Baran

3、Dennis Austin works for O’Reilly Capital Management and manages endowments and trusts for large clients. The fund invests most of its portfolio in S& 500 stocks, keeping some cash to facilitate purchases and withdrawals. The fund’s performance has been quite volatile, losing over 20 percent last year but reporting gains ranging from 5 percent to 35 percent over the previous five years. O’Reilly’s clients have many needs, goals, and objectives, and Austin is called upon to design investment strategies for their clients. Austin is convinced that the best way to deliver performance is to, whenever possible, combine the fund’s stock portfolio with option positions on equity.

Given the following scenario:

Performance to Date: Up 3%

Client Objective: Stay positive

Austin's scenario: Low stock price volatility between now and end of year.

Which is the best option strategy to meet the client's objective?

A) Bull call.
 
B) Protective put.
 
C) 2:1 Ratio Spread.
 
D) Long butterfly.

Baran

The  correct answer is D

Long butterfly is the choice as this combination produces gains should stock prices not move either up or down, while not producing much in loss if prices are volatile. None of the other positions produce gains should stock prices not move much. The protective put guards against falling prices, the bull call limits losses and gains should prices move, and the 2:1 ratio spread gains should prices move up.

Baran

Given the following scenario:

Performance to Date: Up 16%

Client Objective: Earn at least 15%

Austin's scenario: Good chance of large gains or large losses between now and end of year.

Which is the best option strategy to meet the client's objective?

A) Long straddle.
 
B) Short straddle.
 
C) Long butterfly.
 
D) Condor.

Baran

The  correct answer is A

Long straddle produces gains if prices move up or down, and limited losses if prices do not move. Short straddle produces significant losses if prices move significantly up or down. Long Butterfly also produces losses should prices move either up or down. The condor is similar to the long butterfly, although the gains for no movement are not as great.

Baran

Given the following scenario:

Performance to Date: Up 16%

Client Objective: Earn at least 15%

Austin's scenario: Good chance of large losses between now and end of year.

Which is the best option strategy to meet the client's objective?

A) Long put options.
 
B) Long call options.
 
C) Short call options.
 
D) Short put options.

Baran

The  correct answer is A

Long put positions gain when stock prices fall and produce very limited losses if prices instead rise. Short calls also gain when stock prices fall but create losses if prices instead rise. The other two positions will not protect the portfolio should prices fall.

Baran

AIM 4: List, define, and explain the use of combination strategies, including straddles, strangles, strips, or straps.

 

1、A short straddle comprises a trading combination of options that:

A) sells a put and call option at the same strike price. 
 
B) purchases a put and call option at the same strike price. 
 
C) sells a low strike call option and buys a higher strike call option.
 
D) purchases a low strike call option and sells a higher strike call option.

Baran

The  correct answer is A

A short straddle is a situation in which both a call and a put with the same strike price are sold.

Baran

2、The buyer of a straddle on a stock is most likely to benefit:

A) if the volatility of the underlying asset’s price decreases. 
 
B) if the position expires worthless. 
 
C) under all conditions because the straddle is guaranteed a risk-free rate of return. 
 
D) if the volatility of the underlying asset’s price increases. 

Baran

 

The  correct answer is  D

The buyer of the straddle purchases both a call and a put. This position will benefit from large swings of the price of the underlying stock in either direction. If the position expires worthless, which occurs when the stock price stays flat, the investor will lose 100% of the investment. The payoff diagram is:

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[此贴子已经被作者于2009-6-25 13:28:38编辑过]