Series 7 - General Securities Representative Exam

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A portfolio manager is long 10 million dollars of large cap diversified stocks. She is concerned about a market downturn and wants to hedge the portfolio. Which of the following is she LEAST likely to do?

Buy SPX puts
A
Buy SPX put spreads
B
Sell RUT call spreads
C
Buy the 10 delta DJIA puts via the DIA ETF
D

Explanations

Buying puts and put spreads on the S&P 500 makes sense. Buying out of the money calls on the Dow Jones Industrial Average makes some sense too; since the underlying securities are also large caps. Selling call spreads on Russell 2000 does not; as it is a small cap stock index. It may not help hedge her large cap positions effectively

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