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SAC General Business Evaluation study materials
SAC General Business Evaluation study resources

SAC General Business Evaluation: Options, Derivatives, and Alternative Investments

SAC General Business Evaluation · Work through your exam, one topic at a time.

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Options, Derivatives, and Alternative Investments

This domain tests instruments whose value is derived from something else: exchange-traded options, index and treasury futures, and alternative vehicles. Expect payoff arithmetic for covered calls and protective puts, option contract specifications, and futures margin logic.

Listed options

  • The SSE 50 ETF option is European-style, physically settled in ETF shares, with a contract multiplier of 10,000 and expiry on the fourth Wednesday of the contract month. Exercise happens only at expiry.
  • Opening a short position requires margin; a covered call requires the underlying holding; a protective put requires a long underlying position.
  • Greeks: delta (price sensitivity), gamma (change in delta), theta (time decay), vega (volatility sensitivity), rho (rate sensitivity).

Futures

  • Index futures (CSI 300, CSI 500, CSI 1000) and treasury futures (2-, 5- and 10-year) are margined, marked to market daily, and can be closed before delivery. Losses beyond the initial margin trigger margin calls.

Alternatives

  • Private equity, hedge funds, commodity products and REITs. They offer diversification and lower daily liquidity; valuation is often model-based, so reported NAVs lag reality.

Worked example

An investor owns 10,000 shares of the 50 ETF at 2.50 and sells one call at a 2.60 strike for a 0.05 premium. What are the maximum profit and the breakeven?

Reasoning: premium received = 0.05 × 10,000 = 500 yuan. If the ETF finishes at or above 2.60, the shares are called away: gain on shares = (2.60 − 2.50) × 10,000 = 1,000, plus 500 premium = 1,500 maximum. If the ETF falls, the 500 premium cushions the loss, so breakeven = 2.50 − 0.05 = 2.45. Above 2.60 the investor earns nothing extra - that cap is the cost of the premium.

Traps that cost marks

  • Assuming American-style early exercise on the 50 ETF option; it is European.
  • Using a multiplier of 100 instead of 10,000, or forgetting the premium is per share.
  • Treating futures margin as a down payment rather than collateral subject to daily settlement.
  • Quoting a covered call's breakeven as the strike minus premium instead of the purchase price minus premium.