Trader A earns $2,000 on $4,000 margin; Trader B earns $3,000 on $10,000 margin. Comparing return on margin:
A. A earned 50%, B earned 30%; A had the higher return
B. B earned more dollars, so B had the higher return
C. Both earned the same return
D. A earned 20%, B earned 33%
Show answer and reasoning
Correct answer: A. A earned 50%, B earned 30%; A had the higher return
$2,000 / $4,000 = 50%; $3,000 / $10,000 = 30%.
- B: Dollar profit is not the same as return on margin.
- C: The percentages differ.
- D: These percentages are miscalculated.
Source: NFA Study Outline Part 1: Speculating -- return on margin comparison
A speculator buys a call on gold futures (100 ounces) with a $2,400 strike for a premium of $35 per ounce. The breakeven futures price at expiration is:
A. $2,435
B. $2,365
C. $2,400
D. $2,470
Show answer and reasoning
Correct answer: A. $2,435
Long call breakeven = strike plus premium = $2,435.
- B: $2,365 subtracts the premium, which is the put breakeven formula.
- C: $2,400 ignores the premium.
- D: $2,470 doubles the premium.
Source: NFA Study Outline Part 1: Option Speculating -- long call breakeven
A trader buys a put on soybean futures (5,000 bushels) with a $12.00 strike for 30 cents. The breakeven price and the maximum loss are:
A. $11.70 and $1,500
B. $12.30 and $1,500
C. $11.70 and unlimited
D. $12.00 and $1,500
Show answer and reasoning
Correct answer: A. $11.70 and $1,500
Long put breakeven = strike minus premium = $11.70; maximum loss = premium = $0.30 x 5,000 = $1,500.
- B: $12.30 adds the premium, the call formula.
- C: A long option's loss is limited to the premium.
- D: $12.00 ignores the premium.
Source: NFA Study Outline Part 1: Option Speculating -- long put breakeven
A trader buys a call on crude oil futures (1,000 barrels) with a $78 strike for $2.40. At expiration crude futures are at $84. The profit is:
A. $3,600
B. $6,000
C. $2,400
D. $1,200
Show answer and reasoning
Correct answer: A. $3,600
Intrinsic value at expiry $6.00 minus premium $2.40 = $3.60 x 1,000 = $3,600.
- B: $6,000 ignores the premium paid.
- C: $2,400 is the premium.
- D: $1,200 has no basis.
Source: NFA Study Outline Part 1: Option Speculating -- long call profit
A trader who is long futures and buys a put at the current price has created a position equivalent to a:
A. Long call
B. Short call
C. Long straddle
D. Short put
Show answer and reasoning
Correct answer: A. Long call
Long futures plus long put has limited downside and unlimited upside, the profile of a long call.
- B: A short call has limited profit.
- C: A straddle profits in both directions.
- D: A short put has limited profit.
Source: NFA Study Outline Part 1: Synthetic Positions -- synthetic long call
