Volatility Skew and Smile
To understand volatility skews and smiles, candidates must first grasp the concept of implied volatility and its limitations. Implied Volatility Implied volatility can be described as the outlook of a derivative contract’s expected standard deviation of returns. It is the…
Uses of Calendar Spreads
Calendar spreads involve buying and selling options simultaneously. They are used to express a view on volatility or price direction within a specific timeframe. Long Calendar Spread An investor is bullish on CBA stock. They want to use call options…
Spreads and Combinations
Until this point in the curriculum, the strategies we discussed involved combinations of options and stock positions. However, the following strategies can be created using just two option positions. While spreads and straddles are often standalone strategies without the…
Using Options to Hedge a Short Position
Options strategies are, by nature, highly flexible and customizable. They can be combined based on market expectations, attitudes, desires, and existing portfolio setups. While the strategies and combinations discussed have common goals, objectives, and setups, it’s important to remember…
Delta of a Covered Call and Protective Put Position
Investors frequently seek to modify their investment positions for various reasons, such as securing profits, generating income, or taking advantage of potential stock price declines. As time progresses, investment strategies tend to become more dynamic. Monitoring overall risk exposure can…
Protective Put position
Introduction to and Objectives of the Protective Put A protective put strategy combines a long stock position with a put option, representing the first half of put-call parity. This combination is sometimes referred to as a married put. The name…
Covered Call Position
Introduction to and Objectives of the Covered Call A covered call strategy has two components: long and short stock positions. The term “covered” signifies that the short call is backed or “covered” by the underlying stock an investor holds. If…
Replicating Asset Returns Using Options
Position Equivalencies Options contracts can be utilized to replicate investment positions. When two positions have identical risk exposure and payoff, they are considered equivalent according to the law of one price. This means that they must have the exact…
Study Notes for CFA® Level III – Trading, Performance Evaluation, and Manager Selection – offered by AnalystPrep
Reading 11: Trade Strategy and Execution Los 11 a: Discuss motivations to trade and how they relate to trading strategy Los 11 b: Discuss inputs to the selection of a trading strategy Los 11 c: Compare benchmarks for trade execution…
Performance Based Fee Schedule
Sample Free Structure $$ \begin{array}{c|c} \textbf{Standard fee} & 0.55\% \\ \hline \textbf{Base fee} & 0.25\% \\ \hline \textbf{Sharing} & 16\% \\ \hline \textbf{Breakeven active return} & 2.00\% + \\ \hline \textbf{Maximum annual fee} & 0.69\% \end{array} $$ $$ \textbf{Sample Fee…
