OLC, DFOL Questions

Questions

1. Another name for a long combination is a ?

a) long strangle
b) long bull spread
c) long straddle
d) long hedge

2. An options exchange is either a not-for-profit organization owned by its members or a for-profit corporation owned by shareholders. In a ____?____ structure, members almost always have the right to trade contracts on the exchange. Members also have a say in how the exchange is managed because they are generally asked to vote on key decisions made by the management. In a ____?____ structure, ownership is separate from trading privileges. Trading privileges must be purchased directly from the exchange or from another company or individual that currently has the right to trade on the exchange. The Bourse de Montreal is a ____?____, shareholder-owned corporation. Trading privileges are held by approved participants of the Bourse.

a) not-for-profit ; for-profit ; not-for-profit
b) for-profit ; not-for-profit ; for-profit
c) not-for-profit ; for profit ; for-profit
d) for-profit ; not-for-profit ; not-for-profit

Answers

 

1. a) long strangle

2. c) not-for-profit ; for profit ; for-profit

Options Licensing Exam Prep (OLC, DFOL)

Questions

1. What parties would qualify as an acceptable institution ?

I.             A federal or provincial government, their agencies or a crown corporation
II.            The Bank of Canada or a Canadian chartered bank, Quebec savings bank or bank pension fund
III.           A trust and/ or insurance company licensed to do business in Canada, and the pension funds, central credit unions and regional caisses populaires associated with such trust and/ or insurance company- if they each have a minimum paid-up capital and surplus of at least $5 million.
IV.          Mutual funds with total net assets of at least $5 million
V.            A provincial capital city or any other city and municipality having a population over 50,000, and funds administered by such cities
VI.          Corporations (other than securities dealers) or their trusteed pension plans with an audited net worth of at least $5 million.

a)     I, II, III
b)     I to IV
c)     I to V
d)     I to VI

2. Ned, a portfolio manager owns 50,000 shares of BCE. The stock is currently trading at $30 per share. Ned wants to buy BCE 30 put options to protect the portfolio from a sharp decline in the price of BCE. If the BCE 30 puts have a delta of –0.60, how many option contracts will give Ned dollar for dollar protection from a decline in the price of BCE?

a) 1,250
b) 731
c) 833
d) 300

Answers

1. c)     I to V

Statement VI is incorrect. The net worth figure must be at least $25 million for a corporation.

2. c) 833

Breaking it Down – Derivatives & Options (DFC, OLC, DFOL, OPSC)

Derivatives and Options Exam Prep

Derivatives Fundamentals, Options Licensing, Options Supervisory

Foran offers support seminars for derivatives and options licensing exams. Our classes are flexible in order to accommodate people writing Option Licensing Exam (OLC), Derivatives Fundamentals Exam (DFC), and the whole shebang, Derivatives Fundamentals and Options Licensing Exam (DFOL).

The first steps to attaining these licenses are, as always: register with CSI, get your textbooks, read your textbooks. We do not administrate the DF/OL test or course materials; but we will be happy to help you pass.

Yes, you have to do some work ahead of time. Foran Financial seminars can dramatically reduce your study time, and we can give you the tools to pass the exam, but we cannot teach you all of the information in 2-5 days. These courses are designed to replicate a full 3 month semester in a university or college setting. No one can cram that hard. So please introduce yourself to the material before coming in.

The Classes

DF/OL and Options Supervisor (OPSC) seminars are instructed by our Securities expert, Ron Foran. Ron worked in the securities industry for many years and has taught securities licensing courses for over 25 years.

Looking at our seminars on the calendar, it may not be immediately clear how to choose your class. It appears that OLC , OPSC, and DFOL overlap, and that’s because they do. We run DFC and OLC consecutively. DFC is a 3 day class, OLC is a 2 day class, and someone writing the DFOL will simply take both sessions for a total of 5 days. Meaning that students writing the Derivatives Fundamentals exam will be in the same class as people writing the DFOL, they just get to go home a little earlier, and keep their weekend free.

Additionally, Options Supervisor runs in conjunction with the Options Licensing session. We recently started combining the two classes, and are very happy with how it has turned out.

The Options Licensing Exam contains about 80% of the same material as Options Licensing. We had lots of students who would come in for OLC, then go on to pass OPSC with little or no preparation. Now OPSC students join the same seminar are OPT, but they get a few additional handouts addressing their specific exam.

Even better for you, taking the OLC/OPSC seminar is a two for one.

The Tests

We highly recommend that students thinking about writing DFOL take the two tests separately. DFC and OLC are both manageable exams.  If you study and know your material, you should do very well on both. DFOL on the other hand is a tricky exam. Obviously it covers twice the material, and you have to retain all of those facts at once. More importantly, the time pressure is such that many people are unable to finish the exam.

Or other suggestion is that if you do decide to write the DFOL, you take the paper based. I completely understand the allure of getting your results immediately with the computer based exam, but this exam includes a lot of equations. That means transcribing a lot of information from the computer screen to your scrap paper, which is a big time suck on a time sensitive exam.

That’s just our two cents, and what we have heard from our students.

There are of course lots of people who write the DFOL on the computer and pass – but why make it any more difficult than it has to be?

If you have any questions about the DF/OL or OPSC seminars, please leave a comment below or give us a call.

If you are interested in registering for a course or purchasing one of our DFOL products, you can do so online or over the phone

Options Licensing Exam Prep (OLC, DFOL)

Questions

1. Barrick Gold stock has increased from $60 to $65. At the same time, Barrick 60 put options decreased by $3.00. What was the put option’s delta prior to the change in the stock price?

a)         –1

b)         – 0.60

c)         – 0.2

d)         0.20

 

 

2. What is correct about a request for quote (RFQ)?

I.          Once the RFQ is issued, the market maker(s) has 90 seconds to provide bid and offer prices for the quantity requested.

II.         The market maker(s) will respond by placing two orders into the system  – a bid for the requested quantity and an offer for the requested quantity. The market maker(s) must leave these orders in the system for at least 15 seconds (provided that market conditions, such as the price of the underlying interest, do not change).

III.       The bid and offer must be visible to all market participants and are executable by all market participants.

IV.       The issuer of the RFQ  does not have priority with respect to the RFQ response. To get a fill on the quantities requested under the RFQ, the issuer must enter an order into the system.

V.        The issuer of the RFQ is under no obligation to enter an order after a market maker responds to the RFQ.

 

a)         I, II, III

b)         I, II, III, IV

c)         II, III, IV, V

d)         I, II, III, IV, V

 

Answers

 

 

1. b)     – 0.60

Delta    = (Change in Option Price) / (Change in Stock Price)

= (-3.00)/*(5.00)

= -0.60

*65 – $60

2.c)      II, III, IV, V

The market maker has 30 seconds (not 90 seconds) to respond.

Options Licensing Questions (OLC, DFOL, OPSC)

Questions

1. A trader who is expecting a large rise in the price of an underlying stock would profit the most by?

a)         Buying at the money call options

b)         Buying out of the money put options

c)         Buying in the money call options

d)         Buying out of the money call options

 

2. A speculator buys 10 S&P 100 Index 850 put options (100 × the Index) at $7.75. The speculator sells the options at intrinsic value only, when the index is at a level of 835. What is the speculator’s net profit or loss?

a)         $7,250 loss

b)         $3,625 profit

c)         $7,250 profit

d)         $3,625 loss

 

Answers

 

 

1. d)     Buying out of the money call options

Since out of the money calls would have the lowest call premium relative to at the money and in the money calls, these options would provide the highest percentage return (leverage)

 

 

2. c)     $7,250 profit

Profit   = (Sale price – Initial price) × size of contract

× No. of contracts

= ($15 – $7.75) × 100 × 10

= $7,250

 

Derivatives Fundamentals (DFC, DFOL) Exam Prep

Questions

 

1. Which strategies are on the bearish side of the market?

 

I.             Buying calls.

II.            Writing puts.

III.           Shorting stock.

IV.          Writing uncovered calls.

 

a)            I, II, and III only

b)            II and III only

c)            III and IV only

d)            II, III, and IV only

 

2. ABC currently trades at 42. The strike or exercise price is $35. The call option has a time value of $1.50 over intrinsic value. What is the option trading at?

 

a)            $8.50

b)            $7.00

c)            $4.50

d)            $5.50

 

Answers

 

 

1. c) III and IV only.

When you short you want the market to fall and when you write uncovered calls, you want the

same for the options to expire worthless.

 

2. a) $8.50

($7 intrinsic + $1.50 time value)

Derivatives Fundamentals Exam Prep (DFC & DFOL)

Questions

 

1. What is correct about a credit default swap (CDS)?

 

I. A CDS is the exchange of two cash flows: a fee payment and a conditional payment, which occurs only if certain circumstances are met.

II. The CDS will have value for the protection seller only if defined credit conditions are met

III. The protection seller will always receive the premiums.

IV. A CDS is a type of insurance in which default of an asset triggers payment

 

a) I, II

b) III, IV

c) I, III, IV

d) I, II, III, IV

 

2. What is correct about swap agreements used in the creation of an ETF ?

 

I. Leveraged and inverse ETFs typically use swap agreements to deliver the leveraged and/ or inverse return of an underlying asset.

II. In an unfunded swap structure, an ETF obtains the leveraged or inverse return from a swap provider in exchange of the return of a portfolio chosen by the swap provider.

III. In an unfunded structure, the portfolio is retained by the ETF and serves as collateral in case of default by the swap provider

IV. In a funded swap structure, an ETF also obtains the leveraged or inverse return from a swap provider but against a cash deposit that the swap provider utilizes to hedge its risk exposure. The swap provider has to post collateral that is pledged to the ETF.

a) I, II

b) I, II, III

c) III, IV

d) I, II, III, IV

 

 

Answers

 

1. c) I, III, IV

Statement II is incorrect. The CDS will have value for the protection buyer, not the protection seller, only if defined credit conditions are met.

 

2. d) I, II, III, IV

Options Licensing Exam (OLC)

Questions

 

1. Mutual funds can purchase clearing corporation options, options on futures, over-the-counter options and listed warrants, provided that the options component is not more than _______ of the fund’s net asset value at the time of purchase.

a)            5%

b)            10%

c)            20%

d)            30%

2. If a clearing corporation assigns an exercise notice to the account of a clearing member, that member is required to re-assign the exercise notice to a client who has a short position in the same option series being exercised. Once a writer has been assigned an exercise notice, a closing transaction may not be executed. The dealer’s re-assignment may be made?

I.             on a random selection basis

II.            on a first-in, first-out (FIFO) basis

III.           on a last-in, first-out basis

IV.          by any method that is fair and equitable to all clients.

a)            I, II

b)            II, III

c)            I, II, IV

d)            I, II, III, IV

Answers

1. b)       10%

2. c)        I, II, IV

                Statement III is incorrect. The last-in, first-out method is not a fair method.