To replicate a short asset position with options a trader would:Short two ATM call contracts and buy one ITM put contractShort an ATM call and long ATM putLong an ATM call and short an ATM putShort a futures contract and long an ATM put

The correct choice is:B. Short an ATM call and long ATM putExplanation:Explanation of the…

Answered: To replicate a short asset position…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Select all of the following statements that accurately compare or contrast forwards and options: Group of answer choices Taking naked long positions in either a call or forward will lead to an overall long position in the underlying security. Options and forwards always have identical payoffs if the spot price remains the same. Both options and forwards can be used to reduce exposure to foreign exchange risk. Going long a naked put option and going short a naked forward both cause unlimited liability. Both options and forwards require the payment of a premium at the initiation of the contract. Forward contracts impose obligations on both parties in the transaction. Options contracts only impose an obligation on one party.
Q9. How would you hedge the risk of a price rise using a derivative? Group of answer choices 1. You would take out a spot contract to sell the underlying. 2. You would take out a forward contract to sell the underlying. 3. You would take out a spot contract to buy the underlying. 4. You would take out a forward contract to buy the underlying.
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Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.
What is the correct strategy when the asset backing the futures contract differs from the asset whose price is being hedged? O Short hedge O Long hedge O Perfect hedge O Tailing the hedge O Cross hedge

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To replicate a short asset position with options a trader would: Short two ATM call contracts and buy one ITM put contract Short an ATM call and long ATM put Long an ATM call and short an ATM put Short a futures contract and long an ATM put