Question

1. (1pt) One futures contract is traded where both the long and short parties are closing out existing positions. What is the resultant change in the open interest?
   1. No change
   2. Decrease by one
   3. Decrease by two
   4. Increase by one

2. (1pt) When the strike price increases with all else remaining the same, which of the following is true?  
   1. Both calls and puts increase in value
   2. Both calls and puts decrease in value
   3. Calls increase in value while puts decrease in value
   4. Puts increase in value while calls decrease in value

3. (1pt) When volatility increases with all else remaining the same, which of the following is true?  
   1. Both calls and puts increase in value
   2. Both calls and puts decrease in value
   3. Calls increase in value while puts decrease in value
   4. Puts increase in value while calls decrease in value

4. (1pt) Which of the following best describes the intrinsic value of an option?

1. The value it would have if the owner had to exercise it immediately or not at all
2. The Black-Scholes price of the option
3. The lower bound for the option’s price
4. The amount paid for the option

Answer 1

1. ans - b) Decrease by one

Explanation:

The open interest goes down by one. This is because the trade eliminates one outstanding long position and one outstanding short position.

2. Ans-d) Puts increase in value while calls decrease in value

3. Ans - a)Both calls and puts increase in value

4. Ans - a) The value it would have if the owner had to exercise it immediately or not at all