Explain Option Greeks and Futures Pricing
Company: Squarepoint
Role: Data Scientist
Category: Software Engineering Fundamentals
Difficulty: medium
Interview Round: Technical Screen
You are interviewing for a quantitative trading or data-focused role. Answer the following market fundamentals questions clearly and quantitatively.
1. Define option delta and gamma.
2. For European call and put options, what are the signs of delta and gamma?
3. As the underlying stock price increases, how do delta and gamma typically change for calls and puts?
4. A call option currently has delta = 1 and gamma = 1. If the underlying price increases by 10, approximate the delta PnL and gamma PnL using a second-order Taylor approximation. Ignore contract multipliers and assume gamma is locally constant.
5. What factors affect the price of a futures contract?
6. How would you price a futures contract on a stock?
7. What is the difference between a futures contract and a forward contract, and when can their prices differ?
8. Describe volatility skew in an options chain. Why does it occur, and when is it commonly observed?
Quick Answer: This question evaluates understanding of derivatives and quantitative finance concepts—option Greeks (delta, gamma), PnL approximations, futures pricing and forwards, and volatility skew—along with quantitative reasoning about risk sensitivities and pricing drivers.