Hedging, Spreads, Combinations and Synthetics
Construct and evaluate futures and options strategies for trading, protection and portfolio management.
How to prepare for the Investment Advice Diploma
Build UK regulation, integrity, investment, risk and tax first; then apply those foundations to the one technical option aligned with your role. The original multiple-choice practice tests knowledge, calculations and advisory judgement without reproducing recalled or secure CISI questions.
Core concepts
Concept 1
Build futures and options hedges.
Exam cue: Define the target exposure.
Concept 2
Analyse spread, combination and synthetic payoffs.
Exam cue: Map each leg and payoff.
Concept 3
Compare exchange-traded and OTC implementation.
Exam cue: Assess cost, basis, liquidity and residual risk.
Risk pitfalls and guardrails
Choosing the wrong contract direction.
Guardrail: Do not combine the five displayed units into one exam, infer permission from qualification, use stale annual figures or ignore the selected technical route.
Ignoring basis and mismatch.
Guardrail: Do not combine the five displayed units into one exam, infer permission from qualification, use stale annual figures or ignore the selected technical route.
Assuming a capped loss means no loss.
Guardrail: Do not combine the five displayed units into one exam, infer permission from qualification, use stale annual figures or ignore the selected technical route.
Memory anchors
Spread
A multi-leg position designed around relative price or volatility relationships.
Protective put
A long put combined with the underlying to limit downside below the strike, subject to cost.
Synthetic position
A combination of instruments designed to reproduce another exposure's payoff.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
An equity portfolio manager expects a temporary market fall but does not want to sell shares. Which hedge is direct?
A £1m portfolio has beta 1.2. Each index futures contract represents £100,000 of exposure. Approximately how many contracts should be sold for a full beta hedge?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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