Derivatives Level 3 (Capital Markets Programme) – Quiz 07

Last Updated: June 2024

Table of Contents

CISI – Derivatives Level 3 (Capital Markets Programme) Quiz 07 is completed –
Futures Basis Trading On completion, the candidate should:
know the distinctions between intra-market spreads and intermarket spreads and the scenarios in which they may be appropriate: • use in differing market conditions • situations resulting in profitability / loss
Options Strategies On completion, the candidate should:
understand the use of derivatives for speculation and hedging: • speculation: long calls, short puts (bullish) • speculation: short call, long puts (bearish) • covered calls and protective puts
• recognise diagrammatic representation of each strategy • maximise upside and downside for each strategy
understand how to create basic synthetic options and futures: • synthetic long / short • synthetic put / call
understand the characteristics and effects of vertical spreads: • bull call and bear call spreads • bull put and bear put spreads • use in differing market conditions • anticipating modest market rises / falls (bull / bear markets) • risks
be able to calculate maximum profits / losses in simple examples of the above strategies
understand the uses, characteristics and effects of horizontal and diagonal spreads: • use in differing market conditions • anticipating modest market rises / falls (bull / bear markets) • risks
Basics of Hedging On completion, the candidate should:
know the characteristics and implications of long and short positions
understand the importance of hedging ratios in cheapest to deliver bonds (CTDs): • price factors • highest implied repo rate • number of contracts to hedge an exposure to the CTD bond • duration based hedge ratios for non-CTD bonds

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