Day Trading Advanced Topics 2

Question 1

What is the primary purpose of using a Volume Weighted Average Price (VWAP) in day trading?

Accepted Answer

To benchmark execution quality against the average price weighted by volume

Answer

VWAP represents the average price weighted by volume and is used by traders and institutions to benchmark whether they bought or sold at a favorable price relative to the day's activity.

Question 2

In options day trading, what does a high implied volatility (IV) rank indicate about an option's premium?

Accepted Answer

Premiums are expensive relative to historical norms

Answer

A high IV rank means current implied volatility is elevated compared to its historical range, making options premiums expensive and often favoring selling strategies.

Question 3

What is a 'dark pool' and how can it affect day trading decisions?

Accepted Answer

A private exchange for large institutional trades that can signal hidden supply/demand

Answer

Dark pools are private venues where large institutional orders are executed away from public exchanges, and unusually large prints appearing on the tape can signal institutional interest.

Question 4

Which of the following best describes 'delta-neutral' day trading?

Accepted Answer

Constructing a position where gains and losses from directional moves cancel out

Answer

Delta-neutral strategies balance positive and negative deltas in a portfolio so that small directional moves in the underlying asset have minimal net impact on the position.

Question 5

What is 'internalization' in the context of retail order flow?

Accepted Answer

A broker keeping customer orders in-house rather than routing to exchanges

Answer

Internalization occurs when a broker or market maker fills a retail customer's order from its own inventory instead of routing it to a public exchange, which can affect price improvement.

Day Trading Practice Test

Day Trading Practice Test

Day Trading Advanced Topics 2