Level 2 Final Exam · Answer Key 2 of 2
Level 2 Final Exam — Answer Key
Every answer explained — and the module to re-study for every miss. Curriculum & Assessment · Team Alpha Trading
This is the grading key for the Level 2 Final Exam. It matches the exam question for question, 1 through 50. For every question you get the correct letter, one line on why it is right, and the Alpha Academy Level 2 module to re-study if you missed it.
The pass mark is 80% — at least 40 of 50 correct. Score yourself honestly. For every miss, re-study the listed module, then retake the exam in a few days — the goal is not the grade, it is that the ideas are actually yours.
The Answers
1. B — Level 2 is the shift from naming things to understanding flow, volatility, and positioning underneath price. Re-study: Welcome to Level 2.
2. A — Bid size counts shares in resting buy orders at that price, not trades that already happened. Re-study: Level 2 Quotes & the Tape.
3. C — The tape (time and sales) is the record of executed trades: price, size, and time. Re-study: Level 2 Quotes & the Tape.
4. C — An aggressive buyer crosses the spread and takes the ask to be filled immediately. Re-study: Order Flow Basics.
5. D — When heavy selling hits the bid and price will not fall, a large buyer is absorbing the supply. Re-study: Order Flow Basics.
6. D — TICK = NYSE stocks ticking up minus stocks ticking down, at that moment. Re-study: Market Internals.
7. B — A green index with negative breadth means a few heavyweights are masking broad weakness. Re-study: Market Internals.
8. A — Extreme put/call readings mark extreme fear, which historically warns a bounce is likelier — not a signal to chase puts. Re-study: Market Internals.
9. C — The VIX is the implied volatility of S&P 500 index options over the next 30 days. Re-study: Volatility & the VIX A–Z.
10. B — 20 ÷ √12 ≈ 20 ÷ 3.46 ≈ 5.8% expected movement over 30 days. Re-study: Volatility & the VIX A–Z.
11. A — The VIX is a calculated index, not a stock; VIX products hold futures and behave differently from the index number. Re-study: Volatility & the VIX A–Z.
12. B — In contango the fund sells the cheaper expiring future and buys the pricier next one, bleeding value on every roll. Re-study: Volatility & the VIX A–Z.
13. D — $100 × 0.36 × √(7 ÷ 365) ≈ $100 × 0.36 × 0.1385 ≈ $5.00. Re-study: Trading Earnings & IV Crush.
14. C — The announcement removed the uncertainty the premium was pricing, so IV collapsed and the calls deflated despite the right direction. Re-study: Trading Earnings & IV Crush.
15. C — When the real move (3%) comes in under the priced move (8%), premium sellers keep the overpriced insurance money. Re-study: Trading Earnings & IV Crush.
16. C — A calendar spread is same strike, different expirations — a bet on time and volatility, not direction alone. Re-study: Calendar & Diagonal Spreads.
17. B — A debit calendar can never lose more than the debit paid: $2.30 × 100 = $230. Re-study: Calendar & Diagonal Spreads.
18. D — Diagonals combine both differences: different strikes and different expirations. Re-study: Calendar & Diagonal Spreads.
19. A — A butterfly's profit peaks exactly at the center strike, where the two short options expire worthless and the wings pay most. Re-study: Butterflies & Advanced Structures.
20. C — Max profit = wing width − debit = ($5.00 − $1.20) × 100 = $380. Re-study: Butterflies & Advanced Structures.
21. A — The butterfly's long wings cap the worst case at the debit; a ratio spread's extra short option is uncovered and open-ended. Re-study: Butterflies & Advanced Structures.
22. B — Net delta adds straight across positions: +120 − 40 + 75 = +155. Re-study: Portfolio Greeks & Hedging.
23. B — Shares give +200; the short calls give −(2 × 100 × 0.50) = −100; net delta = +100. Re-study: Portfolio Greeks & Hedging.
24. A — Long vega means the portfolio gains when implied volatility rises and loses when it falls, whichever way price goes. Re-study: Portfolio Greeks & Hedging.
25. B — The DOM ladder lists resting orders waiting at each price — intentions, not completed trades. Re-study: The DOM & Footprint Charts.
26. D — Footprint charts break each candle down by price level and show executed buy-versus-sell volume inside it. Re-study: The DOM & Footprint Charts.
27. A — The open concentrates overnight information into minutes, so spreads are widest and swings most violent. Re-study: Trading the Open.
28. B — Repeated stalls at the same high show sellers meeting the drive; the plan response is protect profits or stand aside, never chase. Re-study: Trading the Open.
29. B — Held positions are exposed to overnight and weekend gaps that jump straight past stop prices. Re-study: Swing Trading A–Z.
30. D — Holding through earnings is a deliberate, sized-for-the-gap decision — never something that just happens to a swing position. Re-study: Swing Trading A–Z.
31. C — Expectancy = (0.40 × $300) − (0.60 × $150) = $120 − $90 = +$30 per trade. Re-study: Building & Backtesting a System.
32. C — Overfitting tunes rules to history's noise; the system describes the past instead of capturing a repeatable edge. Re-study: Building & Backtesting a System.
33. B — Using the candle's close to justify an entry at its open is look-ahead bias — the information did not exist yet. Re-study: Building & Backtesting a System.
34. D — With positive gamma, dealers hedge against the move — selling rallies, buying dips — which dampens swings. Re-study: Gamma & Dealer Positioning.
35. A — With negative gamma, dealers hedge with the move, so their flows push price further and moves accelerate. Re-study: Gamma & Dealer Positioning.
36. C — The gamma flip is the level where positioning changes sign; above it tends calmer, below it tends wilder. Re-study: Gamma & Dealer Positioning.
37. A — Huge call open interest concentrates dealer hedging that leans against rallies into that strike, making it resistance and a magnet. Re-study: Trading With GEX Levels.
38. D — Below the flip in negative gamma with rising IV, expect speed and range — the correct response is smaller size and defined risk. Re-study: Trading With GEX Levels.
39. D — For long-term investors the engine is compounding over years of staying invested, not timing headlines. Re-study: Long-Term Investing & Portfolio Building.
40. A — Fixed amounts invested on schedule automatically buy more shares at low prices and fewer at high prices. Re-study: Long-Term Investing & Portfolio Building.
41. B — Traditional = possible deduction now, taxed on withdrawal; Roth = taxed now, qualified withdrawals tax-free later. Re-study: Retirement Accounts Deep Dive.
42. C — The employer match is an instant 100% return, so it comes first; contribution limits are set by the IRS yearly — check the current figure. Re-study: Retirement Accounts Deep Dive.
43. D — Section 1256 gains are always split 60% long-term / 40% short-term: $6,000 / $4,000 on a $10,000 gain, holding period aside. Re-study: Trader Taxes Advanced.
44. A — 1256 contracts are marked to market each year-end, and the wash sale rule does not apply to them. Re-study: Trader Taxes Advanced.
45. A — Trader tax status with a timely 475 election can make losses ordinary and wash-sale-free, but qualifying is strict — a professional-advice decision. Re-study: Trader Taxes Advanced.
46. C — Peak (1,565, October 2007) to trough (March 2009) the S&P 500 lost roughly 57% — the defining modern crash. Re-study: Case Studies: Crashes & Manias.
47. D — The COVID crash cut the S&P 500 by roughly 34% in about a month, the fastest bear market on record. Re-study: Case Studies: Crashes & Manias.
48. A — GME printed about $483 intraday in January 2021, before the 2022 4-for-1 split — up from roughly $20 weeks earlier. Re-study: Case Studies: Crashes & Manias.
49. B — The VIX closed at about 82.69 in March 2020, edging out 2008's closing peak of about 80.86. Re-study: Case Studies: Crashes & Manias.
50. A — Weak breadth + below the flip + rising IV into data is a fragile negative-gamma tape: cut size, defined risk only, or stand aside. Re-study: Trading With GEX Levels.