CFA Level I · CFA Level I Exam · Derivative Instrument and Derivative Market Features
An investor owns 1,000 shares currently priced at $40 and buys 1,000 put options with an exercise price of $38 at a premium of $2 each. The options are European. At expiration, the share price is $30. The investor's net position value per share, including the premium paid, is closest to:
The protective put gives a floor at the exercise price of $38. The share is worth $30 and the put pays $8, totaling $38. After deducting the $2 premium, the net value is $36 per share. Ignoring the put leaves $30, and ignoring the premium gives $38.
- A$30
- B$36Correct
- C$38
Explanation
At expiration the share is worth $30 and the put pays 38 - 30 = $8, giving $38 per share. Subtracting the $2 premium gives $36 net. The $38 figure ignores the premium, and $30 ignores the put payoff altogether.
Did you get it right without looking?
One question tells you little. A timed set on Derivative Instrument and Derivative Market Features shows your real accuracy, how long you take and where you lose marks.
More Derivative Instrument and Derivative Market Features questions
- Compared with a forward contract traded over the counter, a futures contract cleared through a central counterparty most likely has:
- Compared with an equivalent position in the underlying asset, a derivative contract most likely:
- In an exchange-traded futures market, the clearinghouse most likely reduces counterparty credit risk by:
- Compared with futures traded on an exchange with a clearinghouse, forward contracts traded over the counter without central clearing most li…
- Compared with a forward commitment, a contingent claim such as an option is best described as one in which:
- A trader buys one futures contract with an initial margin of $4,000 and a maintenance margin of $3,000. The margin account is marked to mark…