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

Question 1

What does purchasing a call option on a futures contract give the buyer the right to do?

Accepted Answer

Buy the underlying futures contract at the strike price

Answer

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.

Question 2

What is the maximum loss a buyer of an options contract can incur?

Accepted Answer

The premium paid for the option

Answer

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.

Question 3

Which of the following best describes a put option on a futures contract?

Accepted Answer

The right to sell the underlying futures at the strike price

Answer

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.

Question 4

What is the 'premium' of an options contract?

Accepted Answer

The price paid by the buyer to the writer to acquire the option

Answer

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.

Question 5

A call option is considered 'in-the-money' when:

Accepted Answer

The underlying futures price is above the strike price

Answer

A call option is in-the-money when the underlying futures price exceeds the strike price, giving the option positive intrinsic value if exercised.

Series 3 – The National Commodities Futures Test Practice Test

Series 3 – The National Commodities Futures Test Practice Test

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