1. The writer of a put option hopes that the price of the underlying stock will rise because
A) the option is more likely to be exercised.
B) the option is less likely to be exercised.
C) the buyer of the put will have to purchase the stock at a higher price.
D) the value of the put option will increase in the secondary market.
2. A vertical spread with limited risk might involve
A) buying a call and a put on the same stock with the same strike price.
B) buying a put at a lower strike price and a call at a higher strike price.
C) buying a call at a lower strike price and writing a put at a higher price.
D) buying a call at a lower strike price and writing a call at a higher strike price.
3. A long straddle
A) consists of selling and writing an equal number of puts and calls with different strike prices but the same expiration date and the same underlying security.
B) is a strategy based on the expectation that the price of the underlying security will be relatively constant.
C) consists of buying a call at one strike price and then writing a call at a higher strike price.
D) is a strategy that produces profits when the price of the underlying security moves significantly in either direction.