You have already completed the quiz before. Hence you can not start it again.
Quiz is loading...
You must sign in or sign up to start the quiz.
You have to finish following quiz, to start this quiz:
Results
0 of 10 questions answered correctly
Your time:
Time has elapsed
You have reached 0 of 0 points, (0)
Categories
Not categorized0%
1
2
3
4
5
6
7
8
9
10
Answered
Review
Question 1 of 10
1. Question
Which of the following statements is false regarding Delta?
Correct
Delta
Delta, also known as the hedge ratio, is a measure of the volatility in the price of an option that is expressed as a value between 0 and 1.0 for calls, and as a value between 0 and –1.0 for puts. In effect, it is the correlation. The measure is derived by comparing the expected change in the price of an option to the change in price of the underlying commodity. Delta can be useful to a trader when he or she is determining the number of option contracts required to hedge a position. For example, a delta with an absolute value of 1.0 indicates a 1:1 match between the number of options required relative to the underlying security. If a trader seeks to hedge a 10,000 share long position and an option contract represents 1,000 shares, the delta would suggest that 10 contracts are required. If the delta was 0.75, on the other hand, 13 contracts would be required.
Incorrect
Delta
Delta, also known as the hedge ratio, is a measure of the volatility in the price of an option that is expressed as a value between 0 and 1.0 for calls, and as a value between 0 and –1.0 for puts. In effect, it is the correlation. The measure is derived by comparing the expected change in the price of an option to the change in price of the underlying commodity. Delta can be useful to a trader when he or she is determining the number of option contracts required to hedge a position. For example, a delta with an absolute value of 1.0 indicates a 1:1 match between the number of options required relative to the underlying security. If a trader seeks to hedge a 10,000 share long position and an option contract represents 1,000 shares, the delta would suggest that 10 contracts are required. If the delta was 0.75, on the other hand, 13 contracts would be required.
Question 2 of 10
2. Question
Regarding grantor and writer, which of the following statements is true?
Correct
Grantor and writer
Grantor and writer are two synonymous terms for an individual or entity that creates and issues for sale (in exchange for a premium) an option contract. This individual or entity is obligated to fulfill the terms of the contract if an option is exercised. A grantor or writer of a put option is obligated to purchase the underlying commodity, while a grantor or writer of a call option is obligated to sell the underlying commodity.
Incorrect
Grantor and writer
Grantor and writer are two synonymous terms for an individual or entity that creates and issues for sale (in exchange for a premium) an option contract. This individual or entity is obligated to fulfill the terms of the contract if an option is exercised. A grantor or writer of a put option is obligated to purchase the underlying commodity, while a grantor or writer of a call option is obligated to sell the underlying commodity.
Question 3 of 10
3. Question
From the statements below regarding spread, straddle, and strangle, which one seems to be the most appropriate to you?
Correct
Spread, straddle, and strangle
Spreads, straddles, and strangles are trading strategies designed to minimize risk due to adverse changes in the prices of underlying commodities. Each involves a combination of long and short positions that use either futures contracts and options (for spreads) or options alone (for straddles and strangles). Spread example: A trader seeking to hedge a long position might purchase both a related futures contract and a put. If prices of the underlying commodities fall, the put can be exercised. If prices rise, gains are available from the futures. If prices remain relatively unchanged, the loss to the trader is limited to the premium paid for the put. A straddle is a similar strategy involving the purchase of either two put options or two call options, each having the same expiration date and strike price. A strangle is similar to a straddle in that the expiration dates of the puts or calls are the same, but the strike prices are different.
Incorrect
Spread, straddle, and strangle
Spreads, straddles, and strangles are trading strategies designed to minimize risk due to adverse changes in the prices of underlying commodities. Each involves a combination of long and short positions that use either futures contracts and options (for spreads) or options alone (for straddles and strangles). Spread example: A trader seeking to hedge a long position might purchase both a related futures contract and a put. If prices of the underlying commodities fall, the put can be exercised. If prices rise, gains are available from the futures. If prices remain relatively unchanged, the loss to the trader is limited to the premium paid for the put. A straddle is a similar strategy involving the purchase of either two put options or two call options, each having the same expiration date and strike price. A strangle is similar to a straddle in that the expiration dates of the puts or calls are the same, but the strike prices are different.
Question 4 of 10
4. Question
Which of the following statements is true regarding margin requirements for futures traders?
Correct
Margin requirements for futures traders
Margin requirements are established by each individual exchange, and they vary based upon the underlying commodity supporting the contract. Brokers may require higher margins of their customers than those set by an exchange, but these margins can never be lower than the ones set by an exchange. Various statistical analyses are used by exchanges to measure price volatility and set margin requirements accordingly. The amount of margin required is set at a per contract level. At this set level, traders can be expected to cover any probable losses in the case of normal price fluctuations.
Incorrect
Margin requirements for futures traders
Margin requirements are established by each individual exchange, and they vary based upon the underlying commodity supporting the contract. Brokers may require higher margins of their customers than those set by an exchange, but these margins can never be lower than the ones set by an exchange. Various statistical analyses are used by exchanges to measure price volatility and set margin requirements accordingly. The amount of margin required is set at a per contract level. At this set level, traders can be expected to cover any probable losses in the case of normal price fluctuations.
Question 5 of 10
5. Question
Which of the following statements is false regarding performance bond?
Correct
Performance bond
Margins used in futures markets are called performance bonds because their purpose is to function as a form of surety or earnest deposit to demonstrate good faith intent regarding contract execution. Both counterparties to a contract (i.e. both long and short positions) require futures margins. In contrast, margins established for trading in equity securities are a form of cash down payment. The balance is due (and ownership is transferred) at a later date. For futures transactions, most contracts are settled with offsetting trades, not through delivery of the underlying commodity.
Incorrect
Performance bond
Margins used in futures markets are called performance bonds because their purpose is to function as a form of surety or earnest deposit to demonstrate good faith intent regarding contract execution. Both counterparties to a contract (i.e. both long and short positions) require futures margins. In contrast, margins established for trading in equity securities are a form of cash down payment. The balance is due (and ownership is transferred) at a later date. For futures transactions, most contracts are settled with offsetting trades, not through delivery of the underlying commodity.
Question 6 of 10
6. Question
Which of the following statements is true regarding margin agreements?
Correct
Margin agreements
Brokers are required to maintain documentation regarding the terms and conditions of margins. These so-called margin agreements specify the procedures that customers are required to follow to respond to margin requirements. For example, a brokerage may require customers to respond to margin deficiencies the same day such deficiencies are incurred. Other brokers may allow customers to respond to margin deficiencies the following day. Some brokers may accept a check as payment, while others may require payment by wire transfer that is supported by a wire transfer agreement.
Incorrect
Margin agreements
Brokers are required to maintain documentation regarding the terms and conditions of margins. These so-called margin agreements specify the procedures that customers are required to follow to respond to margin requirements. For example, a brokerage may require customers to respond to margin deficiencies the same day such deficiencies are incurred. Other brokers may allow customers to respond to margin deficiencies the following day. Some brokers may accept a check as payment, while others may require payment by wire transfer that is supported by a wire transfer agreement.
Question 7 of 10
7. Question
Which of the following statements is false regarding SPAN?
Correct
SPAN
The growing sophistication of trading strategies employing both futures and options led to the development of portfolio based risk assessment tools for margin requirements. The current industry standard is a tool called Standard Portfolio Analysis of Risk (SPAN), which was developed by the Chicago Mercantile Exchange (CME). Using SPAN, the overall portfolio risk of a position is determined by calculating the gains and losses that a portfolio could be expected to incur under various market conditions. The results are used to identify the worst possible loss that a portfolio of derivative and physical instruments might reasonably incur over a specified time period (usually a single trading day). This worst loss scenario serves as the basis for an evaluation of the adequacy of existing margin requirements and the need for modifications.
Incorrect
SPAN
The growing sophistication of trading strategies employing both futures and options led to the development of portfolio based risk assessment tools for margin requirements. The current industry standard is a tool called Standard Portfolio Analysis of Risk (SPAN), which was developed by the Chicago Mercantile Exchange (CME). Using SPAN, the overall portfolio risk of a position is determined by calculating the gains and losses that a portfolio could be expected to incur under various market conditions. The results are used to identify the worst possible loss that a portfolio of derivative and physical instruments might reasonably incur over a specified time period (usually a single trading day). This worst loss scenario serves as the basis for an evaluation of the adequacy of existing margin requirements and the need for modifications.
Question 8 of 10
8. Question
Regarding spread and spread margin, which of the following statements is true?
Correct
Spread and spread margin
A spread position is created as a result of the concurrent purchase and sale (long and short positions) of related but not identical contracts. The spread margin is the amount required to establish and maintain spread trading. Since the price volatility of the two positions combined can be expected to remain lower than that of each position separately, the spread margin requirements are lower as well. Calculating a spread margin requires that the following variables be considered: outright margin, spread credit, and contract ratio.
Incorrect
Spread and spread margin
A spread position is created as a result of the concurrent purchase and sale (long and short positions) of related but not identical contracts. The spread margin is the amount required to establish and maintain spread trading. Since the price volatility of the two positions combined can be expected to remain lower than that of each position separately, the spread margin requirements are lower as well. Calculating a spread margin requires that the following variables be considered: outright margin, spread credit, and contract ratio.
Question 9 of 10
9. Question
From the statements below regarding intrinsic value, which one seems to be the most appropriate to you?
Correct
Intrinsic value
Intrinsic value is the difference between the strike price of an option and the price of the underlying security. If the option is a call, intrinsic value exists if the price of the security is greater than the strike price. If the option is a put, intrinsic value exists if the price of the security is lower than the strike price. A negative intrinsic value is expressed as zero.
Incorrect
Intrinsic value
Intrinsic value is the difference between the strike price of an option and the price of the underlying security. If the option is a call, intrinsic value exists if the price of the security is greater than the strike price. If the option is a put, intrinsic value exists if the price of the security is lower than the strike price. A negative intrinsic value is expressed as zero.
Question 10 of 10
10. Question
Which of the following statements is true regarding time value, and option premium?
Correct
Time value, and option premium
If the price of an option is greater than the calculated intrinsic value, the option can be said to have time value. That is, the length of time until the option expires represents an opportunity for the price of the underlying security to move in a favorable direction. This opportunity is reflected in the price of the option. An option premium is the amount received by the writer or seller of the option from the buyer, and represents the sum of the intrinsic value and the time value.
Incorrect
Time value, and option premium
If the price of an option is greater than the calculated intrinsic value, the option can be said to have time value. That is, the length of time until the option expires represents an opportunity for the price of the underlying security to move in a favorable direction. This opportunity is reflected in the price of the option. An option premium is the amount received by the writer or seller of the option from the buyer, and represents the sum of the intrinsic value and the time value.
Hi, Aiden here, co-founder of Certdemy. I hope you liked it and enjoy our service. We are a group of professional who has been in your position right now – taking exams.
You have already paid for the expensive exam registration fee and it makes no sense to pay for another exam prep tool just because you are working hard on your career for your family and future.
That is why we provide all the top-notch, premium practice questions which are normally charged at over USD200 per exam preparation tools to you completely for free.
But we need your help and I am not asking for a donation. It comes with a huge running cost to hire exam professionals to craft the questions, pay for the domain, hosting fee, and web maintenance.
If this is not much to ask for, can you spend 5 seconds of your time and share our service to your favorite forums, friends & colleagues so that they can also enjoy our service and help us keep this place running? Thanks so much in advance if you have already done so!
To your success,
Aiden D. Lucas We earn a commission for each qualified sales with no additional cost to you as amazon associate