CDP CDP Trading Strategies & Execution

Question 1

What is a 'long straddle' options strategy?

Accepted Answer

Buying both a call and put at the same strike price and expiration

Answer

A long straddle involves buying both a call and a put with the same strike price and expiration, profiting from large price moves in either direction.

Question 2

What is the primary purpose of a 'collar' options strategy?

Accepted Answer

To protect a long stock position against downside while capping upside

Answer

A collar protects a long stock position by buying a put for downside protection and selling a call that caps upside gains simultaneously.

Question 3

In futures trading, what does 'rolling over' a contract mean?

Accepted Answer

Closing a near-term contract and opening a longer-dated one to maintain exposure

Answer

Rolling over means closing the expiring futures contract and simultaneously opening a new position in a later-dated contract to maintain market exposure.

Question 4

What is a 'bull call spread'?

Accepted Answer

Buying a call at a lower strike and selling a call at a higher strike

Answer

A bull call spread involves buying a call at a lower strike price and selling a call at a higher strike, limiting both potential profit and loss.

Question 5

What is 'basis risk' in futures hedging?

Accepted Answer

The risk that the difference between the spot price and futures price changes unexpectedly, reducing hedge effectiveness

Answer

Basis risk is the risk that the basis (difference between spot and futures price) changes unexpectedly, undermining the effectiveness of a futures hedge.

CDP - Certified Derivatives Professional Practice Test

CDP - Certified Derivatives Professional Practice Test

CDP CDP Trading Strategies & Execution