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

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

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

Premium

Margin

Basis

Commission

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

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

Bull Put Spread

Bear Put Spread

Straddle

Strangle

35. What is the primary purpose of 'Straddle' in options trading?

To profit from market inefficiencies

To hedge against unfavorable price movements

To generate income while holding a long stock position

To capitalize on significant price volatility

36. 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

37. 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

38. 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

39. 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

40. 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

Economics - Derivatives MCQ Test 2