| 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?
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?