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MCQ-Derivatives - Spread

The document discusses different option spread strategies including bull spreads, bear spreads, and butterfly spreads. It provides the definitions and strategies for creating each type of spread. A bull spread is created by buying a low strike call and selling a high strike call. A bear spread is created by buying a high strike call and selling a low strike call. A butterfly spread uses three different option series with equally spaced strike prices.

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213 views2 pages

MCQ-Derivatives - Spread

The document discusses different option spread strategies including bull spreads, bear spreads, and butterfly spreads. It provides the definitions and strategies for creating each type of spread. A bull spread is created by buying a low strike call and selling a high strike call. A bear spread is created by buying a high strike call and selling a low strike call. A butterfly spread uses three different option series with equally spaced strike prices.

Uploaded by

keshav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. Which of the following creates a bull spread?

A. Buy a low strike price call and sell a high strike price call
B. Buy a high strike price call and sell a low strike price call
C. Buy a low strike price call and sell a high strike price put
D. Buy a low strike price put and sell a high strike price call

Answer: A

A bull spread is created by buying a low strike call and selling a high strike call.
Alternatively, it can be created by buying a low strike put and selling a high strike put.

2. Which of the following creates a bear spread?


A. Buy a low strike price call and sell a high strike price call
B. Buy a high strike price call and sell a low strike price call
C. Buy a low strike price call and sell a high strike price put
D. Buy a low strike price put and sell a high strike price call

Answer: B

A bear spread is created by buying a high strike call and selling a low strike call.
Alternatively, it can be created by buying a high strike put and selling a low strike put.

3. Which of the following creates a bull spread?


A. Buy a low strike price put and sell a high strike price put
B. Buy a high strike price put and sell a low strike price put
C. Buy a high strike price call and sell a low strike price put
D. Buy a high strike price put and sell a low strike price call

Answer: A

A bull spread is created by buying a low strike call and selling a high strike call.
Alternatively, it can be created by buying a low strike put and selling a high strike put.

4. Which of the following creates a bear spread?


A. Buy a low strike price put and sell a high strike price put
B. Buy a high strike price put and sell a low strike price put
C. Buy a high strike price call and sell a low strike price put
D. Buy a high strike price put and sell a low strike price call

Answer: B

A bear spread is created by buying a high strike call and selling a low strike call.
Alternatively, it can be created by buying a high strike put and selling a low strike put.

5. What is the number of different option series used in creating a butterfly spread?
A. 1
B. 2
C. 3
D. 4

Answer: C

Three different options all with the same maturity are involved in creating a butterfly
spread. The strike prices are usually equally spaced. The creator buys the low strike
option, buys the high strike option, and sells two of the intermediate strike option

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