Which two of the following characteristics are key to making SPX options an easy choice as a hedge against an equity portfolio?
I. European style
II. American style
III. trade in whole or partial contracts
IV. cash settlement
A)III only
B)I and III only
C)I and IV only
D)II and III only
E)II and IV only

Question

Quizplus · Accepted Answer

I. European style options can only be exercised on their expiration date. This means that there is no risk of early exercise and unexpected assignment, which makes them easier to manage as a hedge.
III. SPX options trade in whole or partial contracts, which provides flexibility in terms of position size and can help tailor the hedge to the specific needs of the portfolio.
IV. Cash settlement means that the settlement of the option is in cash instead of shares of stock, which can simplify the hedging process and reduce transaction costs.

Which Two of the Following Characteristics Are Key to Making