NISM Series XVI - Commodity Derivatives Exam Notes
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Backwardation market -> Strengthening of basis -> Benefits short hedger
Backwardation market -> Weakening of basis -> Benefits long hedger
A covered short call position is created by combining a long underlying position with a short call option. A covered call option attempts to enhance the return in a stagnant market and at the same time partially hedge a long underlying position
A covered short put position is a hedging strategy and is created when the investor is selling a put option and at the same time holding sufficient funds to buy the commodity, if necessary. A covered short put position attempts to enhance the return on funds while at the same time partially hedge a short underlying position
Vertical Spreads attempts to profit from the directional movement in the underlying commodity. Vertical spreads are implemented by buying or selling calls or puts with different strike prices but same expiry months.
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