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Answer: Implement static hedge
**Correct answer: B — Implement static hedge** Barrier options are commonly traded to: - **Reduce the option’s cost**: a barrier feature makes the option cheaper than a plain vanilla option. - **Add leverage to a directional view**: a trader can express a bullish or bearish view with lower upfront premium. - **Reduce the cost of tail insurance**: a barrier structure can provide protection against extreme moves at a lower cost than a vanilla hedge. While barrier options can be used in hedging contexts, **"implement static hedge"** is not typically listed as a primary motive to trade a barrier option in this setting, so it is the exception.
Author: Manit Arora
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Question 15.01. Each of the following is a possible motive to trade a barrier option EXCEPT (and give example for each valid motive):
A
Reduce the option’s cost
B
Implement static hedge
C
Add leverage to a directional view
D
Reduce the cost of tail insurance
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