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Comparing Trade Structures

Compare ways to express a client view and choose a structure that fits the mandate, liquidity needs, and downside tolerance.

These prompts are original practice. They are not questions from a named employer or a live hiring loop.

Defined loss for a bullish view

A client is bullish on a stock trading at $50. It may buy shares or a three-month $50 call for $3 per share. Assume no dividends, interest, or fees. The mandate requires a maximum loss of $4 per share equivalent.

  1. 1.Which structure satisfies the stated loss cap?

  2. 2.What is the call's expiry break-even?

  3. 3.At $60 expiry spot, what profit does the call earn per share?

  4. 4.At $52 expiry spot, which has positive profit?

  5. 5.At $45 expiry spot, what does the call lose?

  6. 6.What extra risk does the call introduce versus owning the shares?

  7. 7.Why ask when the client's catalyst is expected?

  8. 8.What should be explained about selling before expiry?

  9. 9.If the mandate forbids options, what should sales do?

  10. 10.What makes the pitch concrete?

Paying for upside

A client considers a $100 call for $6 or a $100/$115 call spread for $4 net premium, both on the same expiry. Assume cash settlement and per-share figures.

  1. 11.What is the call spread's maximum loss?

  2. 12.What is its maximum profit?

  3. 13.What is the spread's expiry break-even?

  4. 14.At $110, which structure earns more?

  5. 15.At $130, how much does the outright call earn?

  6. 16.Above what spot does outright profit exceed spread profit at expiry?

  7. 17.What client view favors the spread?

  8. 18.Why check quotes for both legs together?

  9. 19.What should be discussed if the options were physically settled and American style?

  10. 20.Which follow-up tests whether the structure still fits?

Hedging an FX payable

A client owes €5m in three months. Spot is $1.10 per euro. A forward buys euros at $1.12. A euro call with strike $1.12 costs $0.02 per euro upfront. Ignore interest on the premium and assume both cover the full amount.

  1. 21.What dollar payment does the forward fix?

  2. 22.What is the call premium in dollars?

  3. 23.If spot is $1.20 at expiry, what is the option plan's total dollar cost?

  4. 24.If spot is $1.05, what total does the option plan cost?

  5. 25.What is the break-even spot between the forward and option plans?

  6. 26.What client preference favors the forward?

  7. 27.If the payable is canceled, what should sales highlight?

  8. 28.If the payable may arrive a month late, what should be compared?

  9. 29.What cash-flow issue matters even if the client chooses the forward?

  10. 30.What must the recap include?

Protecting an equity holding

A client owns 100,000 shares at $40. It compares a $36 put at $1.20 with a collar buying that put and selling a $46 call for $1.20. Same expiry, full coverage, no other costs.

  1. 31.What is the standalone put premium outlay?

  2. 32.What is the collar's net initial option premium?

  3. 33.What is the collar's minimum expiry value per share for the stock plus options?

  4. 34.What is the collar's maximum expiry value per share?

  5. 35.At $30 expiry spot, what combined value net of premium does stock plus the outright put deliver per share?

  6. 36.At $52 spot, what value net of premium does stock plus the outright put deliver?

  7. 37.Which structure suits a client unwilling to cap upside?

  8. 38.What should “zero premium” be accompanied by?

  9. 39.What if the client sells its stock early?

  10. 40.What if the mandate prohibits writing calls?

Rates exposure

A client wants to benefit from falling yields. It compares buying a cash bond with DV01 of $8,000 to receiving fixed in a swap with DV01 of $8,000. Both gain when the matched rate falls. Assume first-order sensitivity. The bond also has spread DV01 of $6,000.

  1. 41.What rate P&L follows a 25-basis-point fall for each?

  2. 42.If credit spreads widen 30 basis points, what extra loss does the bond face?

  3. 43.What is bond P&L from both shocks?

  4. 44.What risk remains in the swap despite matching rate DV01?

  5. 45.Which structure better isolates the stated rate view under these simplified risks?

  6. 46.Why ask about capacity for collateral calls?

  7. 47.Which comparison matters for a short holding horizon?

  8. 48.What should be compared across maturities despite equal aggregate DV01?

  9. 49.If the client cannot trade swaps, what should sales do?

  10. 50.What scenario should the pitch show beyond falling rates?

Buying credit risk

A client wants to gain if an issuer's spread tightens. It compares buying a bond with spread DV01 of $5,000 and selling credit protection with the same spread sensitivity. Ignore carry for the initial comparison. The cash bond has government-rate DV01 of $7,000.

  1. 51.What is the approximate spread gain on each for 20 basis points of tightening?

  2. 52.If government rates rise 15 basis points, what rate loss affects the bond?

  3. 53.What is the bond's combined first-order P&L in that case?

  4. 54.What feature can differ in default despite matched spread DV01?

  5. 55.What is the directional credit risk of selling protection?

  6. 56.What liquidity issue differs across the two?

  7. 57.Why compare cash carry with derivative premium on consistent terms?

  8. 58.If the client wants no direct issuer default exposure, which proposed expression fits as stated?

  9. 59.If a collateral trigger is breached during widening, what does sales need to explain?

  10. 60.What should a switch recommendation quantify?

Futures or ETF

A client needs $10m of temporary index exposure. Each futures contract gives $250,000 notional. A futures round trip is estimated at $50 per contract, before basis and funding effects. An ETF round trip costs 7 basis points on $10m.

  1. 61.How many futures contracts match the target notional?

  2. 62.What estimated futures execution cost follows?

  3. 63.What is estimated ETF execution cost?

  4. 64.What is the futures execution saving before omitted effects?

  5. 65.If expected incremental futures basis and funding cost is $6,000, which plan is cheaper under these estimates?

  6. 66.What if the hold extends beyond futures expiry?

  7. 67.Which structure needs particular attention to daily margin?

  8. 68.If the client requires funded physical holdings, what matters?

  9. 69.What risk can the ETF still carry versus the index?

  10. 70.What should the recommendation compare at the same horizon?

Participating in a commodity rally

A client compares a long future entered at $80 with an $80 call costing $5 per unit. Assume both settle at the same final price with equal unit exposure and ignore financing.

  1. 71.At settlement of $70, what is the futures P&L per unit?

  2. 72.At $70, what is the call P&L?

  3. 73.At $95, what is the futures P&L?

  4. 74.At $95, what is the call P&L?

  5. 75.What settlement price breaks even on the call?

  6. 76.What loss cap favors the call?

  7. 77.Why discuss margin even if the futures payoff looks better in the bull case?

  8. 78.The client worries about the commodity falling and then rebounding. What differs?

  9. 79.If the client wants exposure after the contract matures, what should it compare?

  10. 80.What venue detail can affect the pitch?

Managing a bond allocation

A pension wants to reduce rate risk temporarily. Selling a bond block lowers DV01 by $25,000 and costs $18,000. Shorting futures lowers DV01 by $250 per contract and costs $90 per contract round trip. Ignore basis for arithmetic.

  1. 81.How many short contracts match the target DV01 reduction?

  2. 82.What is the futures execution cost?

  3. 83.What is the futures execution saving before other effects?

  4. 84.Which plan directly reduces exposure to the bonds' issuer spreads?

  5. 85.What does the futures route preserve?

  6. 86.What scenario tests basis risk?

  7. 87.If a rally causes the short futures to lose cash while the bonds gain on paper, what matters?

  8. 88.If the reduction should last two weeks, what exit cost should be compared?

  9. 89.If the client also needs cash now, which route addresses it directly?

  10. 90.Which question clarifies the client's real objective?

Negotiating an executable choice

A client wants an equity drawdown hedge for one month. A proposed option package has a capped payout and limited displayed size. A short index future is liquid and linear but has margin requirements and imperfect index fit. The client's mandate allows both subject to position and cash limits.

  1. 91.What should be established before recommending either trade?

  2. 92.What does the package's capped payout mean in a severe decline?

  3. 93.What should the client see about the future's linear payoff?

  4. 94.How can index mismatch reduce hedge effectiveness?

  5. 95.What if the option quote is firm for only one fifth of required size?

  6. 96.Which scenario tests whether the client can hold the future?

  7. 97.What should a two-structure pitch present consistently?

  8. 98.What if the client cannot tolerate any increase in collateral calls?

  9. 99.What should be agreed if the portfolio composition changes mid-month?

  10. 100.What should the order recap specify?

  11. 101.Which statement avoids overstating the recommendation?