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Question 1

If a trader buys or sells a futures contract, he is contingently liable for:
Are spread positions on Commodities less risky?

Answer 1

Not necessarily. AP’s should NOT recommend this based on risk

Question 1

The June S&P 500 futures settles at 2,463.65. However, on the next day it closes at 2,459.80. If the S&P 500 futures contract multiplier is $250, what’s the dollar value of this change?

Answer 1

simply take the closing value of 2,463.65 and subtract the ending value of 2,459.80, which equals 3.85 points. The 3.85 difference is then multiplied by $250 to arrive at a dollar value of $962.50

Question 2

T or F - If the price of a commodity becomes extremely volatile, margin is increased and leverage is decreased.

Answer 2

True - Margin requirements are increased if the market price of the commodity becomes volatile.

Question 3

When futures prices are higher than the cash price, the market would be:

Answer 3

At a premium

When futures prices higher than cash, and distance futures higher than near futures, this is called a “premium market” or a “carrying charge market”.

Question 4

What is an “inverted market” or “discount market”

Answer 4

both refer to a market where cash prices are higher than futures prices. And near term futures higher than distant

Question 5

T or F - A speculator may avoid exceeding the CFTC speculative position limits by establishing his position on two different exchanges.

Answer 5

False - The limits the CFTC establishes for trading AND position limits in certain commodities apply to ALL exchanges

Question 6

What is an ascending triangle pattern

Answer 6

technical chart with a horizontal line to be drawn along the swing highs and a rising trend line. Its a bullish trend. A decending traingle is oposite

Question 7

What is a flag and penant pattern?

Answer 7

Can be bullish or bearish depending on market backdrop. Where there is a trend line up or down that forms a consolidation in a a pattern before braking out

Question 8

A customer enters an order to buy two July copper contracts at 104.35. The floor broker reports that he bought the two contracts at 104.55. When the floor trader is contacted, he acknowledges that he made an error in executing the order above the limit price. In this case who is responsible?

Answer 8

The floor broker would be responsible to the customer for any loss that is incurred as a result of the error

Question 9

What is a vertical spread

Answer 9

the purchase and sale of the same type of option, with the same expiration date, but a different strike price.

Question 10

What is a horizontal spread

Answer 10

the purchase and sale of the same type of option, with the same strike price, but a different expiration date

Question 11

What is a short/long straddle

Answer 11

A short straddle is the sale of a call and a put.

Long straddle is the purchase of a long an put

Both with same strike

Question 12

What is demand Eleasticity?

Answer 12

The sensitivity of the quantity demanded for a given price change.

There’s an inverse relationship between the price of a commodity and quantity demanded for the commodity. As the price falls, the quantity demanded increases. The degree to which the quantity demanded responds to a price change is referred to as demand elasticity.

Question 13

The CEA Commodity Exchange Act says that felony criminal violations are punishable by fine up to how much?

Answer 13

$1mm (no more)

Question 14

Felony criminal violations of the Commodity Exchange Act may be punishable by all of the following, EXCEPT:

Expulsion
Suspension
A fine of +$1m
Prison term NOT more than 10yrs

Answer 14

A fine more than $1m

Question 15

If futures trade at the daily limit, what happens next?

Answer 15

Trading continues at prices in between the limits until the end of the trading session

trades will take place at the limit up price or below OR at the limit down price or above

Question 16

Copper is quoted as _____ per pound

Answer 16

cents

Question 17

What is the T-Bond contract size?

Answer 17

100,000

Question 18

A customer fails to meet a margin call. In this case, the broker:

Answer 18

May liquidate all or part of the customer’s position to meet the amount of the call

Question 19

If someone is short a call options on a Wheat contract and the options is exercised, what happens to the seller?

Answer 19

the sellers assumes a short futures position upon exercise

Question 20

If the buyer of a future call option decides to exercise the seller will….

Answer 20

be assigned a short future position. Thats because the seller received a premium to sell the option and assumes the obligation to sell futures contracts if contract exercised. If they didnt own underlying contracts they would be assigned short

Question 21

What is a liquidating market?

Answer 21

one in which the open interest is decreasing at the same time that prices are declining.

Question 22

When does the transfering of ownership of a commodity take place?

Answer 22

When the commodity is delivered

Question 23

Who must time stamp orders that are received from an introducing broker (IB)?

Answer 23

Both the IB and the FCM

Question 24

Both the ___ and ____ are required to time stamp orders within ___ of entry

Answer 24

IB, FCM, 1 minute

Question 25

What si price elasticity?

Answer 25

The direct relationship between the price of a commodity and the quanity supplied.

As price falls, quantity supplies also falls

Question 26

If a trader buys or sells a futures contract, he is contingently liable for:

Answer 26

The full value of the contract/commodity if there is a delivery. Full liability in effect until he offsets position

Question 27

When prices advance or decline to the daily price limit…what can happen next? Can trading continue? at what levels?

Answer 27

Trades may be made at or below the top limit and at or above the bottom limit

Question 28

How are T-Bills and T-Bond quoted?

Answer 28

T-Note and Bond futures quoted as a percentage of par (100,000) in a min tick value of 1/32 ($31.25)

T-Bill are quoted in percentage points (1bp) where min is 1bp worth $25.

Question 29

How are premiums for T-Note and Bond call/put options quoted?

Answer 29

in 64ths not 32nd

Question 30

Spread traders who believe futures prices will converge (i.e spread ____). Will do what?

what about if futures inverted

Answer 30

Narrow

will buy the cheaper contract and sell the more expensive.

If inverted, the spread narrowing still applies and a trader will buy cheaper and sell expensive.

Question 31

If you take a long or short on a certain exchange, can you offset it at any other exchange (if regulated by CFTC)?

Answer 31

NO - it must be on the exchange of the original position

Question 32

An individual has a profit of 2-04 on two T-note futures contracts. What’s the total profit?

Answer 32

$ 4,250

For T-note futures contracts, 1 full point equals $1,000 (i.e., 1% of $100,000 par) and 1/32nd of a point equals $31.25 (i.e., 1/32% of $100,000 par).

A profit of 2-04/32 equals $2,125 (2 x $1,000 + 4 x $31.25).

Since there are two contracts involved, the total profit is $4,250.

Question 33

For T-note future contracts what is 1 full point equal to?

Answer 33

$1,000

(i.e 1% of $100,000 par)

Question 34

For T-note futures 1/32nd of a point equal what?

Answer 34

$31.25

(i.e 1/32% of $100,000)

Question 35

On commodity futures exchanges, what is a call market?

Answer 35

A call market is one in which trading occurs in rotation for each individual contract and is usually done at the opening of trading. After each contract month has been individually opened, trading will occur simultaneously in all contracts.