Selecting a Portfolio to Trade Flashcards
What is true about creating a tradable portfolio?
a) It is a must if you want to be successful.
b) It protects cash, your most important asset.
c) It is important to trading efficiently.
d) All of the above are true.
d) All of the above are true.
When choosing a portfolio, liquidity is:
a) the most important property
b) not as important as price
c) variable from group to group
d) all of the above
a) the most important property
Liquidity is defined by:
a) the price of the underlying stock
b) the bid–offer spread
c) commission rates
d) all of the above
d) all of the above
Stocks under $20 a share generally:
a) lack liquidity for a retail trader
b) are a good trade for the retail trader
c) are much less risky than higher-priced stocks
d) are a good place to trade while learning options
a) lack liquidity for a retail trader
How do weekly expected ranges (EV) influence picking a stock for trading
purposes?
a) The smaller the EV, the better, because they are less risky.
b) EV has no effect on trading weekly options.
c) EVs are very important in choosing a stock to trade.
d) Bigger EVs make the stock more liquid.
d) Bigger EVs make the stock more liquid.
What is true about selling credit spreads in a low EV trading environment?
a) It is a good learning tool with low risk.
b) It is impossible to overcome the commissions in the long run.
c) Selling credit spreads is profitable if the price of the stock is high enough.
d) Only a and c are true.
b) It is impossible to overcome the commissions in the long run.
If you have a choice of two stocks in the same grouping:
a) Trade the one with the highest EV.
b) Trade the one with the lowest EV.
c) Trade the one with the highest price.
d) Trade the one with the lowest price.
a) Trade the one with the highest EV.
What is the minimum number of stocks necessary to trade a portfolio?
a) no minimum
b) 3
c) 5
d) 12
c) 5
If you are a 100K trader, how many stocks should you observe?
a) 10
b) 20
c) 30
d) 50
d) 50
How many stock groups should you observe as a minimum?
a) 3
b) 5
c) 20
d) 50
b) 5
Stocks in the same grouping are priced at $37 and $60. Which should you trade?
a) the higher-priced stock
b) the lower-priced stock
c) the lowest EV stock
d) the highest EV stock
d) the highest EV stock
What is dollar diversification used for?
a) offsetting an imbalance of dollar risk when comparing stocks
b) ensuring that one winner is the same as the other
c) balancing your portfolio by EV
d) all of the above
d) all of the above
The first step to diversification by dollar risk is:
a) assign the highest EV stock a value of 1
b) assign the lowest EV stock a value of 1
c) pick the median stock and supply it a value of 1
d) none of the above
a) assign the highest EV stock a value of 1
The second step to diversification by dollar risk is:
a) divide the EV of all possible stocks by the EV of the highest ranked
b) multiply the EV of all possible stocks by the EV of the highest ranked
c) take the ratio of EVs and divide it by 2
d) none of the above
a) divide the EV of all possible stocks by the EV of the highest ranked
What is true about comparing the nominal price of two stocks?
a) It might not be relevant to their respective EVs.
b) It might help to derive expected EVs.
c) It will help to decide which stock has the lowest EV.
d) It might help to dollar diversify.
a) It might not be relevant to their respective EVs.
