By the FinLingo Team | Capital markets practitioner, front office experience at a major European investment bank. FinLingo covers 342 lessons from bonds to exotic derivatives. About · Last updated:
Trading interviews test how you think under pressure. The questions are not about reciting definitions. They test whether you can reason about risk, size a position, and understand what happens to your P&L when the market moves. Speed matters. Precision matters more.
"You are short gamma going into expiry. The stock is pinned at the strike. What happens?" ATM gamma explodes near expiry. Your delta is swinging between 0 and 1 with every tick. Every time the stock crosses the strike, you need to buy or sell the entire delta. The rebalancing cost is enormous, and the moves are too fast to hedge cleanly. This is the most stressful scenario for any options market maker.
"You are long 1,000 vega at 25 vol. Implied drops to 22. What is your P&L?" Vega is $1,000 per vol point. Vol dropped 3 points. Loss = 3 × $1,000 = $3,000. The interviewer wants to see that you can do this instantly without a calculator.
"You sold an ATM straddle. The stock gaps down 15% overnight. Walk me through your morning." Your short put is now deep ITM. Delta has jumped from roughly −0.50 to −0.90 or worse. You are massively short delta. You need to buy a large number of shares immediately to re-hedge, at the worst possible price. Your realised gamma loss on the gap is approximately 0.5 × gamma × (move)², which on a 15% gap is catastrophic. Meanwhile, implied vol has spiked, so your short vega position is also losing money.
"EUR/USD is at 1.08. ECB meeting tomorrow. How do you position?" The interviewer does not want a direction call. They want you to think about vol: implied vol around the event is elevated. You could sell vol if you think the move is priced in, or buy vol if you think the market underestimates the surprise. What matters is the reasoning framework, not the answer.
"Estimate the daily P&L of a $10M equity portfolio with 20% annual vol." Daily vol = 20% / √252 = 1.26%. Daily P&L range (1 std dev) = $10M × 1.26% = $126,000. The interviewer checks if you know to divide by root-252 and can compute quickly.
Speed of reasoning about risk. Can you compute a vega P&L in your head? Can you describe what happens to your book when the stock gaps? Can you reason about whether vol is cheap or expensive before an event? Trading interviews care about how you think, not what you know from a textbook.
Short gamma into expiry at the strike. It tests whether you understand that ATM gamma explodes near expiry, that delta oscillates between 0 and 1 with every tick, and that the rebalancing cost is the square of each move times gamma. Most candidates know gamma is highest ATM but cannot articulate the expiry dynamics.
Practice mental math with Greeks: if vega is X and vol moves Y points, what is the P&L? Understand gamma scenarios: gap moves, expiry pinning, gamma scalping. Read about vol trading (realised vs implied). Be ready to discuss current markets: know the VIX level, major rates, and recent events. FinLingo Level 3 covers all of this.
FinLingo covers the Greeks, volatility trading, and risk reasoning across Levels 2–3. 342 lessons, interactive charts, and a real-time pricer. Level 1 is free.
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