Hi, this is a test i need to do on westpac broking before i can use T2 strategies like straddles. I believe i have done at least 9 of them correctly, but the system said my answers are not all correct, can anyone tell me which question I answered wrong? I am not asking for answers, please point out the wrongly answered questions (e.g "5 isn't correct") and I will fix them myself.
You hold the following Option position for BHP Limited (BHP):
Short 20 BHP June $38.00 Calls.
The share price of BHP rises from $38 to $39.
Which of the following statements is correct?
X a) The margin required for this position will increase
b) The margin required for this position will decrease
c) The margin required for this position will be the same
d) No margins apply to this position
A, The margin required will increase since it's a short call position, increase in price increases the
likehood of the option being execrised before or on expiry date, therefore giving the writer more liability.
Short Call= Obligation to buy stocks at certain price.
You enter the following Option position for Lihir Gold (LGL):
Short 1 LGL June $4.50 Call for 10c (Contract size = 1,000)
You are exercised on the expiry day in June. The following day, LGL is trading at $4.75.
What is your total profit / loss if you buy the shares at market price to cover your obligation (excluding brokerage and ACH charges)?
a) Break even
X b) $150 loss
c) $250 loss
d) $350 profit
Short Call= Obligation to buy at current price and deliver at $4.50
Liability when exercised: (4.75-4.50+0.1)x1000= $150 LOSS
0.1 is premium received on writing.
If additional margin is needed to cover a position, Westpac Broking can:
X a) Call you to lodge more stock or cash to cover the obligation
b) Automatically lodge cash or stock on your behalf with the ACH
c) Automatically sell shares you hold to cover the obligation
d) All of the above
All else remaining constant an increase in volatility for the underlying security leads to:
a) Lower option premiums
X b) Higher option premiums
c) Flat option premiums
d) Lower strike prices
B, Premium increases as volatility increases
What is the total premium paid for the following Option order in the S&P/ASX200 Index (XJO), assuming an Index Multiplier of $10?
Long 1 XJO June 5000 Call @ 100 points
X b) $1,000
One contract, 10x100= $1000, so it's B
Which of the following strategies would require a margin to be lodged?
a) Bull Put spread
b) Bull Call spread
c) Bear Put spread
X d) All of the above strategies
D, All of them
You hold the following Bull Call spread position in Woolworths (WOW):
Long 5 WOW August $29.00 Calls @ $3.00
Short 5 WOW August $31.00 Calls @ $0.50
What is the most likely outcome if you only close (sell) the $29 August Call series? :
a) You will make a profit on the strategy
b) You will make a loss on the strategy
X c) You will now be required to pay a margin
d) You will now no longer be required to pay a margin
C, because it will cause the bull call spread to turn into an uncovered short call.
Which of the following is not a valid Option strategy?
a) Bull Call spread
X b) Ratio Bear Condor
c) Bull Put spread
B, Not possible.
If you are exercised on a Short Call position and don't hold the stock you will be required to:
a) Substitute cash for stock
X b) Purchase the stock immediately after you are notified of the exercise
c) Make arrangements to purchase the stock the following week
d) Do nothing
You enter the following strategy for Telstra (TLS):
Buy 1 TLS May $4.25 Call @ $0.25
Sell 1 TLS May $4.50 Call @ $0.10
At what net price would the strategy be entered into the market?
a) $0.35 Debit
X b) $0.15 Debit
c) $0.35 Credit
d) $0.15 Credit
Buy 1 TLS May $4.25 Call @ $0.25 = 0.25x1000= $250 Cost
Sell 1 TLS May $4.50 Call @ $0.10 = 0.10x1000= $100 Profit
Therefore it's $0.15 Debit