Ag Decision Maker ActivityFile A2-66
Grain Price Options Basics
Name ______
Using File A2-66, answer the questions below.
1)If a person buys an option, he/she has the ______, but not the ______to exercise the option.
2)The most money an option buyer can loose if he/she buys an option is
a)the premium
b)unlimited
3)The most money an option seller (writer) can loose if he/she buys an option is
a)the premium
b)unlimited
4)If you exercise an option you are transferred to the ______market.
5)If a person buys a call option, he/she receives the right to
a)buy
b)sell
the underlying futures contract.
6)If a person buys a put option, he/she received the right to
a)buy
b)sell
the underlying futures contract.
7)If a person sells (writes) a call option, he/she is required to
a)buy
b)sell
the underlying future contract if the option is exercised.
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Grain Price Options Basics
8)If a person sells (writes) a put option, he/she is required to
a)buy
b)sell
the underlying future contract if the option is exercised.
9)List the three ways you can close out an option you have purchased.
a)______
b)______
c)______
10)The ______price is the price at which you enter the futures market if the option is exercised.
11)You will make money on a call option you previously purchased if the futures price is
a)above
b)below
the strike price (don’t consider premium paid previously).
12)You will make money on a put option you previously purchased if the futures price is
a)above
b)below
the strike price (don’t consider premium paid previously).
13)You loose money on a call option you have written if the futures price is
a)above
b)below
the strike price.
14)You loose money on a put option you have written if the futures price is
a)above
b)below
the strike price.
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Grain Price Options Basics
15)If the futures price is above the strike price, a put option is considered to be
a)in-the-money
b)out-of-the-money
c)at-the-money
16)If the futures price is above the strike price, a call option is considered to be
a)in-the-money
b)out-of-the-money
c)at-the-money
17)If the futures price is below the strike price, a put option is considered to be
a)in-the-money
b)out-of-the-money
c)at-the-money
18)If the futures price is below the strike price, a call option is considered to be
a)in-the-money
b)out-of-the-money
c)at-the-money
19)If the futures price is the same as the strike price, an option is considered to be
a)in-the-money
b)out-of-the-money
c)at-the-money
20)Last month I purchased a July Soybean Call option with a strike price of $12.00 for a 30 cent premium. July futures price is currently $12.50. What is the exercise value of the option?
______
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Grain Price Options Basics
21)How much money will I make (including the cost of the premium) if I exercise the option? ______
22)What is the exercise value of the option? ______
23)The premium for the option above is currently 70 cents, how much will I make if I sell the option? ______
24)Why would someone offer me 70 cents for the option when its exercise value is only 50 cents? ______
25) What are two other terms for exercise value?
a)______
b)______
26)What is the term for the premium’s extra 20 cents over the exercise value?
a)______
27)List the three factors that affect the size of an option premium’s extrinsic value.
a)______
b)______
c)______
28)The longer the time period before expiration the
a)larger
b)smaller
the extrinsic value.
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Grain Price Options Basics
29)The farther an option is in or out of the money the
a)larger
b)smaller
the extrinsic value.
30)The more volatile the future market the
a)larger
b)smaller
the extrinsic value.