CFA二级Derivatives4 Tests.docx

CFA二级Derivatives4 Tests.docx

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CFA二级Derivatives4Tests

Derivatives-Mazza

DavidMazzaisamanagingdirectorinthederivativesgroupatHighRidgePartners,aninvestmentmanagementfirm.Mazzaspecializesinadvisingthefirm’sclientsontheuseofderivativesintheirportfoliomanagementstrategies.Mazzaispreparingtomeetwithtwoofthefirm’sclients:

AndresCevallosandSoledadValdivia.NaohikoKuroda,ananalystinthederivativesgroup,hasalsobeenaskedtoattendthemeetings.

Attheirmeeting,Cevallos,whohasbeenfollowingApplesharesclosely,indicatesthatheexpectsasharpdeclineinthepriceofsharesofApplestockoverthenextmonth.CevalloswouldliketouseoptionstoprofitifApplesharesdeclinebutwouldalsoliketolimithislossesifhisexpectationsareincorrect.Cevallosindicateshewouldalsoliketokeepthecostofestablishingthispositiontoaminimum.Kurodahascollectedoptioninformationpresentedin Exhibit1 andsuggeststhatCevalloscanachievehisobjectivebyconstructingaspreadstrategyusingtheoptionslistedinExhibit1.Applecurrentlytradesat$97pershare.

Exhibit1.DataonAppleOptionswithMarchExpiration

Exercise 

Call

Put

Price（$）

Premium

Premium

96

1.72

0.74

99

0.34

2.56

Thesecondclient,Valdivia,currentlyownsCaterpillarstockpurchasedat$60pershareandplanstoholdthestock.Caterpillarstockcurrentlysellsfor$67pershare.

KurodahascollectedselectedinformationonCaterpillaroptionspresentedin Exhibit2.

Exhibit2.DataonCaterpillarOptionswithMarchExpiration

Exercise 

Call

Put

Price（$）

Premium

Premium

65

2.86

1.30

68

0.83

1.70

Caterpillarwillannounceearningsinthenextfewweeks,andValdiviawantstoprotectherselfagainstadeclineintheeventearningsmissconsensusestimates.However,shealsowantstoensurethatsheisabletoparticipateinanygainsshouldearningsbeatestimates.Kurodarecommendsthreepossiblestrategies.

Strategy1:

 SellMarch65calloptions

Strategy2:

 BuyMarch65putoptions

Strategy3:

 BuyMarch65putoptionsandsellMarch68calloptions

Afterdiscussingclientportfolios,MazzaandKurodaengageinageneraldiscussiononoptionstrategies.  Kurodaasks,“InadditiontothespreadstrategieswediscussedforMr.Cevallos,Ihaveheardofanoptionsstrategycalleda‘calendarspread.’Whenmightsuchastrategybeappropriate?

”Mazzaresponds,“Acalendarspreadwouldbeappropriateforatraderwhoexpectsanimminentupwardpricemovementinastockandattemptstocaptureoptiontimevaluefromshorterdatedoptions.”

Mazzaconcludesthediscussionbystating,“Thechoiceofanappropriateoptionsstrategyisdependentontwofactors:

yourviewsofstockvolatility,relativetoimpliedvolatility,andyourexpectationsregardingmarketdirection.Forexample,ifyouexpecthighstockvolatilitybutareneutralondirection,alongstraddlewouldbeappropriate.However,ifyouonlyexpectaveragestockvolatilityandareneutralondirection,ashortputwouldbeappropriate.”

1 of 6

ThestrategyKurodarecommendstoCevalloscould mostlikely beconstructedby:

purchasingMarch96putsandsellingMarch99puts.

purchasingMarch96callsandsellingMarch99calls.

purchasingMarch99callsandsellingMarch96calls.

Question

2 of 6

UsingtheinformationprovidedinExhibit1,thebreakevenpriceofApplesharesforabearspreadstrategyusingputsisclosestto:

$97.18.

$96.44.

$98.56.

Question

3 of 6

BasedonExhibit2,themaximumprofitatexpiryofacollaronValdivia'sCaterpillarholdingis closestto:

$0.53.

$7.53.

$4.53.

Question

4 of 6

WhichofthethreestrategieslistedbyKurodais most appropriateforValdivia?

Strategy3

Strategy2

Strategy1

Question

5 of 6

IsMazza'sresponsetoKurodaregardingthespreadstrategy mostlikely correct?

No,heisincorrectaboutthetimingofthepricemove.

No,heisincorrectaboutthecaptureofoptiontimevalue.

Yes.

Question

6 of 6

InMazza'sconcludingstatement,heis leastlikely correctwithregardtothe:

choiceoftheshortputstrategy.

factorsimpactingthechoiceofoptionsstrategy.

choiceofthelongstraddlestrategy.

Derivatives-Huang

EricaHuangisaderivativestradinganalystforEasternFundsCompany（Eastern）.Shesupportsportfoliomanagerswhoutilizederivativeinstrumentsfortheirinvestmentportfolios.  TwoportfoliomanagershaveapproachedHuangtodiscussusingequityoptionstrategiesfortheirrespectiveportfolios. 

MichaelSchmidtisanequityportfoliomanagerforEastern.  HisportfolioholdsalargepositioninPHLCorporation,acanningcompanywhichdoesnotpayanydividend.  OptionsinformationonPHLispresentedinExhibit1. 

Exhibit1:

OneMonthOptionsonPHL

PHLstockprice=100.00

CallPrice

StrikeLevel

PutPrice

7.43

95.00

2.42

4.61

100.00

4.60

2.64

105.00

7.62

1.39

110.00

11.38

SchmidtisinterestedinhowhemightuseoptionsonPHLstocktobothreduceriskandgenerateincome.  Hestates,“IbelievethatPHLisoverpriced.  Iaminterestedinconsideringanoptionsstrategywhichbothgeneratesincomeandpotentiallyreducestheportfolio’sexposuretoPHL.”

SchmidtthenasksifitispossibletouseoptionstoreplicatethesaleofPHLshares.Huangrepliesthat,yes,itispossibletouseoptionstocreateasyntheticshortposition.TocreateasyntheticshortforPHLatitscurrentstockprice,HuangsuggeststhatSchmidtsellPHL100StrikeCallsandsimultaneouslypurchaseanequivalentnumberofPHL100StrikePuts.  

HuangsuggeststhatSchmidtmayconsiderpurchasingPutOptionstoreducerisk,explainingthatthisstrategywillenableSchmidttoretaintheexistinglevelofPHLsharesintheportfolio.Schmidtagrees.  ReferencingExhibit1,SchmidtinstructsHuangtocreateaProtectivePutforPHLbyutilizinganoutofthemoneyPutOptioninordertominimizethecostimpacttotheportfolio.

LawrenceBowasitsonthetradingdesktotheleftofSchmidtandisanotherequityportfoliomanagerforEastern.HemeetswithHuangtodiscussoptionsstrategiesforKAW,apharmaceuticalstock.   OptionsinformationonKAWispresentedinExhibit2. 

Exhibit2:

Three-MonthOptionsonKAW

KAWstockprice=123.00

CallPrice

Strike

PutPrice

8.01

120.00

4.41

5.50

125.00

6.88

3.61

130.00

9.97

HuangoutlinestwoOptionsSpreadstrades.  ForTrade1,HuangassumesthatthepriceofKAWwillincreaseandsuggestsaBullSpreadusingthe125.00and130.00StrikeOptions.ForTrade2,HuangassumesthatthepriceofKAWwilldeclineandoutlinesthreespecificBearSpreadtradesandsuggeststhatBowaconsiderthetradewhichhasthelowestbreakevenprice.

BearSpread1:

120and125StrikeOptions

BearSpread2:

120and130StrikeOptions

BearSpread3:

125and130StrikeOptions

Bowaarticulateshisprimaryconcern.“WehavebeenmonitoringthedevelopmentsofaclinicaltrialwhichKAQisconducting.  Theresultsofthisclinicaltrialareexpectedtobeannouncedwithin30days.Webelievethatthereisanevenprobabilitythattheclinicaltrialwillbeeithersuccessfulorunsuccessful.  Iftheclinicaltrialissuccessful,webelievethatthestockpricewillincreaseconsiderably.  Iftheclinicaltrialisnotsuccessful,webelievethatthestockpricewilldeclineconsiderably.”  BowaasksHuangtoevaluatevariousoptionsstrategieswhichbestreflectthisconcern.  

1 of 6

WithrespecttoSchmidt’sstatementaboutPHL,theoptionsstrategywhich best attainsSchmidt’sobjective mostlikelyisto:

sella110StrikePut.

buya105StrikeCall.

sella110StrikeCall.

Question

2 of 6

AreHuang’ssuggestionsaboutasyntheticshortposition mostlikely correct?

No,becauseofthesaleofPHLcalls.

No,becauseofthepurchaseofPHLputs.

Yes.

Question

3 of 6

ThemaximumlossandbreakevenstockpriceforthePHLProtectivePutare,respectively, closest to:

2.42and97.58

5.00and95.00

7.42and102.42

Question

4 of 6

ThemaximumprofitandbreakevenstockpricefromimplementingTrade1are closest to:

5.00and131.89

5.00and130.00

3.11and126.89

Question

5 of 6

ThebreakevenstockpriceforTrade2is lowestfor:

BearSpread1.

BearSpread3

BearSpread2.

Question

6 of 6

WithrespecttoBowa’sassessmentoftheKAWclinicaltrial,whichoptionsstrategyis most appropriate?

Straddle

BullSpread

BearSpread

Derivatives-Parisi

RyanParisiisamanagingdirectorinthederivativesgroupatHighRidgePartners,aninvestmentmanagementfirm.Parisispecializesinadvisinginstitutionalclientsontheuseofforwardcontractsintheirportfoliomanagementstrategies.Parisiispreparingaresponsetoquestionsfromoneofthefirm’sU.S.–basedclients:

LeslieSheroda. ToddCurry,aninterninthederivativesgroup,willassistParisi.

LeslieSherodaoverseesbothequityandfixedincomeportfoliosforapensionfund.Onemonth（30days）ago,Sherodahadindicatedthatthepensionfundexpectedalargeinflowofcashin60days.Inordertohedgeagainstapotentialriseinequityvaluesoverthisperiod,ParisiadvisedSherodatoenterintoalongforwardcontractontheUAX300Indexexpiringin60days.Sherodadeterminedshewasalsounderweightinoneindividualstock.  Sixtydaysago,sheenteredalongforwardpositiononCHJcommonstockwhichdoesnotpayadividend.  SherodahasaskedParisitocalculatethevalueofhertwoforwardpositionstoday–thatis,30daysafterthecontractswereinitiated.ParisihascollectedtheinformationinExhibit1tocarryouttheval