Doubt about a quiz question

Options & Futures
1

Course Name: Options Trading Strategies In Python: Advanced, Section No: 4, Unit No: 11, Unit type: Quiz

 

Read the statements carefully and choose the combination of statements which are true about Compound options.

A. The underlying asset of a compound option is an option.

B. A call on a call, a put on a call, a put on a put and a call on a put; are the four types of compound options.

C. Compound options have two premium payments known as front fee which is the amount used to buy the compound option and back fee which is the amount used to exercise the underlying option.


The ansewer should be all three are correct..
2

Hi Hozefa,



Option C is incorrect because dispersion trading uses the correlation of the implied volatility of the index and the index constituents to generate a trading signal.

If Option C is correct then the basis on which dispersion trading is done is nullified.



Hope this helps!