CPFM Options, Futures, and Derivatives 4

Question 1

Gamma measures the rate of change of:

Accepted Answer

Delta with respect to the underlying price

Answer

Theta with respect to time

Answer

Vega with respect to volatility

Answer

Option price with respect to interest rates

Question 2

A covered call writer:

Accepted Answer

Owns the underlying stock and sells a call

Answer

Buys a call without owning stock

Answer

Sells a put without cash

Answer

Buys stock and a protective put

Question 3

Put-call parity relates the prices of European calls and puts with the same strike and expiration. It states C - P equals:

Accepted Answer

S - PV(strike)

Answer

PV(strike) - S

Answer

S + strike

Answer

Strike - S

Question 4

When a futures price is below the expected future spot price, the market exhibits:

Accepted Answer

Backwardation

Answer

Contango

Answer

Convergence

Answer

Arbitrage

Question 5

The primary advantage of exchange-traded options over OTC options is:

Accepted Answer

Reduced counterparty risk via a clearinghouse

Answer

Customization of terms

Answer

No premium required

Answer

Guaranteed profits

Question 6

An at-the-money option is one where:

Accepted Answer

The strike equals the current underlying price

Answer

The strike is far above the underlying

Answer

The option has expired

Answer

Intrinsic value is maximized

Question 7

Vega measures an option's sensitivity to changes in:

Accepted Answer

Volatility

Answer

Interest rates

Answer

Time

Answer

Dividends