Trader A tells his colleague, Trader B, that he is delta hedged as markets are volatile. Trader

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Question:

Trader A tells his colleague, Trader B, that he is delta hedged as markets are volatile. Trader B suggests that Trader A is making use of the volatile markets to sell volatility. What is the most likely strategy of Trader A?

1. Sell Call, Sell Put

2. Sell Index Futures, Buy Call

3. Sell Index Futures, Sell Put

4. Sell Call, Buy Put

qns 2

A Credit Default Swap (CDS) buyer wants to hedge his Singapore Airlines (SIA) Bonds maturing in 5 years. He will have to pay approximately the following to the seller of CDS

1. One-time payment of the 12% of the bond face value at start

2. Pay the coupons of the SGS bonds with the same face value as the SIA bonds

3. Pay semi-annual coupons received from the SIA bonds he is holding

4. Annual pay 1.8% of the bond face value

qns 3

One can have an identical pay-off like buying a stock by using the following strategy

1. Buy European Call and Buy European Put

2. Buy Call Option

3. Buy Single Stock Futures

4. Sell American Call and Sell American Put

qns 4

From an investor perspective which position helps him to buy stocks at the cheapest price? Assume the exercise prices for the options and the price at which the futures contract is initiated, are the same.

1. Buy Future

2. Buy Call

3. Protective Put

4. Short Put

qns 5

The forward price for a stock is $50. The stock will pay 2 dividends of $1 each, the first being 6 months from now, and the second 1 year from now. The risk-free one-year rate is 5%. The current stock price is closest to:

1. 49.5

2. 48

3. 50.5

4. 50