Options on Futures Contracts Flashcards
7 cards from real Series 3 – The National Commodities Futures Test 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 on Futures Contracts flashcards as text
What does purchasing a call option on a futures contract give the buyer the right to do?
Answer: Buy the underlying futures contract at the strike price
A call option gives the buyer the right, but not the obligation, to buy the underlying futures contract at the specified strike price before expiration.
What is the maximum loss a buyer of an options contract can incur?
Answer: The premium paid for the option
The maximum loss for an options buyer is limited to the premium paid, since the buyer can simply allow the option to expire worthless if it is not profitable.
Which of the following best describes a put option on a futures contract?
Answer: The right to sell the underlying futures at the strike price
A put option gives the holder the right, but not the obligation, to sell the underlying futures contract at the specified strike price before expiration.
What is the 'premium' of an options contract?
Answer: The price paid by the buyer to the writer to acquire the option
The premium is the price paid by the option buyer to the option seller (writer) in exchange for the rights conveyed by the option contract.
A call option is considered 'in-the-money' when:
Answer: The underlying futures price is above the strike price
A call option is in-the-money when the underlying futures price exceeds the strike price, giving the option positive intrinsic value if exercised.
What is the 'intrinsic value' of an option?
Answer: The amount by which an option is in-the-money
Intrinsic value is the amount by which an option is in-the-money, representing the immediate exercise value of the option at any given moment.
Which component of an option's premium declines as the expiration date approaches, all else being equal?
Answer: Time value
Time value (extrinsic value) declines as an option approaches its expiration date, a process known as time decay or theta decay.
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Sources & references
Exam facts on this page (fees, format, dates, passing scores) are checked against these official sources; the date is our last check. Editorial policy
- finra.org — Score release, test dates, test delivery, fees, exam format, passing score · verified Oct 2026
- nfa.futures.org — Eligibility, score validity · verified Oct 2026