Sales & Trading
Prepalyst has 21 derivatives & structuring interview questions with model answers, covering greeks, skew, hedging costs and payoff construction. Every question is graded on technical accuracy, completeness and interview communication. Practice is free.
A first-round options screen for candidates who have not yet traded derivatives.
A client buys one call option and one put option, each on the same stock with a strike price of $100. Explain what each contract gives the buyer, who has the obligation, and what happens at expiry if the stock closes at…
Asked in markets interviews to see whether a candidate recognises that a profitable trade can still create credit exposure.
Two companies enter an over-the-counter FX forward. Six months later it has a $4m positive mark-to-market for Company A. What counterparty risk does Company A face, how does collateral reduce it, and why is the exposure…
A sales-and-trading first round checks whether a candidate can convert a foreign-currency liability into the client's functional currency.
A US company issues a five-year EUR 100m bond because euro funding is attractive, but it earns almost all of its cash flow in US dollars. Explain how a cross-currency swap can change the company's economic exposure. What…
A foundational derivatives question used to check that a candidate can read an option screen correctly.
A stock trades at $92. Classify a $85 call, a $100 call, a $85 put, and a $100 put as in, at, or out of the money. Which positions have intrinsic value today, and why can an out-of-the-money option still be worth money?
A structuring interview uses this to test whether the candidate can distinguish a conditional rates hedge from a binding swap.
A company expects to issue fixed-rate debt in six months to finance an acquisition, but the acquisition may not close. It is worried that interest rates will rise before then. Explain why a payer swaption may fit better…
A common sales and trading screen testing whether you can connect a derivative to a corporate financing problem.
A company has $100m of floating-rate debt paying SOFR plus 2%. It fears rates will rise. Explain the simplest interest-rate swap it could enter, what cash flows it would exchange, and what risk remains after the hedge.
A desk arithmetic test after a candidate proposes a cap as protection for floating-rate debt.
A borrower has $50m of 90-day SOFR debt paying SOFR plus 1.80%. It buys a cap on $50m with a 4.00% strike for the same 90-day period. If realised SOFR fixes at 5.20%, calculate the cap payment and the borrower's net…
A client-structuring case tests whether you match derivative certainty to uncertain operating volumes instead of simply maximising the hedge ratio.
An airline expects to consume 10m gallons of jet fuel next quarter, but bookings are volatile and management believes actual consumption could range from 7m to 10m gallons. Fuel costs are a major earnings risk. Recommend…
A standard analyst-level structuring exercise for a corporate client protecting an equity holding or foreign-currency exposure.
A client owns a stock at $100 and wants protection below $90 for the next year, but will give up gains above $115. Construct the option strategy, describe the stock-plus-options payoff at $70, $100, and $130, and explain…
A desk arithmetic check after a candidate explains delta conceptually.
A dealer has sold 100 call-option contracts. Each contract covers 100 shares and each call has a delta of 0.60. How many shares should the dealer buy or sell to be delta neutral? If the stock rises and the option delta…
Volatility desks use this to test whether candidates understand what an option seller is actually betting on.
A dealer sells a one-month at-the-money straddle at 30% implied volatility and delta-hedges it daily. Realised volatility over the month is 20%, with no jump large enough to disrupt hedging. Did the dealer make or lose…
Trading interviews use this to test whether you can construct an arbitrage on the spot.
State put-call parity. A stock trades at $100. The $100 strike call trades at $8, the put at $5, and the risk-free rate is 4% with 1 year to expiry, no dividends. Is there an arbitrage? If so, construct it.
Standard for derivatives desks and quant trading interviews.
Name the inputs to the Black-Scholes model and the direction each moves a call option's price. Which input is not observable, and what does that imply?
A structuring-superday judgement question: explain a popular product's economics without hiding its tail risk.
A client asks for a one-year autocall linked to a volatile technology stock: it pays a 14% coupon if the stock is at or above its initial level on each monthly observation date, redeems early if that condition is met,…
A client-facing structuring case testing whether you can translate an operating exposure into a proportionate hedge recommendation.
A US manufacturer will pay EUR 50m for components in six months. Its gross margin is only 8%, it cannot pass through a sudden euro appreciation immediately, and management wants protection but does not want to lose all…
Market-making interviews will push hard on gamma.
Define delta and gamma. You are short a straddle and delta-hedged. Explain what happens to your position as the underlying moves, and what you're actually long or short.
A structuring-superday case on whether a high coupon is compensation for a risk the client has not identified.
A client can buy either a one-year 10% coupon note linked to one technology stock or a 16% coupon note with otherwise similar terms linked to the worst performer of three technology stocks. In both cases, if the relevant…
Core to securitised products desks; also a favourite curveball in rates interviews.
Explain how a mortgage-backed security works and why it exhibits negative convexity. What is convexity hedging and how can it amplify moves in the rates market?
A cross-product structuring case used to test whether a candidate can explain an equity derivative, accounting-sensitive client objective, and dealer hedge in one answer.
A company wants to spend $500m repurchasing stock but wants most shares delivered immediately, before a two-month execution period ends. A bank proposes an accelerated share repurchase (ASR) priced off the eventual…
Volatility desks ask this after the skew question.
Implied volatility differs across expiries as well as strikes. What does an upward-sloping vol term structure mean, and what does it mean when it inverts?
Volatility desks ask this to see whether you understand the market, not the model.
Equity index options show higher implied volatility for downside strikes than upside. Explain why the skew exists and what it tells you about the market's assumptions.
Write your answer, get it graded on technical accuracy, completeness and communication, and see exactly which mechanic you missed.
Firm names indicate where a question type is commonly reported in interviews. They are not sourced from, endorsed by, or affiliated with the firms named.