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
A long straddle profits when:
Answer: The underlying makes a large move in either direction
A long straddle (buying a call and put at the same strike) profits from large price moves either way.
The cost-of-carry model for pricing futures includes all of the following EXCEPT:
Answer: The clearinghouse fee structure
Cost of carry includes storage, financing, and income yields, not clearinghouse fee structures.
Rho measures an option's sensitivity to changes in:
Answer: Interest rates
Rho measures how an option's value changes with a change in the risk-free interest rate.
A bull call spread is constructed by:
Answer: Buying a lower-strike call and selling a higher-strike call
A bull call spread buys a lower-strike call and sells a higher-strike call to reduce cost.
As a futures contract approaches expiration, the futures price and spot price tend to:
Answer: Converge
Convergence causes futures and spot prices to meet at expiration.
Which of the following is an example of a plain vanilla derivative?
Answer: Standard interest rate swap
A standard interest rate swap is a plain vanilla derivative with simple, standardized terms.
The maximum loss for the buyer of a call option is:
Answer: The premium paid
A call buyer's maximum loss is limited to the premium paid for the option.