Options, Futures, and Derivatives Flashcards
7 cards from real CPFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Options, Futures, and Derivatives flashcards as text
Gamma measures the rate of change of:
Answer: Delta with respect to the underlying price
Gamma is the second derivative, measuring how delta changes as the underlying moves.
A covered call writer:
Answer: Owns the underlying stock and sells a call
A covered call involves owning the underlying and selling a call to earn premium income.
Put-call parity relates the prices of European calls and puts with the same strike and expiration. It states C - P equals:
Answer: S - PV(strike)
Put-call parity gives C - P = S - present value of the strike price.
When a futures price is below the expected future spot price, the market exhibits:
Answer: Backwardation
Backwardation occurs when futures prices are below the expected spot price.
The primary advantage of exchange-traded options over OTC options is:
Answer: Reduced counterparty risk via a clearinghouse
Exchange-traded options use a clearinghouse that substantially reduces counterparty risk.
An at-the-money option is one where:
Answer: The strike equals the current underlying price
An at-the-money option has a strike price equal to the current price of the underlying.
Vega measures an option's sensitivity to changes in:
Answer: Volatility
Vega quantifies how much an option's price changes for a change in implied volatility.