Which two of the following 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

European style options are easier to use as a hedge because they can only be exercised on the expiration date, eliminating the uncertainty of early exercise. Trading in whole or partial contracts provides flexibility in adjusting the size of the hedge. Cash settlement eliminates the complexities of physical delivery, making it an easy choice for investors. American style options may lead to early exercise and are less preferable as a hedging tool.

Which Two of the Following Are Key to Making SPX