Options Interview Questions

Based on the most helpful WSO content, here are some examples of options pricing questions that might come up in a fundamental-side interview at market makers:

1. Factors Affecting Option Prices:

   • What are the key factors that influence the price of an option? (Expect to discuss the Greeks: Delta, Gamma, Vega, Theta, and Rho, as well as underlying price, volatility, time to expiration, and interest rates.)

2. Implied Volatility:

   • How does implied volatility affect the price of an option? Why is it important for market makers?

3. Basic Pricing Scenarios:

   • If a company’s earnings are being priced in at a 4% move (implied volatility), how would you evaluate whether the options are over- or underpriced?

4. Hedging Risks:

   • How would you hedge the risks associated with holding an options position? (This could involve discussing delta hedging or other risk management strategies.)

5. Scenario Analysis:

   • What happens to the price of a call option if the underlying stock price increases, but implied volatility decreases? How would you explain this to a client or colleague?

6. Options Payoff:

   • Can you explain the payoff structure of a call or put option? How would you calculate the breakeven price?

7. Market Conditions:

   • How do changes in market conditions (e.g., interest rates or macroeconomic events) impact options pricing?

These questions are designed to test your understanding of the basics of options pricing and your ability to think critically about how market makers approach options. While they may not dive into complex quantitative models, demonstrating a solid grasp of the fundamentals and practical applications is key.

Sources: https://www.wallstreetoasis.com/forum/asset-management/sales-trading-interview-guide-gekkos-guidance-part-2?customgpt=1, Sales & Trading Interview Guide - Gekko's Guidance Part 2, What would you ask the CEO of a company you're looking to invest in?, Beyond the guide: a list of real interview technical questions