Free practice
CIRE practice questions: derivatives (Element 8)
Ten CIRE practice questions on derivatives. Element 8 covers options moneyness and payoffs, put-call parity, futures cost-of-carry pricing, hedging vs speculation, and basis risk. Most candidates struggle with derivatives because the formulas come fast and the diagrams stack quickly. The exam tests intuition more than calculation. If you can sketch the payoff at expiry, you can answer most Element 8 questions.
10 free questions
Click a question to reveal the answer and the explanation. The full bank includes an AI tutor on every wrong answer with the rule citation behind the question.
Want 100 more questions on this topic?
Element 1 of every CIRO course is free — lessons, practice bank, AI tutor. No card to try. $29.99/month or $249/year unlocks the rest. 30-day money-back.
FAQ
How much math is on Element 8?
Less than candidates expect. The CIRE tests payoff direction and option-strategy logic more than precise option pricing. Memorize: long call = unlimited upside / max loss is the premium, long put = max gain is K minus premium, put-call parity (C minus P equals S minus PV(K)), futures cost of carry (F equals S times e to the (r minus q) t). With those, you can reason through most questions.
Do I need to know Black-Scholes?
You do not need to compute a Black-Scholes price on the CIRE. You should know the qualitative effect of each Greek (delta, gamma, vega, theta) and the inputs that move option premiums (strike, time to expiry, volatility, risk-free rate, dividend yield).
Are options on individual stocks tested differently from index options?
The mechanics are the same. The CIRE tests cash-settled vs physically settled, American vs European exercise, and the practical implications for retail clients. Cash-settled index options never deliver the underlying. American options can be exercised early. European options cannot.
What about futures and basis?
Basis equals spot price minus futures price. A widening basis means the spot is moving up relative to the future, or the future is moving down relative to spot. For a hedger, basis risk is the residual risk after the hedge is on. Hedge ratio (h-star) for minimum variance is rho times sigma S divided by sigma F.
Can I get more derivatives questions?
Yes. Ciroexam includes 71 published questions on Element 8, plus an AI tutor that walks through every wrong-answer payoff diagram. After 30 questions on the element, most candidates report the diagrams stop feeling intimidating.