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Exam 2016-FRR Topic 3 Question 296 Discussion

Actual exam question for GARP's 2016-FRR exam
Question #: 296
Topic #: 3
A hedge fund trader buys options to establish an exposure in the currency market, thereby effectively removing the risk of being able to participate in a gapping market. In this case the options premium represents the price paid for eliminating the execution risk of

Suggested Answer: A Vote an answer

In the context of options trading, delta hedging involves managing the delta (rate of change of the option's price with respect to changes in the underlying asset's price) to be neutral.
* Options premium: Represents the cost paid to eliminate execution risk associated with sudden market moves (gapping markets).
* Execution risk: The risk of being unable to adjust positions quickly enough in response to market changes.
By purchasing options, the trader removes the risk of needing to adjust a delta-neutral position during large market movements. The premium paid is the cost of this protection.
ReferencesSource: How Finance Works

by Rebecca at Aug 07, 2025, 05:47 AM

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Here are all the actual test exam dumps for IT exams. Most people prepare for the actual exams with our test dumps to pass their exams. So it's critical to choose and actual test pdf to succeed.

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