11. Consider two put options differing only by exercise price. The one with the higher exercise price has

a. the lower breakeven and lower profit potential

b. the lower breakeven and greater profit potential

c. the higher breakeven and greater profit potential

d. the higher breakeven and lower profit potential

e. the greater premium and lower profit potential

12. Which of the following statements is true about closing a long call position prior to expiration relative to holding it to expiration?

a. the profit is greater at all stock prices

b. the profit is greater only at low stock prices

c. the profit is greater only at high stock prices

d. the range of possible profits is greater

e. none of the above are true

13. Which of the following transactions does not profit in a strong bull market.

a. a short put

b. a covered call

c. a protective put

d. a synthetic call

e. none of the above

14. Which of the following is equivalent to a synthetic call?

a. a long stock and a short put position

b. a long put and a long stock position

c. a long put and a short risk-free bond position

d. a long stock and a short risk-free bond position

e. none of the above

15. Early exercise imposes a risk to all but one of the following transactions.

a. a short call

b. a short put

c. a protective put

d. an uncovered call

e. none of the above

16. Each of the following is a bullish strategy except

a. a long call

b. a short put

c. a short stock

d. a protective put

e. none of the above

17. Which of the following strategies has the greatest potential loss?

a. an uncovered call

b. a long put

c. a covered call

d. a long position in the stock

e. it is impossible to tell

18. Which of the following strategies has essentially the same profit diagram as a covered call?

a. a long put

b. a short put

c. a protective put

d. a long call

e. none of the above

19. Which of the following statements is true about the purchase of a protective put at a higher exercise price relative to a lower exercise price?

a. the breakeven is lower

b. the maximum loss is greater

c. the insurance is less costly

d. the insurance is more costly

e. none of the above

20. What is the disadvantage of a strategy of rolling over a covered call to avoid exercise?

a. the call premium is essentially thrown away

b. transaction costs tend to be high

c. the stock will incur losses

d. the call is more expensive when rolled over

e. none of the above

21. Which of the following is the breakeven for a protective put?

a. X + S₀