CDP CDP Trading Strategies & Execution 3

Question 1

What is the purpose of a 'protective put' strategy?

Accepted Answer

To protect a long stock position from significant losses while retaining upside potential

Answer

To generate income from a long stock position

Answer

To speculate on downward price movements

Answer

To hedge against interest rate increases

Question 2

What is 'gamma scalping' in options trading?

Accepted Answer

Repeatedly delta-hedging an options position to profit from realized volatility exceeding implied volatility

Answer

Buying options with high gamma to profit from large price moves

Answer

Selling options with high gamma to collect premium

Answer

Trading gamma-heavy options around earnings announcements

Question 3

What does a 'covered call' strategy entail?

Accepted Answer

Selling a call option while holding the underlying stock

Answer

Buying a call option and holding the underlying stock

Answer

Buying a call option to hedge a short stock position

Answer

Selling a call option without holding the underlying stock

Question 4

What is a 'strangle' options strategy?

Accepted Answer

Buying an out-of-the-money call at a higher strike and an out-of-the-money put at a lower strike

Answer

Buying a call and put at the same strike price

Answer

Selling a call and buying a put at the same strike

Answer

Buying calls at multiple strike prices

Question 5

What is 'slippage' in derivatives trading execution?

Accepted Answer

The difference between the expected execution price and the actual execution price

Answer

The cost of rolling futures contracts forward

Answer

The margin required above the initial margin level

Answer

The bid-ask spread on an options contract

Question 6

What is a TWAP execution strategy in derivatives trading?

Accepted Answer

Time-Weighted Average Price strategy that spreads orders evenly over a time period to minimize market impact

Answer

Trade-Weighted Average Price that adjusts for market conditions

Answer

Total Weighted Allocation Protocol for portfolio rebalancing

Answer

Timed Window Automated Pricing for electronic markets