High-yield DFOL review: options and futures payoffs, strategy intent, hedging logic, swaps and structured products (concept), plus the operational side (accounts, margin, order entry, clearing/exchanges, contract adjustments) with a large glossary and formula pack.
DFOL is a payoff exam. Get fluent with rights vs obligations and how positions behave when the underlying moves. Pair this with the Syllabus and Practice for repetition.
DFOL is currently 100 multiple-choice questions. Weightings below map directly to target question counts.
| Topic (CSI) | Weight | Target questions |
|---|---|---|
| An Overview of Derivatives | 3% | 3 |
| Futures Contracts | 11% | 11 |
| Exchange Traded Options | 14% | 14 |
| Swaps | 7% | 7 |
| How Investment Funds and Structured Products Use Derivatives | 6% | 6 |
| A Review of the Risk and Reward Profiles of Common Option Strategies | 16% | 16 |
| Opening and Maintaining Option Accounts | 25% | 25 |
| The Role of Clearing Corporations and Exchanges in Listed Options Trading | 10% | 10 |
| Contract Adjustments and Special Considerations and Risks of Non-Equity Options | 8% | 8 |
Source: https://www.csi.ca/en/learning/courses/dfol/exam-credits
\* If you enrolled before December 6, 2023, your DFOL exam will consist of 110 questions. (CSI)
| Instrument | Exchange/OTC | Exposure shape | Key features |
|---|---|---|---|
| Forward | OTC | linear | customized, credit exposure to counterparty |
| Future | Exchange | linear | standardized, clearinghouse, daily settlement (mark-to-market) |
| Option | Exchange/OTC | non-linear | right (buyer) / obligation (writer), premium paid/received |
| Swap | OTC | linear (legs) | exchange cash flows (rates/FX/commodities), typically institutional |
| Option | ITM when… | ATM when… | OTM when… |
|---|---|---|---|
| Call | \(S>K\) | \(S\approx K\) | \(S<K\) |
| Put | \(S<K\) | \(S\approx K\) | \(S>K\) |
\[ \text{Call intrinsic}=\max(S-K,0) \] \[ \text{Put intrinsic}=\max(K-S,0) \]
What it tells you: Intrinsic value is the immediate exercise value (the “in-the-money” amount). It ignores time value.
Symbols (what they mean):
How it’s tested (DFOL):
Common pitfalls:
Let \(S_T\) be the underlying price at expiry.
\[ \text{Long call BE}=K+P \] \[ \text{Long put BE}=K-P \]
What it tells you: The underlying price at expiry where the long option position’s profit is zero.
Symbols (what they mean):
Quick checks:
Common pitfall: Mixing up call vs put (add premium for call, subtract for put).
| Position | Max gain | Max loss |
|---|---|---|
| Long call | unlimited | \(P\) |
| Short call | \(P\) | unlimited |
| Long put | \(K-P\) (if \(S_T \to 0\)) | \(P\) |
| Short put | \(P\) | large (if \(S_T \to 0\): \(\approx K-P\)) |
| Strategy | Built from | Outlook | Primary reason |
|---|---|---|---|
| Covered call | long stock + short call | mildly bullish/neutral | income + slight downside buffer |
| Protective put | long stock + long put | bullish but risk-averse | “insurance” against big drop |
| Collar | long stock + long put + short call | neutral | define a range; hedge cost reduced |
| Bull call spread | long call + short call (higher \(K\)) | bullish | lower cost vs outright call; capped upside |
| Bear put spread | long put + short put (lower \(K\)) | bearish | lower cost vs outright put; capped gain |
| Long straddle | long call + long put (same \(K\)) | volatile | profit from big move either way |
| Short straddle | short call + short put | low volatility | collect premium; high tail risk |
Max gain \[ \text{Max gain}=(K_2-K_1)-P_{\text{net}} \]
Max loss \[ \text{Max loss}=P_{\text{net}} \]
What it tells you: For a bull call (debit) spread, risk and reward are defined.
Symbols (what they mean):
How it’s tested:
Common pitfall: Forgetting to subtract the net premium from the strike-width for max gain.
Max gain \[ \text{Max gain}=(K_1-K_2)-P_{\text{net}} \]
Max loss \[ \text{Max loss}=P_{\text{net}} \]
What it tells you: For a bear put (debit) spread, risk and reward are defined.
Symbols (what they mean):
How it’s tested:
Breakevens \[ BE_{\text{up}}=K+(P_c+P_p) \] \[ BE_{\text{down}}=K-(P_c+P_p) \]
What it tells you: A long straddle needs a large move in either direction to cover the total premium paid.
Symbols (what they mean):
How it’s tested: The distance from \(K\) to each breakeven equals total premium \((P_c+P_p)\).
| Driver increases… | Call value | Put value | Why |
|---|---|---|---|
| Underlying price \(S\) | up | down | intrinsic moves |
| Volatility | up | up | more chance of ITM |
| Time to expiry | up (usually) | up (usually) | more optionality |
| Interest rates | up | down | PV of strike changes |
For European options on a non-dividend-paying asset (concept model): \[ C-P=S_0-Ke^{-rT} \]
What it tells you: A no-arbitrage relationship linking calls, puts, spot price, and the present value of the strike (under simplified assumptions).
Symbols (what they mean):
Exam use: Recognize synthetics and spot obvious inconsistencies conceptually (DFOL does not require heavy parity algebra).
Practical takeaway: combinations of options can replicate stock-like exposure (synthetics).
| Synthetic position | Built from (same \(K,T\)) | Intuition |
|---|---|---|
| Synthetic long stock | long call + short put | behaves like owning the underlying |
| Synthetic short stock | short call + long put | behaves like shorting the underlying |
| Synthetic long call | long stock + long put | “insured” stock resembles a call-like payoff |
| Synthetic long put | short stock + long call | protective upside resembles a put-like payoff |
The exam often only needs direction: higher rates → higher forward/futures price (all else equal).
No income (simple discrete approximation): \[ F_0\approx S_0(1+r)^T \]
Continuous compounding (common finance form): \[ F_0=S_0e^{rT} \]
With dividend yield (or convenience yield) \(q\): \[ F_0=S_0e^{(r-q)T} \]
What it tells you: Forward/futures price is “spot grown at cost of carry” minus any income yield.
Symbols (what they mean):
Exam takeaway: Higher \(r\) tends to increase forwards; higher \(q\) tends to decrease forwards (all else equal).
Max gain \[ \text{Max gain}=C_{\text{net}} \]
Max loss \[ \text{Max loss}=(K_2-K_1)-C_{\text{net}} \]
What it tells you: Bear call spreads collect a credit with defined loss if the underlying rallies beyond the spread.
How it’s tested:
Common pitfall: Using the wrong “width” (always higher strike minus lower strike).
Max gain \[ \text{Max gain}=P_{\text{net}} \]
Max loss \[ \text{Max loss}=(K_1-K_2)-P_{\text{net}} \]
What it tells you: Bull put spreads collect a credit with defined loss if the underlying falls too far.
How it’s tested:
An iron condor combines a bull put spread and a bear call spread to profit when the underlying stays in a range.
If price changes by \(\Delta F\) and the contract multiplier is \(M\): \[ \text{P/L}\approx \Delta F \times M \times (\text{# contracts}) \]
What it tells you: Futures profit/loss scales with the price move, contract size (multiplier), and number of contracts.
Exam cue: Futures are marked-to-market; gains/losses flow through margin daily (concept).
| Hedge need | Typical futures position | Why |
|---|---|---|
| Protect against price fall in an owned asset | short futures | gain on futures offsets spot loss |
| Lock in future purchase price | long futures | gain on futures offsets higher spot price |
If exposure value is \(V\) and one contract notional is \(F\times M\): \[ N\approx \frac{V}{F\cdot M} \]
What it tells you: A rough contract count to hedge a notional exposure.
Common pitfalls:
Swaps are generally OTC contracts exchanging cash flows. DFOL tends to test structure, terminology, and why swaps are used, more than heavy valuation.
DFOL expects you to recognize how derivatives show up inside common vehicles—and the extra risks that can come with them.
Exam-safe answer: recognize leverage risk, margin calls, and forced liquidation mechanics.
This is one of the highest-weight areas. DFOL often rewards operational correctness: what must be collected, approved, documented, and entered.
Fast checklist (concept):
Order ticket fields candidates miss (concept):
Concept-first reminders (not tax advice):
Exchanges do more than “match buyers and sellers” (concept):
Explanations are provided above next to each formula; this section is a quick reference.
American-style option — Can be exercised any time up to expiry (assignment risk can occur before expiry).
Assignment — Notice that an option writer must fulfill the contract (buyer exercised).
At-the-money (ATM) — Underlying price approximately equals strike.
Basis — Difference between spot and futures price (definition varies by market convention).
Basis risk — Hedge imperfection due to spot/futures not moving identically.
Backwardation — Futures curve with lower prices for longer maturities (often supply/convenience related).
Breakeven — Underlying price where profit/loss is zero at expiry (including premium).
Butterfly — Strategy combining spreads to profit from low volatility around a central strike (capped gain/loss).
Calendar spread — Options spread using different expiries (time spread); view often on volatility/term structure.
Call option — Right (buyer) to buy; obligation (writer) to sell at strike.
Cash settlement — Contract settles in cash rather than physical delivery.
Clearinghouse — Central counterparty reducing credit risk in exchange-traded derivatives.
Closing transaction — Trade that offsets an existing derivative position to flatten exposure.
Collar — Long underlying + long put + short call; defines a range of outcomes.
Contango — Futures curve with higher prices for longer maturities (often storage/carry related).
Contract multiplier — Units per contract (shares, barrels, etc.); scales P/L.
Covered call — Long underlying + short call; income strategy with capped upside.
Credit spread — Spread that receives premium (net credit) with defined max loss.
Credit exposure (OTC) — Counterparty default risk in OTC contracts (mitigated by collateral).
Delta — Option sensitivity to underlying price; directional exposure proxy.
Delta hedging — Offsetting delta exposure (often with underlying) to reduce directional risk (concept).
Derivative — Instrument whose value depends on an underlying (equity, rate, FX, commodity).
Early exercise — Exercising before expiry (relevant mainly for American options; can create assignment risk).
Exercise — Holder uses the option right (buy/sell at strike).
Forward contract — OTC agreement to trade at a future date at a set price; linear exposure.
Forward price — Agreed price for a forward; linked to spot via cost of carry.
Futures contract — Standardized exchange-traded forward with daily settlement and margining.
Gamma — Rate of change of delta; curvature of option price response (concept).
Hedge — Position intended to reduce an existing risk exposure.
Hedge ratio — Size of hedge relative to exposure (often approximated in DFOL).
Iron condor — Range strategy combining a bull put spread and bear call spread; defined risk/return.
Implied volatility — Volatility level consistent with market option price (concept).
Initial margin — Funds posted to open/maintain futures position (performance bond).
Intrinsic value — Immediate exercise value (if positive).
In-the-money (ITM) — Option has positive intrinsic value.
Leg — One component of a multi-instrument strategy (e.g., spread legs).
Leverage — Small price move causes large percentage P/L due to small margin/premium.
Long — Position that benefits from price increase (underlying) or has the right in an option context.
Maintenance margin — Minimum margin balance before a margin call.
Mark-to-market — Daily realization of futures gains/losses.
Margin call — Request for additional funds after adverse price moves.
Moneyness — ITM/ATM/OTM state of an option.
Net credit / net debit — Premium received vs paid to enter a multi-leg options strategy.
Open interest — Number of outstanding contracts not closed/settled.
Open outcry / electronic — Execution methods (modern markets are primarily electronic).
Option premium — Price paid for an option; buyer pays, writer receives.
Outright — Single contract position (vs spread/combination).
Out-of-the-money (OTM) — Option has zero intrinsic value.
Parity — Relationship linking option prices and the underlying/financing (e.g., put-call parity).
Protective put — Long underlying + long put; downside insurance.
Put option — Right (buyer) to sell; obligation (writer) to buy at strike.
Rolling — Closing a position and opening a new one (new strike/expiry) to extend/adjust exposure.
Settlement — How obligations are fulfilled (cash or physical delivery).
Short — Position that benefits from price decrease or has obligation in option context.
Spread — Combination of options at different strikes/expiries to shape payoff.
Straddle — Call + put at same strike; volatility bet.
Strangle — Call + put at different strikes; cheaper but needs bigger move.
Synthetic — Position constructed from derivatives that replicates another payoff.
Theta — Sensitivity to time passing; time decay.
Time value — Option premium above intrinsic value; depends on time and volatility.
Underlying — The asset a derivative references (stock, index, commodity, rate, FX).
Vega — Sensitivity to volatility; long options usually have positive vega.
Variation margin — Funds exchanged daily after mark-to-market; reduces credit risk.
Volatility — Magnitude of price fluctuation; key driver of option pricing.
CDS (Credit default swap) — Credit swap providing protection linked to a reference entity (concept).
CDCC (Canadian Derivatives Clearing Corporation) — Canadian clearing organization referenced in the CSI curriculum (concept).
Clearing corporation — Organization that clears trades and acts as central counterparty in cleared markets (concept).
Contract adjustment — Change to option contract terms to reflect corporate actions (splits/dividends/rights issues) (concept).
CPPI (Constant proportion portfolio insurance) — Dynamic strategy used in some principal-protected note structures (concept).
Currency option — Option on an exchange rate; requires careful interpretation of quote conventions (concept).
Exchange-traded fund (ETF) — derivative-based — ETF that uses derivatives (futures/swaps/options) to obtain exposure (concept).
Expiration cycle — Pattern of expiries listed for an option class (concept).
Index CDS — CDS referencing a basket/index rather than a single name (concept).
Index option — Option on an index; often has different settlement and multiplier conventions than equity options (concept).
LEAPS® — Long-dated options (term used in the CSI curriculum; concept).
Market maker — Participant providing liquidity by quoting bids/asks and managing risk, typically via hedging (concept).
OCC (Options Clearing Corporation) — U.S. clearing organization referenced in the CSI curriculum (concept).
Option class / series — Class: options on a particular underlying; series: specific strike/expiry within a class (concept).
Position limit / exercise limit — Limits designed to reduce market manipulation and systemic risk (concept).
PPN (Principal-Protected Note) — Structured product combining protection features with derivative-linked returns (concept).
Swap — OTC contract exchanging cash flows (rate/FX/credit/equity/commodity) (concept).
Swap-based ETF — ETF using swaps for synthetic index replication (concept).
Leveraged / inverse ETF — ETF designed to amplify or invert daily returns; path dependence can be a key risk (concept).
Always confirm contract specifications, margin rules, and current market conventions from official sources; DFOL questions are typically about directional logic and risk management, not memorizing exchange minutiae.