CFA Level II Vignettes Derivatives Analysis Option Strategies MCQs Test 2

Practice CFA 2026 Level II Vignettes Derivatives Analysis MCQs from Option Strategies. Get instant results with Explanation.

Practice Quiz 2 for "Option Strategies" (Derivatives Analysis). Total 30 MCQs available, split into 3 quizzes. Test your understanding of core concepts. Mastering these concepts is essential for securing a high percentile in CFA.

General10 MCQs

1. Vignette 3: Option Strategies - Case Study: A trader buys a call and a put option on the same stock with the same strike price and expiration date. What is this strategy called?

A. A straddle involves buying a call and selling a putB. A straddle profits when the underlying price is stableC. A straddle has unlimited downside riskD. A straddle involves buying a call and a put with the same strike; profits from large price movements

2. How does a strangle differ from a straddle?

A. A strangle uses an OTM call and an OTM put; it costs less but needs larger price moves to profitB. A strangle uses an ITM call and an ITM putC. A strangle profits from stable pricesD. A strangle has unlimited downside risk

3. What is a short straddle and what is its risk-return profile?

A. Short straddle profits from high volatilityB. Short straddle profits from low volatility (price stability)C. Short straddle has limited riskD. Short straddle involves buying a call and a put

4. How are the break-even points calculated for a long straddle?

A. Break-even = Strike ± Total Premium / 2B. Break-even = Strike ± Premium of each optionC. Break-even = Strike ± Total Premium PaidD. Break-even = Strike × Total Premium Paid

5. What are the typical applications of straddles and strangles?

A. Straddles and strangles are directional strategiesB. Straddles and strangles are only used for hedgingC. Straddles and strangles are risk-freeD. Straddles and strangles are volatility strategies, used when expecting large price moves or stability

General10 MCQs

6. Vignette 4: Option Strategies - Case Study: A trader constructs a butterfly spread using call options. What is a butterfly spread and what is its payoff profile?

A. Butterfly spread involves buying two calls and selling one callB. Butterfly spread involves buying a lower-strike call and a higher-strike call, and selling two middle-strike callsC. Butterfly spread involves selling a lower-strike call and buying a higher-strike callD. Butterfly spread involves buying a call and a put

7. Can butterfly spreads be constructed with puts instead of calls?

A. Butterfly spreads can only be constructed with callsB. Butterfly spreads can only be constructed with putsC. Butterfly spreads can be constructed with either calls or puts, with similar payoff profilesD. Butterfly spreads cannot be constructed with options

8. What is the maximum profit of a butterfly spread?

A. Max profit = Middle strike - Lower strike - Net premium paidB. Max profit = Higher strike - Lower strike - Net premium paidC. Max profit = Net premium paidD. Max profit = Middle strike - Lower strike

9. What is the risk-return profile of a butterfly spread?

A. Butterfly spread has unlimited profit potentialB. Butterfly spread has unlimited riskC. Butterfly spread is most profitable when the price is far from the middle strikeD. Butterfly spread has limited profit and limited loss; profit is highest near the middle strike

10. What is the volatility outlook for a butterfly spread?

A. Butterfly spreads are high-volatility strategiesB. Butterfly spreads are low-volatility strategies that profit from price stability near the middle strikeC. Butterfly spreads are directional strategiesD. Butterfly spreads are risk-free

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Conducting Body: CFA Institute

Frequency: 4 times a year (February, May, August, November) | Time: 70 Minutes

Negative Marking: No

⚡ Test Pattern (Total: 90 MCQs):

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CFA Level II Vignettes Derivatives Analysis Option Strategies MCQs Test 2

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