Hedge fund/active strategies 1) A straddle trade: A. is a volatility trade B. is constructed by buying the...

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Finance

Hedge fund/active strategies
1) A straddle trade:
A. is a volatility trade
B. is constructed by buying the asset and selling a Calloption on the asset
C. both (A) and (B) are correct
2) A covered call strategy:
A. involves buying stock and buying a Calloption
B. involves shorting stock and writing a Calloption
C. involves buying stock and writing a Calloption
3) A covered call strategy:
A. involves potentially unlimited profits
B. involves potentially unlimited losses
C. involves losses that are potentially larger thanprofits
4) With a protective put strategy, an advantage ofselecting a low strike price for the put option is:
A. it provides stronger protection than a put with ahigher strike price
B. it costs less to buy than a put option with a higherstrike price
C. the cash inflow from the premium is higher than for aput option with a higher strike price
D. the maximum loss is smaller than for a put optionwith a higher strike price

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4.1 Ratings (522 Votes)

1 A is a volatility trade Straddle involve buying of call options and put options of same strike price with same expiration period Here trader believes there will be volatility but is unaware in which See Answer

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Hedge fund/active strategies1) A straddle trade:A. is a volatility tradeB. is constructed by buying the asset and selling a Calloption on the assetC. both (A) and (B) are correct2) A covered call strategy:A. involves buying stock and buying a CalloptionB. involves shorting stock and writing a CalloptionC. involves buying stock and writing a Calloption3) A covered call strategy:A. involves potentially unlimited profitsB. involves potentially unlimited lossesC. involves losses that are potentially larger thanprofits4) With a protective put strategy, an advantage ofselecting a low strike price for the put option is:A. it provides stronger protection than a put with ahigher strike priceB. it costs less to buy than a put option with a higherstrike priceC. the cash inflow from the premium is higher than for aput option with a higher strike priceD. the maximum loss is smaller than for a put optionwith a higher strike price