FreeExam

Trading Through News and Regime Changes

Adapt quotes, size, and hedges when news changes volatility, liquidity, and risk.

These prompts are original practice. They are not questions from a named employer or a live hiring loop.

Earnings gap

A stock closes at $50 with a normal two-cent spread. After earnings, the reliable reference opens at $46. The old desk quote is $49.99 bid for 2,000. The updated risk plan allows 500 per side at most until volatility settles.

  1. 1.If the old bid fills in full, what is the immediate mark loss at $46?

  2. 2.What should happen to old quotes when the release hits?

  3. 3.What is the gross notional at $46 for one permitted clip?

  4. 4.How should new prices be anchored?

  5. 5.What should you do if the new reference is unreliable?

  6. 6.Why reduce size alongside widening the spread?

  7. 7.Why is the old spread a weak estimate of post-release costs?

  8. 8.What if the old bid cancel is pending?

  9. 9.What evidence supports a return to larger clips?

  10. 10.What belongs in the first post-event P&L explanation?

Re-estimating the hedge

A stock position is $3m long. Its beta to an index rises from 0.8 to 1.3 after a policy announcement. The desk initially hedged using the old beta. The index hedge has unit beta per dollar.

  1. 11.What was the original hedge notional?

  2. 12.What market exposure remains under the updated beta?

  3. 13.What extra short notional neutralizes the updated estimate?

  4. 14.With no adjustment, what first-order P&L follows a 2% index decline?

  5. 15.What if the updated beta is uncertain in a range of 1.1 to 1.5?

  6. 16.If the index is flat and the stock drops on issuer news, what remains?

  7. 17.The hedge's bid depth falls sharply. What changes?

  8. 18.Why avoid estimating beta from two post-news prints?

  9. 19.What is a sensible response if needed hedge size exceeds capacity?

  10. 20.What should be monitored if beta normalizes tomorrow?

Quote economics

A market maker's calm-state quote captures 1.5 cents per fill before fees and markouts. Fees cost 0.2 cents and expected markout cost is 0.4 cents. During news, expected markout cost rises to 2.2 cents and fees are unchanged.

  1. 21.What is calm-state expected edge per fill?

  2. 22.What is expected edge at the old quote in news?

  3. 23.What capture breaks even during news under those assumptions?

  4. 24.If capture rises to 3 cents with costs unchanged, what edge remains?

  5. 25.Why might the 2.2-cent estimate change after widening?

  6. 26.What should a wider-quote pilot measure besides edge per fill?

  7. 27.If adverse markouts cluster immediately after public data prints, what policy fits?

  8. 28.How should buy and sell markouts be aggregated?

  9. 29.What if the fee rebate improves by 0.1 cents but marks worsen by 0.5?

  10. 30.Why add a liquidity stress to quote decisions?

Volatility jump

A desk is short 6,000 delta shares, short gamma of 2,000 delta shares per $1 spot rise, and short vega of $4,000 per volatility point. Spot jumps $2 and implied volatility rises 3 points. Assume constant Greeks over the move.

  1. 31.What is approximate delta after the jump before hedging?

  2. 32.With no prior stock hedge, what trade neutralizes current delta?

  3. 33.What is the standalone vega P&L?

  4. 34.What is the standalone gamma P&L under the second-order approximation?

  5. 35.If delta was hedged before the move, what stock adjustment follows the gamma change alone?

  6. 36.Why can the stock hedge leave a large loss?

  7. 37.Which volatility hedge check matters after the jump?

  8. 38.How should the desk quote if the surface is crossed or unreliable?

  9. 39.Why stress a second jump before resuming normal size?

  10. 40.What evidence supports using the constant-Greek estimate?

Inventory and quote skew

A desk holds 14,000 long shares after news. Its hard inventory cap is 18,000 long. A 3,000-share bid is live. A 2,000-share buy cancel is pending. Assume no confirmed sell offsets.

  1. 41.What is maximum long exposure if both outstanding buys fill?

  2. 42.How far does that exceed the hard cap?

  3. 43.What should happen to new buys immediately?

  4. 44.If the 2,000-share cancel is confirmed, what buy headroom remains with the live bid?

  5. 45.If a 4,000-share sell fills after that confirmation, what headroom is available?

  6. 46.How might the dealer skew a two-sided quote to reduce long inventory?

  7. 47.Why should the desk avoid assuming its offers offset all bids?

  8. 48.When should reservation for a live buy be released?

  9. 49.What additional risk arises if inventory is hard to liquidate after a halt?

  10. 50.What is a useful normalization for comparing inventory caps across symbols?

Correlation shift

A pair is long $2m of a cyclical stock and short $2m of a sector ETF. In a downside stress, the stock falls 8% and the ETF falls 3%. In a rebound stress the stock rises 4% and the ETF rises 6%.

  1. 51.What is P&L in the downside stress?

  2. 52.What is P&L in the rebound stress?

  3. 53.Why can both scenarios lose despite equal notionals?

  4. 54.What stock loss occurs in the downside case if the short cannot be maintained?

  5. 55.At 3% ETF decline, what short would exactly offset the downside stock loss under that one scenario?

  6. 56.What else should be checked before expanding the short?

  7. 57.What evidence supports a changed relationship rather than noise?

  8. 58.Why use a stress correlation distinct from the full-sample estimate?

  9. 59.What if the sector ETF is halted but the stock still trades?

  10. 60.How should a desk compare a better-matched but thinner hedge?

News timing

A public macro release is due at 10:00. Historical feed delays range from 20 to 200 ms during events. One independent feed updates first but reports preliminary values. The desk has a verified fallback and a written pause policy.

  1. 61.Why is the scheduled release time insufficient for quote restart?

  2. 62.What does a difference between two feeds call for first?

  3. 63.How should a preset pause be tested?

  4. 64.Why keep a confirmed fallback feed?

  5. 65.What if the fallback shares the degraded upstream source?

  6. 66.An event forecast was already widely expected. What matters for repricing?

  7. 67.Why record the first actionable post-release quote?

  8. 68.What if the first fill after restart is unusually favorable?

  9. 69.What should the desk define for future releases?

  10. 70.What makes a later forecast revision relevant?

Scaling back in

After a news pause a trader pilots 200-share quotes. The restart policy requires healthy feeds, confirmed old orders, average net edge at least 0.4 cents, and adverse-tail markout no worse than 3 cents. First pilot average is 0.6 cents and adverse tail is 4 cents.

  1. 71.Does the first pilot support scaling under the policy?

  2. 72.By how much does the tail miss the gate?

  3. 73.By how much does the first pilot’s average edge clear its threshold?

  4. 74.What should the desk test about adverse fills?

  5. 75.The second pilot clears price gates but one old order remains unknown. What now?

  6. 76.At 200 shares, an adverse 3-cent markout costs how much per fill?

  7. 77.At 800 shares, what is the same per-share tail cost before size effects?

  8. 78.Why use several size tiers?

  9. 79.What signal calls for reversing the ramp?

  10. 80.What should the review preserve?

Volatility regimes

Normal daily price volatility is 1%. A desk holds $5m of inventory with a first-order daily risk budget of $75,000, using notional times volatility. Event volatility is estimated at 2.5%.

  1. 81.What was the normal first-order risk estimate?

  2. 82.What is the event estimate at unchanged inventory?

  3. 83.What notional meets the budget at 2.5%?

  4. 84.How much inventory must be reduced if the desk has $5m?

  5. 85.If volatility rises to 3%, what notional meets the same budget?

  6. 86.What does the linear risk budget omit during a news event?

  7. 87.If depth is one quarter of normal, what could happen to liquidation time?

  8. 88.Why should volatility be monitored at more than one horizon?

  9. 89.What if volatility estimates disagree substantially?

  10. 90.What would justify relaxing the inventory cap later?

Event order flow

A dealer normally quotes 500 shares. After a surprise, 70% of observed executions at its bid are followed by a one-cent decline and 30% by a one-cent rise over the hedge horizon. Assume this markout is measured from the fill and fees add 0.1 cents per share.

  1. 91.What is expected gross markout for the bid?

  2. 92.What is expected net markout after fees?

  3. 93.At 500 shares, what is the expected net markout in dollars?

  4. 94.How much must per-share economics improve to break even on these measures?

  5. 95.What other evidence helps decide whether to quote at all?

  6. 96.If the desk widens one cent, can it assume the net markout improves exactly one cent?

  7. 97.What if only the bid shows persistent adverse selection?

  8. 98.What should a venue comparison match?

  9. 99.Why compare post-fill movement with broader market returns?

  10. 100.What if expected net markout improves but fill rate collapses?

  11. 101.What should change if the edge remains negative after feasible repricing and sizing?