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Question 1

A trader wants to synthetically create a short stock position. The trader should go:

Group of answer choices

short on futures and short on a put of a strike that is closest to the futures price.

short on an ATM call and short on a put of the same strike.

short on an ATM call and long on a put of the same strike.

Question 2

A trader shorts 10 contracts of ATM calls. She delta-hedges the position with the underlying. Two weeks later, the stock price declines by 20 points due to poor earnings announcement by the company. How should the trader adjust her hedge?

Group of answer choices

Sell shares.

No adjustment is required, as the decline in the stock price is offset by the change in option price.

Buy more shares.

Question 3

Which of the assumptions is least likely to cause mispricing of a call option using the BSM model?

Group of answer choices

Volatility is constant.

Asset price changes are continuous.

Assets follow a lognormal distribution

Question 4

Which of the following appears to be most accepted as alternative reference rate for the LIBOR in IRS contracts?

Group of answer choices

SOFR.

SARON.

SONIA.

Question 5

A trader shorts an ATM call and goes long on a deep ITM call. If the position is delta-hedged, which of the following is correct?

Group of answer choices

The position could profit from volatility arbitrage.

The profit will earn risk free rate of return.

The position will have zero profits.

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