Interviewing Options Traders

Based on the most helpful WSO content, here’s how you can assess a candidate’s understanding of options mechanics and strategy beyond just theory:

1. Scenario-Based Questions:
   Dive into real-world scenarios that test their ability to think critically about options mechanics. For example:

   • "What happens to a short strangle when skew steepens aggressively?"
   • "How would you adjust a delta-neutral portfolio during a vol spike?"
   • "What are the risks of rolling short premium positions in a high gamma environment?"
     These questions force candidates to demonstrate practical knowledge and their ability to connect theory with real-world trading dynamics.

2. Stress Testing Knowledge:
   Ask about the impact of extreme market events on specific strategies. For instance:

   • "How would you manage a short gamma position during a flash crash?"
   • "What happens to margin requirements when implied volatility doubles overnight?"
     This helps you gauge their understanding of risk management and margin mechanics.

3. Trade Construction and Adjustment:
   Have them construct a trade based on a specific market view and explain how they would adjust it under different conditions. For example:

   • "If you expect a steepening skew, how would you structure a trade to profit from it?"
   • "How would you hedge a long calendar spread if the underlying starts trending aggressively?"

4. Practical Exercises:
   Provide a simple options chain and ask them to calculate key metrics or explain the implications of changes in volatility, skew, or time decay. This can include:

   • Calculating the impact of a 10% increase in implied volatility on a straddle.
   • Explaining how a steepening skew affects the pricing of OTM puts versus calls.

5. Behavioral Insights:
   Ask about their past experiences managing risk or handling unexpected market moves. Even if they don’t have audited P&L, their ability to articulate how they approached challenges can reveal a lot about their practical understanding.

6. CFOA or Similar Certifications:
   As you mentioned, candidates with the CFOA (or similar options-focused certifications) seem to handle these discussions better. While not a perfect benchmark, it’s worth considering candidates who have pursued specialized education in options trading.

7. Technical Depth:
   Test their understanding of advanced concepts like:

   • The relationship between gamma and vega in high-volatility environments.
   • The mechanics of exotic options (e.g., barriers, digitals) if relevant to your desk.
   • The impact of changes in interest rates on options pricing.

By focusing on these areas, you can better assess whether a candidate truly understands the mechanics and strategy of options trading, rather than just reciting theoretical concepts.

Sources: https://www.wallstreetoasis.com/forum/asset-management/sales-trading-interview-guide-gekkos-guidance-part-2?customgpt=1, I'm currently an equity derivatives/vol trader: Q&A!, Behavioral and Fit, Licensing For Dummies, Sales & Trading Interview Guide - Gekko's Guidance Part 2