CPFM Options, Futures, and Derivatives 2

Question 1

A trader buys a call option with a strike price of $50 for a premium of $3. At what stock price does the trader break even at expiration?

Accepted Answer

$53

Answer

Break-even for a long call equals strike plus premium, so $50 + $3 = $53.

Question 2

Which Greek measures the rate of change of an option's price with respect to a change in the underlying asset's price?

Accepted Answer

Delta

Answer

Delta measures sensitivity of the option price to changes in the underlying price.

Question 3

In a futures contract, the daily process of crediting and debiting accounts based on price changes is called:

Accepted Answer

Marking to market

Answer

Marking to market adjusts margin accounts daily to reflect gains and losses.

Question 4

A put option gives the holder the right to:

Accepted Answer

Sell the underlying at the strike

Answer

A put grants the right, not obligation, to sell the underlying at the strike price.

Question 5

When the futures price is higher than the expected future spot price and rises with maturity, the market is in:

Accepted Answer

Contango

Answer

Contango describes futures prices above the spot, increasing with longer maturities.

CPFM Practice Test