CDP Trading Strategies & Execution Flashcards

What is a 'long straddle' options strategy?

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

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.

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

Answer: To protect a long stock position against downside while capping upside

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

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

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

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

What is a 'bull call spread'?

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

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.

What is 'basis risk' in futures hedging?

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

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

Which order type guarantees execution but not price in derivatives trading?

Answer: Market order

A market order guarantees immediate execution at the best available price but does not guarantee the execution price, especially in volatile markets.