Consider a Ratio Spread Comprising a Call at Strike $K _ { 1 }$

question 4

Multiple Choice

Consider a ratio spread comprising a call at strike $K _ { 1 }$ and short two calls at strike $K _ { 2 } > K _ { 1 }$ .The current stock price is at $K _ { 1 }$ .The market view for this trade is most likely to be:

• A)That the stock is more likely to fall in price than rise in price.
• B)That volatility of the stock is likely to rise.
• C)That the stock is likely to experience high levels of positive skewness in returns.
• D)That the stock will rise but not by an indefinite amount.

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Definitions:

BCG Portfolio Analysis

A strategic business tool developed by the Boston Consulting Group to help organizations prioritize which products or units to invest in based on market growth and market share.

Market Growth Rate

The annual rate of growth of the specific market in which the product competes.

Vertical Axis

In a graph or chart, the vertical line to the left side that typically represents the range of values for the variable measured.

BCG Matrix

A strategic business tool developed by the Boston Consulting Group that classifies business units or products into four categories (Question Marks, Stars, Cash Cows, Dogs) based on their market growth rate and market share.