Challenging Economics Derivatives Test - 55+ MCQs: Economics - Derivatives Quiz: Test Your Understanding with 5 Comprehensive Questions and Answers

Total Questions : 50
Expected Time : 50 Minutes

1. What is the term for the potential gain or loss that may be incurred in a futures contract?

Yield

Profit and Loss

Return on Investment

Mark-to-Market

2. What is the term for an options strategy involving the sale of a call option and a put option with the same strike price and expiration date?

Straddle

Strangle

Butterfly Spread

Iron Condor

3. What is the term for the simultaneous purchase and sale of options with different expiration dates but the same strike price?

Calendar Spread

Iron Condor

Straddle

Butterfly Spread

4. In futures trading, what is the term for an order that allows traders to specify the maximum price they are willing to pay or the minimum price they are willing to accept?

Market Order

Limit Order

Stop Order

Stop-Limit Order

5. What does the term 'Margin Call' mean in futures trading?

A call from a broker to deposit additional funds to cover potential losses

A requirement to settle a futures contract before its expiration date

A request for information about the margin requirements for a particular futures contract

A notification of the assignment of a futures contract

6. In options trading, what is the term for the maximum potential loss incurred in a single trade?

Premium

Margin

Commission

Risk Exposure

7. In options trading, what is the primary purpose of 'European Options'?

To profit from market inefficiencies

To hedge against unfavorable price movements

To provide the right to exercise the option at any time before expiration

To generate income while holding a long stock position

8. What is the primary purpose of 'Put Options' in risk management?

To profit from market inefficiencies

To hedge against unfavorable price movements

To provide the right to exercise the option at any time before expiration

To generate income while holding a long stock position

9. What is the term for an options strategy involving the purchase of one call option and the sale of another with a lower strike price but the same expiration date?

Bull Call Spread

Bear Call Spread

Straddle

Strangle

10. What does the term 'Roll Yield' refer to in futures trading?

The yield generated by rolling over a futures contract to a later expiration date

The return on investment in a futures contract

The yield from holding a futures contract until its expiration

The interest earned on the margin deposit for a futures contract

11. What does the term 'Theta' refer to in options trading?

The sensitivity of an option's price to changes in the volatility of the underlying asset

The time decay of the option premium

The ratio of the change in the option's price to the change in the price of the underlying asset

The yield generated by rolling over a futures contract

12. What is the term for an options strategy involving the sale of one call option and the sale of one put option with the same expiration date but different strike prices?

Straddle

Strangle

Butterfly Spread

Iron Condor

13. In options trading, what is the term for a strategy involving the purchase of an in-the-money call option and the sale of an in-the-money put option with the same strike price and expiration date?

Covered Call

Straddle

Strangle

Butterfly Spread

14. What is the term for an options strategy involving the sale of one call option and the purchase of one put option with the same expiration date but different strike prices?

Straddle

Strangle

Butterfly Spread

Iron Condor

15. What is the term for an options strategy involving the purchase of one call option and the sale of one put option with the same strike price and expiration date, both out-of-the-money?

Iron Condor

Straddle

Strangle

Butterfly Spread

16. What does the term 'Skewness' refer to in the context of options pricing?

The measure of the asymmetry in the distribution of options prices

The expected price movement of the underlying asset

The time decay of the option premium

The probability of the option expiring in-the-money

17. What does the term 'Implied Volatility' refer to in options trading?

The volatility of the underlying asset based on historical data

The volatility of the underlying asset as perceived by the market

The volatility of an option's price based on market expectations

The volatility of an option's price as calculated by pricing models

18. What is the term for an options strategy involving the purchase of one call option and the sale of one put option, both with the same expiration date but different strike prices?

Straddle

Strangle

Butterfly Spread

Iron Condor

19. In options trading, what is the term for the ratio of the change in the option's price to the change in the price of the underlying asset?

Gamma

Theta

Delta

Vega

20. What is the primary function of 'Vega' in options pricing?

To measure the rate of change of the option's Delta with respect to changes in the underlying asset's price

To represent the probability of the option expiring in-the-money

To indicate the time decay of the option premium

To measure the sensitivity of the option's price to changes in implied volatility

21. What is the term for an options strategy involving the purchase of one call option and the purchase of one put option with the same expiration date but different strike prices?

Straddle

Strangle

Butterfly Spread

Iron Condor

22. What is the term for an options strategy involving the purchase of one call option and the sale of one put option with the same strike price and expiration date?

Straddle

Strangle

Butterfly Spread

Iron Condor

23. What does the term 'Synthetic Long Stock' refer to in options trading?

A strategy involving the simultaneous purchase of a put option and the sale of a call option

A portfolio that replicates the payoff profile of owning a stock

An options strategy to profit from high implied volatility

A strategy to hedge against interest rate changes

24. What does the term 'Contango' refer to in futures markets?

A situation where the futures price is higher than the expected future spot price

A measure of the asymmetry in the distribution of futures prices

The impact of dividends on futures pricing

A situation where the futures price is lower than the expected future spot price

25. What is the term for an options strategy involving the purchase of one call option and the sale of another with a higher strike price but the same expiration date?

Straddle

Strangle

Bull Call Spread

Bear Call Spread

26. In options trading, what is the term for the sensitivity of an option's price to changes in the volatility of the underlying asset?

Gamma

Theta

Delta

Vega

27. What does the term 'Contango' mean in futures trading?

A market condition where future prices are higher than the current spot prices

A market condition where future prices are lower than the current spot prices

A market condition characterized by extreme volatility

A market condition indicating an imminent trend reversal

28. In options trading, what does the term 'Implied Volatility' represent?

The actual volatility experienced by the underlying asset

The volatility of the option's price as derived from the options market

The historical volatility of the underlying asset

The volatility of the option's price as calculated by financial models

29. What is the term for an options strategy involving the sale of one call option and the sale of one put option with the same strike price and expiration date?

Straddle

Strangle

Butterfly Spread

Iron Condor

30. What is the significance of 'Gamma' in options trading?

To measure the rate of change of the option's Delta with respect to changes in the underlying asset's price

To represent the probability of the option expiring in-the-money

To indicate the time decay of the option premium

To measure the curvature in the option price with respect to changes in the underlying asset's price

31. What is the term for an options strategy involving the purchase of one put option and the sale of another with a higher strike price but the same expiration date?

Bull Put Spread

Bear Put Spread

Straddle

Strangle

32. What does the term 'Backwardation' refer to in futures markets?

A situation where the futures price is higher than the expected future spot price

A measure of the asymmetry in the distribution of futures prices

The impact of dividends on futures pricing

A situation where the futures price is lower than the expected future spot price

33. What is the term for an options strategy involving the sale of one put option and the purchase of two put options with the same expiration date but different strike prices?

Butterfly Spread

Condor Spread

Ratio Put Spread

Iron Butterfly

34. What does the term 'CME Group' stand for in the context of financial markets?

Central Market Exchange Group

Commodity and Money Exchange Group

Chicago Mercantile Exchange Group

Currency and Metals Exchange Group

35. What role does 'Theta' play in options pricing?

To measure the rate of change of the option's Delta with respect to changes in the underlying asset's price

To represent the probability of the option expiring in-the-money

To indicate the time decay of the option premium

To measure the sensitivity of the option to changes in time to expiration

36. What does the term 'Covered Call' mean in options trading?

A strategy involving the simultaneous purchase of a put option and the sale of a call option

An options strategy to profit from high implied volatility

An options strategy involving the simultaneous purchase and sale of different strike prices but the same expiration date

An options strategy involving the simultaneous purchase of a stock and the sale of a call option

37. What does the term 'Iron Condor' refer to in options trading?

A strategy involving the simultaneous purchase of a put option and the sale of a call option

A strategy to profit from high implied volatility

An options strategy involving the simultaneous purchase and sale of different strike prices but the same expiration date

An options strategy involving the simultaneous purchase of a call option and the sale of a put option

38. What does the term 'Put-Call Parity' mean in options trading?

A strategy involving the simultaneous purchase of a put option and the sale of a call option

The principle that the difference between the price of a European put option and a European call option of the same class, with the same strike prices and expiration dates, should be zero

A measure of the skewness in the distribution of options prices

The maximum loss that can be incurred on an options trade

39. In options trading, what is the primary purpose of 'American Options'?

To profit from market inefficiencies

To hedge against unfavorable price movements

To provide the right to exercise the option at any time before expiration

To generate income while holding a long stock position

40. What is the primary purpose of 'Delta' in options trading?

To measure the rate of change of the option's Delta with respect to changes in the underlying asset's price

To represent the probability of the option expiring in-the-money

To indicate the time decay of the option premium

To measure the sensitivity of the option to changes in the implied volatility of the underlying asset

41. What is the primary purpose of 'Collar Options' in risk management?

To profit from market inefficiencies

To hedge against unfavorable price movements

To provide the right to exercise the option at any time before expiration

To generate income while holding a long stock position

42. What is the term for the sensitivity of an option's price to changes in the volatility of the underlying asset?

Delta

Theta

Vega

Rho

43. What does the term 'Rollover' mean in futures trading?

The process of extending the expiration date of a futures contract

The simultaneous opening and closing of two similar positions

The adjustment of option positions to accommodate stock splits

The movement of a financial market from a bearish phase to a bullish phase

44. What is the term for an options strategy involving the sale of one call option and the purchase of another with a higher strike price but the same expiration date?

Bull Call Spread

Bear Call Spread

Straddle

Strangle

45. In futures trading, what is the term for an order that becomes a market order when the futures contract reaches a specified price?

Limit Order

Market Order

Stop Order

Stop-Limit Order

46. What does the term 'Backwardation' mean in futures trading?

A market condition where future prices are higher than the current spot prices

A market condition where future prices are lower than the current spot prices

A market condition characterized by extreme volatility

A market condition indicating an imminent trend reversal

47. What is the term for an options strategy involving the simultaneous purchase and sale of different strike prices but the same expiration date?

Straddle

Strangle

Butterfly Spread

Iron Condor

48. In futures markets, what is the term for the fee paid by the buyer to the seller for the right to enter into a futures contract?

Premium

Margin

Commission

Basis

49. In futures trading, what is the term for the difference between the futures price and the spot price?

Premium

Margin

Basis

Commission

50. What is the primary function of 'Rho' in options pricing?

To measure the rate of change of the option's Delta with respect to changes in the underlying asset's price

To represent the probability of the option expiring in-the-money

To indicate the time decay of the option premium

To measure the sensitivity of the option's price to changes in interest rates

Economics - Derivatives MCQ Test 1