A friend was taking an exam to get Customer Portfolio Margin for his option trading account recently.  He showed me the exam and I noticed that 20% of the exam were questions about option synthetics!  If it’s that important to an option broker, it should be important to us. My two youngest children attend the German school system.  There are no multiple-choice exams: they are all essay questions.  You have to show your work.  Let’s do the same thing. Write down your answers for each question.   Explain WHY the answer is what you say it is.  Don’t just say, ___ .  Show your work…you’ll learn a lot more.   This is an open book exam since I can’t watch you, but try to answer the questions without looking anything up.  You’ll get more out of it. Here we go 1. How would you create a synthetic SHORT CALL? 2. How would you create synthetic LONG STOCK? 3. How would you create a synthetic LONG PUT? 4. How would you hedge an out-of-the-money SHORT CALL with a synthetic position? 5. If your underlying is near your upside expiration on a butterfly trade, how would you reduce your delta risk with […]