for the dividend? A. The contract becomes 1 ABC Jan 60 Call covering 125 shares The best answer is D. This is a stock dividend of 25%. The OCC does not adjust the contract on ex date. Only if there is an exercise, then the OCC adjusts the "deliverable." Which of the following options strategies would be considered a covered call? A. Long 1 ABC Jan 50 Call; Long 1 ABC Jan 50 Put The best answer is C. To be covered, a call writer can sell a call contract against the underlying long physical security position. If the market rises, the call is exercised and the call writer delivers the long stock position that is owned. A customer sells a call. In order to cover the position, the customer must: I buy a call with the same
strike price or lower than the one he sold A. I and III The best answer is B. To cover the sale of a call contract, the customer may purchase 100 shares of ABC stock; or may purchase a call at the same or lower strike price; with the same or later expiration. A customer is short 1 ABC Jul 50 Call contract. Which of the following cover the contract? I Long 1 ABC Apr 50 Call A. I and III only The best answer is C. The only way to cover a short call with another option contract is to buy an option that allows for the purchase of the stock (meaning a call option). The option must have the same strike price or lower (allowing the stock to be purchased at the same price or cheaper) as that of the contract which is sold and must have the same expiration or longer than the contract sold. Thus, to cover the short Jul 50 Call, a long Apr 50 call is not good because it expires before July; a long October 50 call is good because it expires after July. Which of the following will cover the sale of a call contract on ABC stock? A. Depositing cash equal to the current market value of ABC stock The best answer is D. The usual way that a short call contract (obligation to sell the stock at the strike price if the short call is exercised) is covered is by purchasing or owning the stock. Then, if the short call is exercised, the writer delivers the stock that is owned. Another way of covering a short call is to buy a call contract on the same stock. To fully cover the sale of the call, the long call must be at the same strike price or lower and must be at the same expiration or later. This question only addresses the fact that the long call must be at the same strike price or lower. That way, if the short call is exercised, the stock can be purchased via the exercise of the long call and delivered with no loss. All of the following cover the sale of 1 ABC Feb 45 Call contract EXCEPT the: A. purchase of 1 ABC Feb 35 Call The best answer is C. The purchase of 1 ABC Feb 35 Call covers the sale of the ABC Feb 45 Call because the strike price is at 35 versus 45. Here, the customer can buy the stock at 35 to cover the 45 Call which he sold. Similarly, the purchase of 1 ABC May 45 Call covers the short call. If the short call is exercised, forcing delivery, the long call can be exercised into May to get the stock. The long call must have the same expiration or later to cover the short call. The deposit of cash will not cover the sale of a call since the potential loss is unlimited. The purchase of 100 shares of ABC covers the sale of the contract. If the contract is exercised, the customer will just deliver his own shares to cover the position. Which of the following cover the sale of 1 XYZ Jul 50 Call contract? I The deposit of 4 XYZ convertible bonds, each convertible into 25 shares of XYZ stock A. I only The best answer is B. The deposit of the XYZ convertible bonds covers the sale of the XYZ Jul 50 Call because should the call be exercised, the bonds can be converted and the stock delivered. Similarly, the purchase of 1 XYZ Aug 50 Call covers the short call. If the short call is exercised, forcing delivery, the long call can be exercised into August to get the stock. The purchase of 1 XYZ Jun 50 Call does not cover the sale of the Jul 50 Call. Assume, for example, that in July, the short call is exercised. The long call expired in June, so you must go to the market to get the stock. This position is not covered. The long call must have the same expiration or later to cover the short call. The deposit of cash will not cover the sale of a call since the potential loss is unlimited. Which of the following cover the sale of 1 ABC Jan 50 Call contract? I The deposit of 100 shares of ABC stock A. I only The best answer is B. The deposit of 100 shares of ABC stock covers the sale of the ABC Jan 50 Call because should the call be exercised, the stock can be delivered. Similarly, the purchase of 1 ABC Apr 50 Call covers the short call. If the short call is exercised, forcing delivery, the long call can be exercised into April to get the stock. The purchase of 1 ABC Oct 50 Call does not cover the sale of the Jan 50 Call. Assume, for example, that in November, the short call is exercised. The long call expired in October, so you must go to the market to get the stock. This position is not covered. The long call must have the same expiration or later to cover the short call. The deposit of cash will not cover the sale of a call since the potential loss is unlimited. Which of following will create a "covered" short put position under O.C.C. rules? I Long a put on the same stock with the same strike price or higher with the same expiration or later A. I only The best answer is D. All of the choices will cover the sale of a put. The O.C.C. accepts as "cover" being short the underlying stock (since the credit from the short sale can be used to buy the stock if the short put is exercised); owning a long put with the same strike price or higher (thus creating a long put or debit put spread); or having a bank guarantee letter (where the bank guarantees that it has the funds to buy the stock if the short put is exercised). Also note that the deposit of the aggregate exercise price in cash will also cover the sale of the put. Which of the following options strategies would be considered a covered put? A. Short 1 ABC Jan 50 Put; Long 1 ABC Jan 50 Call The best answer is D. A covered put writer sells a put contract against the underlying short security position. The short put is covered, because if the market falls, and the put is exercised, the credit received from selling the stock "short" can be used to pay for the stock that must be bought by the exercised put writer. Which of the following positions would "cover" the sale of 1 ABC Jan 30 Put? A. Long 1 ABC Jan 20 Put The best answer is C. The O.C.C. accepts as "cover" a long put with the same strike price or higher (thus creating a long put spread). A customer who is short a 30 put must buy the stock at $30 per share if exercised. The purchase of a 40 put allows the customer to put that stock to someone else at $40, so there is a profit. Thus, the long 40 put covers the short 30 put. A long 20 put is not a covering position, because the customer can only sell that stock at $20, for a 10 point loss. Which of the following statements are TRUE regarding equity LEAP option contracts? I The maximum life of the contract is 9 months A. I and III The best answer is D. LEAPs (Long term Equity AnticiPation option) are long term stock options that are traded on both individual stocks and stock indexes. Unlike regular individual stock options, which have maximum legal lives of about 9 months, or index options, which have a maximum life of 4 months, equity LEAPs have a maximum life of 28 months, while index LEAPs have a maximum life of 36 months. LEAPs allow investors to position themselves for market movements that are expected over a longer period of time. Like regular stock options, LEAPs can be exercised at any time ("American Style" options). LEAPs are traded on the CBOE, alongside the regular stock options. In mid-September 2019, equity LEAPs that are issued for a Cycle 1 company will expire in January of what year? A. 2020 The best answer is C. The CBOE changed the way that it issues LEAPs in mid-2019. Under the old method, LEAPs were issued after the May expiration for the January that was approximately 30 months later. Now, the CBOE issues equity LEAPs as follows: Cycle 1 companies have LEAPs issued after the September expiration for the January that is 28 months later; What is the maximum maturity of an equity LEAP? A. 9 months The best answer is C. The CBOE changed the way that it issues LEAPs in mid-2018. Under the old method, LEAPs were issued after the May expiration for the January that was approximately 30 months later. Now, the CBOE issues equity LEAPs as follows: Cycle 1 companies have LEAPs issued after the September expiration for the January that is 28 months later; Also note that index LEAPs have a different maturity - 36 months, instead of 28. All of the following exchanges trade listed stock options EXCEPT: A. CBOE The best answer is C. Listed stock options are traded on the CBOE (Chicago Board Options Exchange); AMEX (American Stock Exchange); PHLX (Philadelphia Stock Exchange); and the PSE (Pacific Stock Exchange) - now owned by the NYSE and renamed the ARCA Exchange.. By far, the largest options market is the CBOE. A floor broker on the Chicago Board Options Exchange: I can hold an inventory of securities A. I and III The best answer is C. The floor broker is used to execute transactions on CBOE for retail member firms. The floor broker can execute a trade with another floor broker, a Market Maker or an Order Book Official, earning a fee for each transaction. Floor brokers do not hold an inventory - this is the function of a market maker. They can accept all orders, and are obligated to find the best available market. On the Chicago Board Options Exchange, the person responsible for handling those orders that can be executed immediately is the: A. Order Book Official The best answer is B. Floor brokers on the CBOE accept orders from member firms for execution. Orders are filled under an open outcry auction system in the trading "pits." Market makers maintain bid and ask quotes in options contracts. Order book officials maintain the book of public orders that cannot be immediately filled. On the Chicago Board Options Exchange, bid and ask quotes for options contracts are maintained by the: A. Specialist (DMM) The best answer is C. The Specialist (now renamed the DMM - Designated Market Maker) function on the NYSE floor is handled by 2 separate individuals on the CBOE. On the NYSE floor, the Specialist/DMM performs 2 functions. The DMM acts as market maker in a specific security, buying and selling for his own account. The DMM also keeps the "book" of limit and stop orders that are away from the market for other brokers, and executes these orders for a commission. The CBOE splits this "dual function" into two jobs. The market maker on the CBOE buys and sells for his own account but does not hold a book of public orders. The "book" of orders is handled by an exchange employee known as the order book official. Floor brokers on the CBOE are agents, executing orders for customers. They cannot be market makers. The Order Book Official: I is similar to a dealer A. I and III The best answer is D. The Order Book Official is an employee of the Chicago Board Options Exchange who runs the book of public orders. The "OBO" does not make a market in the option contracts - this function is performed by the "MM" - Market Maker. The "OBO" performs the book function for option contracts. All of the following may trade for their own account on the floor of an options exchange EXCEPT a: A. market maker The best answer is D. On the Options Exchanges, floor brokers, and order book officials, handle trades as agent only. They accept orders from the public for execution but do not trade for their own account. Market makers on the exchange floor make markets in option contracts and are buying and selling for their own account. Registered options traders and competitive options traders are individuals that trade on the floor for themselves to add liquidity to the market. They can take positions and carry them. On the Chicago Board Options Exchange, the person responsible for holding and executing public orders that are "away from the market" is the: A. Order Book Official The best answer is A. The Order Book Official (OBO) is an exchange employee who manages the book of public limit orders for options contracts. OBOs cannot act as market makers. Market makers are separate individuals under the CBOE system. Which statements are TRUE about the CBOE Order Support System? I The order is directed to the brokerage firm's communication post on the exchange floor A. I and
III The best answer is B. All automated trading systems function in a similar fashion. Orders are routed directly to the trading post, eliminating the need for the order to be wired to the communication post on the exchange floor and then written by hand to be given to a floor broker. The execution report is sent directly to the originating firm; it does not go through the firm's communication post. All of the following statements are true about the CBOE Order Support System (OSS) EXCEPT: A. the order is routed directly to the market maker or order book official for execution The best answer is D. All automated trading systems function in a similar fashion. Orders are routed directly to the trading post, eliminating the need for the order to be wired to the communication post on the exchange floor and then written by hand to be given to a floor broker. The execution report is sent directly to the originating firm; it does not go through the firm's communication post. Such systems are cheaper and faster than manual trading. The majority of trades are now handled in this fashion - the use of the system is transparent to the customer. Which statements are TRUE regarding spread orders? I Two tickets are used,
one for each side of the spread A. I and III The best answer is D. Spread orders are entered on a one-to-one basis, meaning that both sides of the spread are on one ticket. When this is done, the order is subject to the "spread priority rule" that gives preference to such orders over equivalent single orders that are on the trading floor at that time. This rule helps spread orders be completed, since both "legs" of the order must be filled to complete the spread position. The market maker on the CBOE gives the following quotes: Bid Ask A customer wishes to buy 5 ABC Jan 50 Calls and buy 5 ABC Jan 50 Puts, but does not wish to spend more than $7 for each combined position; and wants the orders executed as close together as possible. The appropriate order that should be placed is: A. a spread order The best answer is B. This customer is specifying that a straddle be purchased for a combined premium not to exceed $7. The successful execution of this order requires that both "legs" of the straddle be executed at the same time within the customer's limit (a debit). To facilitate the handling of such "one-on-one" orders, the CBOE has the "spread priority rule." This rule states that a spread, straddle or combination order has priority over equivalent single sided orders on the trading floor. In this manner, it is easier for traders to successfully execute spread, straddle and combination orders. In this example, the 50 Call can be purchased at the ask price of $4.50; and the 50 Put can be purchased at the ask price of $2.50; for a combined debit of $7. A customer places an order to sell 5 ABC Jan 50 straddles at the market. The CBOE market maker's quotes for ABC 50 contracts are: ABC Call Put The customer will receive a total premium of: A. $1,375 The best answer is A. An ABC Jan Straddle consists of: 1 ABC Jan 50 Call If a straddle is bought, the buyer pays the "Ask" price of the market maker on the exchange floor. If a straddle is "sold," the seller receives the "Bid" price of the market maker. In this case, the customer is selling the straddle, so the premiums are: Sell 1 ABC Jan 50 Call @ $2.00 The total premium received will be $1,375. The "crossing" of customer orders by a Floor Broker on the CBOE floor is: A. a prohibited practice The best answer is B. The crossing by a Floor Broker of 2 customer orders at the same time does not expose those orders to the market. To make sure that the orders are exposed, the Floor Broker must attempt an execution on the trading floor prior to being permitted to cross the orders himself. The Floor Broker holds an order to buy an option contract from 1 customer at the market; and an order to sell the same contract from another customer at the market. The Floor Broker could not execute the orders in the open market; and therefore, executed the orders by matching them. This practice is known as: A. Arbitrage The best answer is B. The crossing by a Floor Broker of 2 customer orders at the same time does not expose those orders to the market. To make sure that the orders are exposed, the Floor Broker must attempt an execution on the trading floor prior to being permitted to cross the orders himself. Cabinet trades effected on the CBOE: I can be used by
customers to close out worthless long positions A. I and IV The best answer is C. Cabinet trades on the CBOE, also called "accommodation liquidations," are a means for customers to close out worthless contracts. If a contract is left to expire worthless, the customer does not have a printed record of this event. With a cabinet trade, the customer can close out worthless long or short positions at a premium of $.01 per share ($1 per contract). This results in a printed closing trade confirmation for the customer's records. For executing the trade, the broker will charge a commission - which will surely be more than $1! The New York Stock Exchange stops the trading of a company's stock, pending release of an important news announcement. The trading of the option will be halted by the: A. Options Clearing Corporation The best answer is C. When an exchange stops trading in a stock, the options exchange stops trading in the option (since there is no longer a way to price these "derivative" securities, whose price is based on the price movements of the underlying stock). The options positions listed in each of the following choices are in the same "class" EXCEPT: A. ABC Jan Calls and ABC Mar Calls The best answer is B. A class of options is determined by the underlying security and the type of option (Call or Put). Expiration and strike price are not considered. For example, all ABC Calls are a "class;" all ABC Puts are a "class;" all XYZ Calls are a "class;" all XYZ Puts are a "class." The options positions listed in each of the following choices are in the same "class" EXCEPT: A. ABC Jan Calls and ABC Mar Calls The best answer is D. A class of options is determined by the underlying security and the type of option (Call or Put). Expiration and strike price are not considered. For example, all ABC Calls are a "class;" all ABC Puts are a "class;" all XYZ Calls are a "class;" all XYZ Puts are a "class." What is the maximum maturity of an equity leap quizlet?Legally, the maximum life of a regular stock option contract is 9 months. Currently, the way that options are issued, the actual maximum life is 8 months. Longer term stock options, known as LEAPs (Long Term Equity AnticiPation options) have a maximum life of 28 months.
What are equity LEAPS?Equity LEAPS are long-dated options on common stock or ADRs of companies that are listed on securities exchanges or trade over-the-counter. Equity LEAPS expire in approximately two to three years from the date of initial listing.
What is the size of one LEAPS contract?Trading Unit The minimum trade size is one option contract. Each contract represents 100 shares of the underlying stock.
What could be the maximum gain for a put option seller?As a put seller your maximum loss is the strike price minus the premium. To get to a point where your loss is zero (breakeven) the price of the option should not be less than the premium already received. Your maximum gain as a put seller is the premium received.
|
What is the maximum maturity of an equity leap a 9 months B 12 months C 28 months D 36 months?
zusammenhängende Posts
Urheberrechte © © 2024 toptenid.com Inc.
