CPT Options & Derivatives Trading 3

Question 1

A trader constructs a bull call spread by buying a $45 call and selling a $55 call, both for the same expiration. What is the maximum loss?

Accepted Answer

The net premium paid

Answer

The maximum loss on a bull call spread is the net premium paid to enter the position.

Question 2

Which Greek measures the sensitivity of an option's price to a 1% change in implied volatility?

Accepted Answer

Vega

Answer

Vega measures how much an option's price changes for a 1-percentage-point change in implied volatility.

Question 3

An interest rate swap where one party pays a fixed rate and receives a floating rate is called a:

Accepted Answer

Plain vanilla swap

Answer

A plain vanilla interest rate swap involves exchanging fixed-rate payments for floating-rate payments (typically SOFR or LIBOR).

Question 4

A put option has a delta of -0.40. If the underlying stock rises by $2, the option price will approximately:

Accepted Answer

Decrease by $0.80

Answer

Delta of -0.40 means for every $1 rise in the stock, the put loses $0.40, so a $2 rise causes an $0.80 decrease.

Question 5

Which options strategy involves buying a call and a put with the same strike price and expiration?

Accepted Answer

Straddle

Answer

A long straddle involves purchasing both a call and a put at the same strike price and expiration to profit from large moves in either direction.

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