Series 3 – The National Commodities Futures Test Options on Futures Contracts 3

Question 1

What is a 'long straddle' options strategy?

Accepted Answer

Buying both a call and a put on the same futures contract at the same strike price and expiration

Answer

Buying a call and a put on the same futures contract at different strike prices

Answer

Selling a call and buying a put at different expiration dates on the same contract

Answer

Buying two call options at different strike prices on the same futures contract

Question 2

Under the Series 3 regulatory framework, which organization has primary self-regulatory responsibility over the U.S. futures industry and requires registration of Commodity Trading Advisors (CTAs)?

Accepted Answer

National Futures Association (NFA)

Answer

Securities and Exchange Commission (SEC)

Answer

Financial Industry Regulatory Authority (FINRA)

Answer

Federal Reserve Board (FRB)

Question 3

What does 'theta' measure in options trading?

Accepted Answer

The rate at which an option's time value declines as time passes

Answer

An option's sensitivity to changes in the underlying futures volatility

Answer

The sensitivity of an option's delta to changes in the underlying futures price

Answer

The yield differential between options at different strike prices

Question 4

Combining a long call and a short put at the same strike price on the same futures contract creates:

Accepted Answer

A synthetic long futures position

Answer

A covered position that eliminates all risk

Answer

A protective put hedging strategy

Answer

A credit spread with limited profit potential

Question 5

What is the key distinction between an American-style option and a European-style option on futures?

Accepted Answer

American options can be exercised at any time before expiration; European options can only be exercised on the expiration date

Answer

American options can only be traded on exchanges located in the United States

Answer

American options have unlimited profit potential while European options cap the buyer's gain

Answer

American options are physically settled while European options are always cash settled

Question 6

The predetermined price at which the holder of an option can buy or sell the underlying futures contract is called the:

Accepted Answer

Strike price (exercise price)

Answer

Settlement price

Answer

Basis price

Answer

Limit price

Question 7

When a commodity futures trader buys a put option to protect against a decline in the value of an existing long futures position, this strategy is best described as:

Accepted Answer

Hedging with a protective put

Answer

Speculation using options leverage

Answer

Spreading between two delivery months

Answer

Arbitrage between options and futures markets