Series 3 – The National Commodities Futures Test Risk Management & Mitigation 5

Question 1

A trader is long a futures contract at 100 and buys a 98 put for 2 points. What is the maximum loss, ignoring commissions?

Accepted Answer

4 points

Answer

Loss is limited to the 2 points between 100 and 98 plus the 2-point premium, or 4 points.

Question 2

Which describes the risk of writing an uncovered (naked) call?

Accepted Answer

Theoretically unlimited loss as price rises

Answer

A naked call writer faces losses that grow without limit as the underlying rises.

Question 3

A trader buys a 50 straddle, paying 2 for the call and 1.5 for the put. What are the breakeven prices at expiration?

Accepted Answer

46.5 and 53.5

Answer

Total premium of 3.5 is subtracted from and added to the 50 strike, giving 46.5 and 53.5.

Question 4

A trader holds 10 long calls on futures, each with a delta of 0.50. To be approximately delta neutral, the trader should:

Accepted Answer

Sell 5 futures

Answer

The calls behave like 5 long futures, so selling 5 futures offsets that exposure.

Question 5

The maximum loss on a bull call spread is:

Accepted Answer

The net debit paid

Answer

A debit spread's risk is limited to the net premium paid to establish it.

Series 3 – The National Commodities Futures Test Practice Test