It is important to note the distinction between the clearing house and the exchange itself. The clearing house does not get involved with physical delivery, nor does it provide any dispute settlement services. It only makes sure that cash is settled as and when due between the members. Therefore Choice 'c' is the correct answer
Question 2
Which of the following statements are true:
Options:
A.
Selling a call + Selling a put = Buying the stock + Bank deposit
B.
Buying a call + Bank Deposit = Buying the stock + Selling a put
C.
Buying a call + Selling a put = Buying the stock + Bank deposit
D.
Buying a call + Bank Deposit = Buying the stock + Buying a put
Answer:
D
Explanation:
Explanation:
The put-call parity can be expressed as:
Call – Put = Spot – PV of exercise price
Note that a negative sign above means a short position. The 'term PV of exercise price' is the same as a bank deposit placed today equivalent to the PV of the exercise price so that we will have the cash flow on the exercise date to exercise the option.
Therefore only Choice 'd' is the correct answer as rearranging the above gives us Buying a call + Bank Deposit = Buying the stock + Buying a put.
Choice 'd' is therefore the correct answer.
Question 3
Which of the following have a negative gamma:
I. a long call position
II. a short put position
III. a short call position
IV. a long put position
Options:
A.
III and IV
B.
I and IV
C.
II and III
D.
I and II
Answer:
C
Explanation:
Explanation:
Short calls and short puts have negative gamma, ie their delta increases at a decreasing rate as the price of the underlying change. Likewise, remember that long calls and long puts have positive gamma.