Ch.22: Strategies using Interest Rate Derivatives

An arbitrageur buys the underlying at Rs.100 and sells March futures at Rs.110 (lot size 50). At expiry, if the underlying settles at Rs.108, what is the total arbitrage profit?

A trader shorts a 98.50 strike call (premium 0.60) and buys a 99.25 strike call (premium 0.20) — a bearish call spread. This position starts with:

A trader goes long a 98.75 strike call for a premium of 0.45 and short a 99.50 strike call for a premium of 0.20 (bullish call spread). The maximum profit and maximum loss are:

A trader shorts a 99.50 strike put (receiving premium 0.40) and buys a 99.00 strike put (paying premium 0.10) — a bullish put spread. The maximum profit and maximum loss are:

A Calendar Spread using ETIRD involves:

A trader sells September GOI futures at 99.00 and buys October futures at 99.05 (spread = 0.05), expecting the spread to widen. After 10 days, September trades at 98.80 and October at 98.95 (spread = 0.15). If he squares off, the gain per contract (2,000 units) is closest to:

A fund manager who expects interest rates to fall and wants to increase their bond portfolio's duration to capitalize on this view can most quickly and cost-effectively do so by:

An investor buys a bond at Rs.99.50 and sells a call with strike Rs.100 for a premium of Rs.0.10 (covered call). The combined position's net payoff shape is described in the workbook as synthetically equivalent to:

If a participant expects interest rates to increase in the future and wants to hedge using single bond GOI Interest Rate Futures, what market-side action should they take?

A corporate planning to issue NCDs in one month, expecting interest rates to rise before then, should hedge its future borrowing cost by:

Per the workbook, deciding on a hedging or trading strategy using ETIRD requires selecting which three parameters?

A Horizontal Spread (also called a time spread or calendar spread) combines options with:

An Inter-Bond Spread involves:

Which of the following is cited as a key limitation of Exchange Traded Interest Rate Derivatives (ETIRD) for hedgers?

A Long Call Butterfly is built by buying 1 ITM call, selling 2 ATM calls, and buying 1 OTM call, with all strikes equidistant. If the strikes are 98.50 (premium 0.60), 99.00 (premium 0.30 ×2), and 99.50 (premium 0.20), the net cost of creating this position is:

A Long Call Butterfly Spread is best suited for a trader who expects:

A Long Hedge is typically initiated by a market participant who:

An insurance company takes a long position of 10,000 lots (2,000 units/lot) in GOI bond futures at Rs.99.60 to hedge an expected future investment. If, on expiry, the bond is trading at Rs.101.58 and the contract is cash-settled, the futures profit is closest to:

A trader buys both a call and put at the same strike of 99.00, paying premiums of 0.30 and 0.20 respectively (long straddle). The maximum loss and the two break-even points (BEPs) are:

With the underlying at Rs.99.00, a trader buys a 99.25 call for 0.20 and a 98.75 put for 0.15 (long strangle, both OTM). The maximum loss and its range are:

Unlike hedgers and speculators, arbitragers are described as having which relationship to market risk?

A bondholder who holds long-term fixed-rate GOI securities and wants to remove their real exposure to interest rate risk using ETIRD is best described as a:

Why are speculators described as playing a 'vital role' in the ETIRD market, even though derivatives are primarily designed to help hedgers?

Vertical spreads are created using options that share:

An investor has a Rs.26 crore GOI bond portfolio with duration 6.1. Bond futures have a duration of 4.7 and trade at Rs.98.50. Using Number of Lots = (Portfolio Value × Portfolio Duration)/(Futures Price × Futures Duration × 2,000), the number of lots needed to fully hedge is closest to:

Why does a duration-based hedging strategy result in 'underhedging' for large yield changes?

An investor holding a bond who buys a put option on it to hedge against a price fall (protective put) is effectively taking which view?

Compared to hedging a bond portfolio by shorting futures, hedging with a protective put offers which key advantage?

Regular arbitrage using single bond Interest Rate Futures (buy underlying, sell futures) is generally profitable when:

Reverse arbitrage using single bond Interest Rate Futures involves which combination of transactions?

Hedging for multiple bonds in a portfolio can be done by using _________.

A _________ is where a trader buys a particular month contract (Futures or Options) and sells (i.e., takes an opposite position) of the same contract of a different month.

If you expect the interest rate will go up in future, today you should _________.

In a Bullish vertical spread using puts strategy, the trader _________.

Limitation of Interest Rate Derivatives for Hedgers is mainly due to __________.

A Short Hedge is used to protect against which specific risk?

An investor holds Rs.5 crore of 6.10% G-Secs 2031 and sells 6.10% G-Secs October futures at Rs.99.95 to hedge, expecting a yield rise. With one contract = notional Rs.2 lakh, how many lots does the investor sell?

A short straddle position (shorting both a call and a put at the same strike) has which risk-return profile?

Per the workbook's worked comparison, why can a leveraged long futures position on a bond generate a substantially higher rupee profit than buying the same face value of the underlying bond outright, for the identical price move?

Why does the workbook suggest that Interest Rate Derivatives are a 'good choice' for taking a bearish (short) view on bond prices in India?

How does a strangle differ from a straddle in construction, and what effect does this have on upfront cost?

An investor takes a long position in a 15-year GOI bond and simultaneously shorts a 3-month futures contract on the same bond. What synthetic instrument has effectively been created?