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

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

Premium

Margin

Basis

Commission

2. In futures trading, what is the term for the initial deposit made by a trader to open a position?

Margin

Leverage

Hedge

Collateral

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

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. 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

16. 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

17. 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, both in-the-money?

Straddle

Strangle

Butterfly Spread

Iron Condor

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

Economics - Derivatives MCQ Test 3