| CHAPTER 3 |

Contract Specifications and Terminology

1.  When a stock option is exercised, regardless of the current stock price, the underlying stock is bought or sold at a price equal to the exercise price.

If the underlying contract is 100 shares of stock, what is the stock position (+ for long, – for short) and cash flow (+ for a credit, – for a debit) resulting from each of the following actions?

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2.  If the underlying contract is 100 shares of stock, what will be your total stock position and cash flow if all of the following occur?

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3.

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