500 in One Nism
500 in One Nism
500 in One Nism
Question 1 A client can use cross margining across Cash and Derivatives
segment - True or False ?
(i) TRUE
(ii) FALSE
Answer A client can use the margin he has paid in any segment provided he
Explanation has signed on the necessary declarations in the account opening forms
etc.
Question 4 Put option gives the buyer a right to the underlying asset.
(i) Sell
(ii) Buy
(iii) Speculate
(iv) None of the above
Answer Option, which gives buyer a right to buy the underlying asset, is called
Explanation Call option and the option which gives buyer a right to sell the
underlying asset, is called Put option.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 1
Question 5 If all things remain constant throughout the contract period, the
option price will always in price by expiry.
(i) Fall
(ii) Rise
(iii) Either Rise or Fall
(iv) None of the Above
Question 6 The Non Cash Component of Liquid Assets which are given as a
form of margin can include Equity Shares which are physical form
- True or False ?
(i) FALSE
(ii) TRUE
Answer Even if the price of the underlying remains constant, the option price
Explanation will fall due to Time Decay.
This the advantage of Time Decay is used by the Option Sellers.
Answer Non Cash Component can include Equity Shares as per Capital Market
Explanation Segment which are in demat form (and not in physical form), as
specified by clearing corporation from time to time deposited with
approved custodians
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 1
Question 7 If the Initial Margin is changed then it will apply only to fresh
contracts and not to previous outstanding contracts - True or
False ?
(i) TRUE
(ii) FALSE
Question 8 Impact cost is low when the liquidity in the system is poor
(i) TRUE
(ii) FALSE
Answer Initial Margin, if changed, will apply to all outstanding contracts and
Explanation not only to fresh contracts.
Answer Impact cost is said to be low when large orders can be executed
Explanation without moving the prices in a big way.
So when volumes / liquidity will be high the impact cost will be low.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 1
Answer If all things remain constant throughout the contract period, the option
Explanation price will always fall in price by expiry due to time decay.
Thus option sellers are at a fundamental advantage as compared to
option buyers as there is an inherent tendency in the price to go down.
Question 13 As a special provision for NRI, the Mark to Market Margin payable
them can be done on a consolidated weekly basis True or False ?
(i) FALSE
(ii) TRUE
Question 23 An option which would give a negative cash flow to its holder if it
were exercised immediately is know as .
(i) At the money option
(ii) In the money option
(iii) Out of the money option
(iv) None of the above
Question 24 On what occasion form the below, the derivative segment of the
stock market has to report to SEBI ?
(i) Occasions when the 90% Value at Risk (VaR) limit has been violated
(ii) Occasions when the 96.5% Value at Risk (VaR) limit has been violated
(iii) Occasions when the 95% Value at Risk (VaR) limit has been violated
(iv) Occasions when the 99% Value at Risk (VaR) limit has been violated
Correct Answer Occasions when the 99% Value at Risk (VaR) limit has been
24 violated
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 1
Question 26 Ms. Patil sold four futures contract of Bata India Ltd at Rs 820 (lot
size 250 shares). What is her profit or loss if she purchases back
the contracts at Rs 806.
(i) Rs 3500
(ii) Rs 9500
(iii) Rs 14000
(iv) Rs 16000
Answer Delta for call option buyer is positive. This means that the value of the
Explanation contract increases as the share price rises.
Question 27 If the price of Infosys stock rises, the call option premium will also
rise.
(i) TRUE
(ii) FALSE
Question 30 Ms. Geeta goes long in a PUT option of a higher strike price and
shorts another PUT option of a lower strike price, of the same
scrip and same expiry. This strategy is called .
(i) Bullish Spread
(ii) Bearish Spread
(iii) Calendar spread
(iv) Straddle
(i) Rs 6000
(ii) Rs 68,000
(iii) Rs 80,000
(iv) Unlimited
Question 36 When you buy a put option on a stock you are owning, this
strategy is called .
(i) Straddle
(ii) writing a covered call
(iii) calendar spread
(iv) protective put
Correct Answer 50
35
Question 37 A trader buys a call and a put option of same strike price and
same expiry. This is called as .
(i) Butterfly
(ii) Short Straddle
(iii) Long Straddle
(iv) Calendar Spread
Question 38 Vega is .
(i) the change in option price given a one percentage point change in the
risk-free interest rate
(ii) a measure of the sensitivity of an option price to changes in market
volatility
(iii) the change in option price given a one-day decrease in time to
expiration
(iv) speed with which an option moves with respect to price of the
underlying asset
Question 39 If a trader buys a put option with a higher strike price and sells a
put option with a lower strike price, both of the same underlying
then this strategy is called .
(i) Bullish Spread
(ii) Bearish Spread
(iii) Straddle
(iv) Butterfly spread
Question 45 With a fall in interest rates, the premium on CALL Options will
.
(i) Rise
(ii) Fall
(iii) No Effect
(iv) None of the above
Question 46 When an stock which is part of the index has a stock split, it does
not have an impact on the index.
(i) TRUE
(ii) FALSE
Answer When the interest rates falls, the cost of carry also falls, thus reducing
Explanation the premium on call options.
Correct Answer when spot / market price is lower than strike price
47
Answer A call option is said to be OTM, when spot price is lower than strike
Explanation price - For eg - Market Price of XYZ stock is 200 and the trader has a
bought a call option of strike price 220, so he is in a loss. A put option
is said to be OTM when spot price is higher than strike price.
Answer Dividend are receivable only for shares which are bought in the cash
Explanation market. No dividend is receivable on F&O positions. So when the stock
becomes ex-dividend in cash market, the price generally falls to the
extent of dividend paid. This fall will be reflected in the Call option
premium in advance. So when a dividend is declared, the Call option
premium falls and Put option premium rises.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 1
Question 49 You have a short position in LPQ Stock futures at Rs 350 (one lot
size is 500 shares) and you have made a profit of Rs 28000. To do
this you will have to :
(i) Sell one lot at Rs 406
(ii) Sell one lot at Rs 294
(iii) Buy one lot at 406
(iv) Buy one lot at Rs 294
Question 50 In case of futures, the initial margin is paid only by the sellers.
(i) TRUE
(ii) FALSE
Question 51 Hedging would ensure that your profits are always on the higher
side compared to an unheeded position - State True or False ?
(i) TRUE
(ii) FALSE
Answer Hedging controls your losses but also controls your profits. It does not ensure
Explanation higher profits.
Question 54 Covered calls carry greater risk then Naked Calls True or False ?
(i) TRUE
(ii) FALSE
Correct Answer Its used to generate extra income from existing holdings in the
53 cash market.
Answer If an investor has bought shares and intends to hold them for some
Explanation time, then he would like to earn some income on that asset, without
selling it, thereby reducing his cost of acquisition.
So he sells a call option of that stock and benefits from the premium
received.
Question 58 The option seller has an obligation and since his losses can be
unlimited, he can be a potential risk for the stability of the
system. Therefore he has to pay .
(i) Extra Premium
(ii) Special Loss Charges
(iii) Margins
(iv) All of the above
Question 61 An trader buys a June XYZ stock futures contract at Rs 242. After a
few days the price of XYZ futures was Rs 269. What will be your
profit / loss if you square up your position ? ( The market lot of
XYZ share is 1000 )
(i) -20000
(ii) -27000
(iii) 20000
(iv) 27000
Question 63 If the tick size of a scrip is 5 paise and the spot price of that scrip
is Rs. 70, what will be the next upward tick ?
(i) 69.95
(ii) 70.005
(iii) 70.05
(iv) 70.5
Question 67 Mr. A had bought 300 shares of XYZ and wants to protect himself
if the price falls. Which of the below options will be preferred by
him.
(i) Place a limit sell order
(ii) Place a limit buy order
(iii) Place a limit stop loss order
(iv) Place an IOC ie. Immediate or Cancel order
Question 68 A risky trader / speculator believes that the future price of ABC
company will fall and being a smart trader he will .
(i) buy ABC futures now and sell them later when it falls
(ii) wait till the price of ABC futures and cash market price become same
(iii) sell ABC futures now and buy them later when the price falls
(iv) will do nothing as he had suffered a loss in his previous trade
Correct Answer sell ABC futures now and buy them later when the price falls
68
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 1
Question 69 The spot price of LKK share is Rs 300, the put option of Strike
Price Rs 280 is .
(i) In the money
(ii) Out of the money
(iii) At the money
(iv) None of the above
Question 75 When trading in futures contract, the terms of the contract are
decided mutually by the trading parties.
(i) FALSE
(ii) TRUE
Question 76 Rho is .
(i) is the change in option price given a one percentage point change in
the risk-free interest rate
(ii) the change in option price given a one-day decrease in time to
expiration
(iii) speed with which an option moves with respect to price of the
underlying asset
(iv) a measure of the sensitivity of an option price to changes in market
volatility
Correct Answer is the change in option price given a one percentage point change
76 in the risk-free interest rate
Question 81 You have sold a put option of a strike price of Rs 370 for Rs 38.
What is the maximum gain you can have on expiry of this position
?
(i) Unlimited
(ii) Rs 370
(iii) Rs 38
(iv) Rs 332
Correct Answer Rs 38
81
Answer The maximum gain for a seller of PUT option is the premium he
Explanation receives. In this case he has sold the put option at Rs 38 and received
this premium, so that is his maximum gain.
Question 83 You have sold a CALL option on a stock at Rs. 16 per call with
strike price of Rs. 170. If on exercise date, stock price is Rs. 196,
ignoring transaction cost, you will choose .
(i) to exercise the option
(ii) not to exercise the option
(iii) may or may not exercise the option depending on the company's
background
(iv) none of the above
Question 87 Mr. Shah purchased two futures contract of Ambuja Cements Ltd
at Rs. 180 (lot size 2000 shares). What will be his profit or loss if
he sells them at Rs 187.
(i) Rs 14000
(ii) Rs 28000
(iii) Rs 20000
(iv) Rs 27500
Question 88 The Ask price is always greater than the Bid price.
(i) FALSE
(ii) TRUE
Question 97 What is the main reason for which hedgers enter the futures
market ?
(i) to profit from price fluctuations
(ii) to make long term investments
(iii) to protect against any price uncertainties
(iv) to make big profits
Question 1 The Stock Exchanges and Stock Brokers decide the option
premiums - True or False ?
(a) TRUE
(b) FALSE
Answer Stock Exchanges decide the rules and provide the platform for trading
Explanation and Stock Brokers act as authorized mediatories.
The option prices are decided by the buyers and sellers based on the
spot price, time value, volatility and many other factors.
Answer Swaps are series of forward contracts. Equity Cash is traded in the
Explanation Spot Markets.
Equity Derivatives like Futures and Options are traded in the Stock
Futures markets.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 2
Question 3 Usually as the level of risk rises, the expected rate of return on that
investment should also rise - True or False ?
(a) TRUE
(b) FALSE
Question 4 The system of SEBI which enables investors to lodge and follow up
their complaints and track the status of redressal of such complaints
from anywhere is called SCORES True or False ?
(a) TRUE
(b) FALSE
Answer Higher the risk ( Eg. Equity Shares ) higher is the return
Explanation Lower the risk ( Eg. Bank Fixed Deposits ) lower is the return.
Question 5 A short seller has the time of one week to deliver the stocks –
True or False ?
(a) TRUE
(b) FALSE
Question 6 The total liquid assets comprise of at least 60% of the cash component
and the rest is non cash component - True or False ?
(a) TRUE
(b) FALSE
Answer Selling Short means Seller does not own the stock he is supposed to
Explanation deliver. Even if a trader has stock he has to deliver the shares in T+2 days.
Answer The total liquid assets comprise of at least 50% of the cash component
Explanation and the rest is non cash component.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 2
Correct Answer They buy futures and sell it back when the price rises to make a profit
11
Question 14 Option which gives buyer a right to sell the underlying asset,
is called option
(a) Call
(b) Put
(c) American
(d) European
Question 15 If there is not much price movement, the OTM option will be
beneficial to .
(a) Buyer of Call Option
(b) Seller of Call Option
(c) Buyer of Put Option
(d) None of the above
Question 16 A Trading member can either clear his trades or use the services of
Professional Clearing members - True or False ?
(a) TRUE
(b) FALSE
Question 18 The cash component of Liquid Securities can include Units of money
market mutual fund and Gilt funds where applicable haircut is 10%.
True or False ?
(a) TRUE
(b) FALSE
Question 21 In the Options segment, if you buy a PUT, you expect the market
/ scrip to move
(a) Down
(b) Up
(c) One cannot buy a Put in options market
(d) Remain range bound
Question 22 An investor who is less risk averse would like to have greater
exposure to equity and other risky investments compared to fixed
income instruments.
(a) FALSE
(b) TRUE
Question 25 You are bullish on a stock but unsure of the overall market. The
action you should take is :
(a) Buy Stock futures and sell Index futures
(b) Sell Index futures
(c) Buy Stock Futures
(d) None of the above
Question 26 A trader sells a lower strike price CALL option and buys a higher
strike price CALL option, both of the same scrip and same expiry
date. This strategy is called .
(a) Bearish Spread
(b) Bullish Spread
(c) Long term Investment
(d) Butterfly
(a) Rs 5000
(b) Rs 8000
(c) Rs 20,00,000
(d) Unlimited
Question 30 The future contracts are custom designed and hence each contract
is different as per the terms of the contracting parties.
(a) FALSE
(b) TRUE
Question 34 If a stock has very low volatility then it would have a lower option
premium.
(a) TRUE
(b) FALSE
Question 35 In index futures, if the near leg of the calendar spread transaction
expires then the farther leg becomes a regular open position.
(a) TRUE
(b) FALSE
Question 39 Delta is .
(a) the change in option price given a one-day decrease in time to
expiration
(b) is the change in option price given a one percentage point change in
the risk-free interest rate
(c) speed with which an option moves with respect to price of the
underlying asset
(d) a measure of the sensitivity of an option price to changes in market
volatility
Correct Answer speed with which an option moves with respect to price of the
39 underlying asset
Answer The most important of the ‘Greeks’ is the option’s is “Delta”. This
Explanation measures the sensitivity of the option value to a given small change in
the price of the underlying asset. It may also be seen as the speed with
which an option moves with respect to price of the underlying asset.
Delta = Change in option premium/ Unit change in price of the
underlying asset. Delta for call option buyer is positive. This means
that the value of the contract increases as the share price rises. For
example, with respect to call options, a delta of 0.6 means that for
every Rs.1 the underlying stock increases, the call option will increase
by Rs 0.60
Put option deltas, on the other hand, will be negative, because as the
underlying security increases, the value of the option will decrease. So
a put option with a delta of -0.6 will decrease by Rs.0.60 for every Rs 1
the underlying increases in price.
The knowledge of delta is of vital importance for option traders
because this parameter is heavily used in margining and risk
management strategies.
Correct Answer Tick Size
40
Answer Tick size is the minimum price movement of a trading instrument.
Explanation Exchanges decide the tick sizes on traded contracts as part of contract
specification. The exchange informs the lot size and the tick size for
each of the contracts traded on F&O segment from time to time. Tick
size for Nifty futures is 5 paisa.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 2
(a) Rs 8000
(b) Rs 5000
(c) Rs 100000
(d) Unlimited
Question 44 A PUT option gives buyer a right but not the obligation to buy
the underlying asset.
(a) TRUE
(b) FALSE
Question 46 An American Put option gives the buyer the right to sell the
underlying asset at a specified price on or before the expiry /
maturity date.
(a) FALSE
(b) TRUE
Question 47 If futures price are lower than spot price of an asset, market
participants may expect the spot price to come down in future.
This situation is called
(a) Contango
(b) Reverse System
(c) Backwardation
(d) Impact costs
Question 48 When the strike price decreases, the premium on call option
increases.
(a) TRUE
(b) FALSE
Question 50 The major reason for collecting high initial margin is to improve
the solvency of the clearing corporations.
(a) TRUE
(b) FALSE
Question 52 Beta is the change in option price given a one percentage point
change in the risk-free interest rate.
(a) TRUE
(b) FALSE
Question 54 An option which would give a zero cash flow to its holder if it
were exercised immediately is know as .
(a) At the money option
(b) Out of the money option
(c) In the money option
(d) None of the above
Question 56 You have sold one lot of JSW Steel futures for Rs 900 (lot size
250) expecting that this share will go down. But you also wants to
protect yourself against any loss of more than Rs 2000. What
should you do ?
(a) Place a limit order to buy at Rs 908
(b) Place a stop loss buy order at Rs 892
(c) Place a stop loss buy order at Rs 908
(d) Place a limit sell order at Rs 908
Question 58 You are interested in creating a perfect hedge for your portfolio.
For this you need to sell index futures and the index futures sold
should be equal to .
(a) Value of your portfolio + Beta of your portfolio
(b) Value of your portfolio / Beta of your portfolio
(c) Value of your portfolio * Beta of your portfolio
(d) Value of your portfolio - Beta of your portfolio
Question 60 The intrinsic value is the difference between Market Price and
Strike Price of the option and it can never be negative.
(a) TRUE
(b) FALSE
Question 65 In the Straddle Strategy both options have same strike price but
in Strangle strategy, the strike price are different and are mostly
out of the money options- True or False ?
(a) FALSE
(b) TRUE
Question 66 When compared to cash market, there are more chances that an
investor does not properly understand the risks involved in the
derivatives market. True or False ?
(a) TRUE
(b) FALSE
Question 68 The spot price of ABC share is Rs 500, the call option of Strike
Price Rs 500 is
(a) In the money
(b) Out of the money
(c) At the money
(d) None of the above
Question 71 In a Derivatives Market, the person who takes the risk are
(a) Arbitrageurs
(b) Speculators
(c) Hedgers
(d) None of the Above
Question 72 The difference between the bid price and the ask price is know as
.
(a) basis
(b) bid-ask spread
(c) tick
(d) premium
Question 74 The option premium paid by the option buyer remains with the
exchange till the time it is closed out or expired.
(a) TRUE
(b) FALSE
Question 75 Higher the interest rate, higher will be the option premium - True
or False ?
(a) TRUE
(b) FALSE
Correct Answer stop the markets being wrongly influenced by the trading
78 activities of investor(s)
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 2
Question 79 The mark to mark debits for stock futures are done on a
(a) Daily basis
(b) Weekly basis
(c) Monthly basis
(d) Hourly basis when markets are very volatile
Question 81 If you have a short position in futures contract, you can square up
it by .
(a) Buying a call option of that security
(b) Selling the same futures contract
(c) Selling the far month future contract so that you have more time and
can earn more
(d) Buying a put option of that security
Question 82 The Ask price is always greater than Bid price. True or False ?
(a) TRUE
(b) FALSE
Question 83 An investor who is risk averse will invest more in Fixed Income
and Debt instruments than to equity market related investments.
(a) TRUE
(b) FALSE
Question 84 A stock broker has two clients P and Q. P has purchased 200
contracts and Q has sold 300 contracts in May Tata Steel futures
series. What is the outstanding liability (open Position) of the
member towards Clearing Corporation in number of contracts?
(a) 100
(b) 200
(c) 300
(d) 500
Question 86 The difference between the spot price and the futures price is
called tick.
(a) FALSE
(b) TRUE
Question 87 In the Options segment, if you sell a PUT, you expect the market /
scrip to move
(a) Either up or down as you profit in both directions.
(b) One cannot sell a PUT in the options market
(c) Up
(d) Down
Correct Answer Up
87
Answer A seller of a PUT option has a positive / bullish view and he expects
Explanation the market / script to go up to make a profit.
Question 89 A person sells a put option of Strike Price 265, market lot 1000, at
a premium of Rs 40, the maximum profit he can make is .
(a) Rs 25,000
(b) Rs 2,65,000
(c) Rs 40,000
(d) Unlimited
Question 91 The Clearing Corporation has the power to charge special margin
if it may think fit.
(a) TRUE
(b) FALSE
Question 98 The Stock Broker / Clearing Member has full authority to close
out a transaction of his client if .
(a) the client has not paid the daily settlement amount
(b) the client not paid the initial margin
(c) Both 1 and 2
(d) A broker cannot close out a transaction
Question 100 Which of the following factor(s) do not affect the value of an
option ?
(a) The Open Interest
(b) The Spot Price
(c) The volatility in underlying instruments
(d) The strike price
Question 2 If a stock fails to meet these retention criteria for three months
consecutively, existing unexpired contracts may be permitted to
trade till expiry and new strikes may also be introduced in the
existing contract months - True or False ?
(i) TRUE
(ii) FALSE
Answer The criteria for retention of stock in equity derivatives segment are :
Explanation a) The stock’s median quarter-sigma order size over last six months shall
not be less than Rs. 5 lakhs (Rupees Five Lakhs).
b) MWPL of the stock shall not be less than Rs. 200 crores (Rupees Two
Hundred crores).
c) The stock’s average monthly turnover in derivatives segment over last
three months shall not be less than Rs. 100 crores
If a stock fails to meet these retention criteria for three months
consecutively, then no fresh month contract shall be issued on that stock.
However, the existing unexpired contracts may be permitted to trade till
expiry and new strikes may also be introduced in the existing contract
months. Further, once the stock is excluded from the F&O list, it shall not
be considered for re-inclusion for a period of one year.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 4 What penalty is levied for first instance margin / limit violation ?
(i) 0.07% per day
(ii) 0.07% per day + Rs.5,000/- per instance
(iii) 0.07% per day + Rs.20,000/-
(iv) None of the above
Correct Answer 3 15
Question 5 Which of the following factor(s) do not affect the value of an option ?
(i) The Open Interest
(ii) The Spot Price
(iii) The volatility in underlying instruments
(iv) The strike price
Question 6 You sold a Put option on a share. The strike price of the put was
Rs.245 and you received a premium of Rs.49 from the option buyer.
Theoretically, what can be the maximum loss on this position?
(i) 206
(ii) 196
(iii) 49
(iv) NIL
Answer When you sell a Put option you believe the share will go up. If the
Explanation share goes down you will make a loss.
Theoretically the share of 245 can fall to zero. So you can make a
loss of 245.
You have received a premium of 49.
So the maximum loss can be 245 - 49 = 196
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 7 An Equity based Mutual Fund can sell Index Futures to hedge
its position - True or False ?
(i) TRUE
(ii) FALSE
Answer A Put option is In the Money when the Spot price is below the Strike price.
Explanation A Call option is In the Money when the Spot price is above the Strike price.
Question 11 The beta of SBI is 0.9. If a trader has a buy position of Rs 3,00,000
of SBI, which of the following will give him a complete hedge ?
(i) Sell Nifty of 270000
(ii) Sell Nifty of 330000
(iii) Sell Nifty of 300000
(iv) Beta of below 1 cannot be hedged
Question 13 An investor has bought 100 SBI shares at Rs 2000. How will he
hedge it ? The Current market price of SBI is Rs 2000.
(i) Buy SBI futures at Rs 1000
(ii) Buy SBI Call options of strike price 2000
(iii) Buy SBI Put options at strike price 2000
(iv) Sell SBI Put options at strike price 2000
Correct Answer He will receive the difference between the purchase price and
14 closing/expiry price
Answer On the expiry day, if the client does not square up his position, then its
Explanation automatically squared up by the exchange by the closing price of that
underlying.
The closing price is the last half hour weighted average price of the
underlying on the expiry day.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 16 As per the rules of European Call Option, it gives the right but not the
obligation to buy from the seller an underlying at the prevailing market pr
or before the expiry – True or False ?
(i) FALSE
(ii) TRUE
Question 17 If an investor buys a future contract but does not sell it till expiry
than what happens to that contract ?
(i) The investor will receive the delivery of the underlying
(ii) The exchange will square up the position by the closing price
(iii) A new buy position will be automatically be created in the next month
(iv) The client has to pay a stiff penalty
Question 18 What is the intrinsic value of a call option of SBI if the spot price
is 2000 and the strike price is 1950.
(i) 50
(ii) -50
(iii) 2000
(iv) 0
Correct Answer The exchange will square up the position by the closing price
17
Answer As per the rules in the Indian Stock markets, if the open position of a
Explanation trader is not squared up till maturity ie. last Thrusday of the month, then
the position is automatically squared up by the exchange by the closing
price.
For example - Mr A bought one Ambuja Cement contract of 1000 shares
at Rs 180 on 8th January. He does not sell it even by the last day ie. last
Thrusday of January. If the closing price of Ambuja Cement is Rs 184, his
contract will be squared up at Rs 184 and Rs 4 x 1000 = Rs 4000
( less brokerage etc. ) will be his profit. In case Ambuja Cement closes
below Rs 180, then he will incur a loss
Correct Answer 50
18
Answer Intrinsic Value of an In the money call option is the Spot Price - Strike Price.
Explanation
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 20 Mr Manoj buys a put option on PQR stock for Rs 20 of strike price
Rs 130. If on the exercise day, the spot price of PQR is Rs 175,
Mr Manoj will choose .
(i) Not to exercise the option
(ii) To exercise the option
Question 22 The Spot Price of ABC Stock is Rs. 347. Rs. 325 strike call is quoted
at Rs. 39. What is the Intrinsic Value?
(i) 0
(ii) 22
(iii) 39
(iv) 61
Correct Answer 22
22
Answer When the Strike Price is below the Spot Price, the Call Option is
Explanation 'In the Money' ie. profitable.
Intrinsic Value for a such a Call Option = Spot Price - Strike Price
= 347 - 325
= 22
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 23 Mr. Deshmukh took a short position of one contract in May Nifty
futures (Contract multiplier 50) at a price of Rs. 5600. When he closed
this position after a few days, he realized that he has made a profit
of Rs.5000. Which of the following closing actions would have
enabled him to generate this profit ?
(i) Hedging
(ii) Arbitraging
(iii) Speculation
(iv) All of the above
Question 25 If an trader does an calendar spread in index futures and the near
leg of the calendar spread expires, the Further leg becomes a regular
open position. True or False ?
(i) TRUE
(ii) FALSE
Question 26 Mr. Nayar has purchased 8 contracts of March series and sold 6
contracts of April series of the NSE Nifty futures. How many lots
will get categorized as Regular (non-spread) open positions?
(i) 14
(ii) 8
(iii) 2
(iv) 6
Correct Answer 2
26
Answer Various future contract position in the same underlying ( even at various
Explanation expiry dates ) are netted off before arriving at open postion. Here in this
case its 8 - 6 = 2.
This is because a long and a short position in the same underlying will
have no risk (if one will make profit, the other will be in a simillar loss)
and only the open position will have the risks and margins will be
collected from these open positions.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 27 The strategy in which an trader buys a call option of lower strike
price and sells another call option with a higher strike price of the
same share and same expiry date is called .
(i) Butterfly spread
(ii) Bearish spread
(iii) Calendar spread
(iv) Bullish spread
Question 28 The spot price of Grasim Industries Ltd share is Rs 2900, the call
option of Strike Price Rs 2800 is .
(i) At the money
(ii) Out of the money
(iii) In the money
(iv) None of the above
Question 30 If the price of a stock is volatile, then the option premium would
be relatively .
(i) Lower
(ii) Higher
(iii) No effect of volatility
(iv) zero
Question 32 An investor is bearish about Yes Bank and sells ten one-month
Yes Bank futures contracts at Rs.3,03,000. On the last Thursday
of the month, Yes Bank closes at Rs.300. He makes a .
(assume one lot = 100)
(i) Profit of Rs.3000
(ii) Loss of Rs.3000
(iii) Profit of Rs.300
(iv) Loss of Rs.300
Correct Answer price paid by the buyer of option to the seller of option
31
Question 34 A trader has bought 100 shares of XYZ at Rs.780 per share. He
expects the price to go up up but wants to protect himself if the
price falls. He does not want to lose more than Rs.1000 on this
long position in XYZ. What should the trader do?
(i) Place a stop loss sell order for 100 shares of XYZ at Rs.770 per share
(ii) Place a limit buy order for 100 shares of XYZ at Rs.770 per share
(iii) Place a stop loss buy order for 100 shares of XYZ at Rs.790 per share
(iv) Place a limit sell order for 100 shares of XYZ at Rs.770 per share
Correct Answer Place a stop loss sell order for 100 shares of XYZ at Rs.770 per share
34
Answer By placing a stop loss sale order, if the price falls to 770, his shares
Explanation will be automatically sold and the maximum loss he will suffer will
be Rs 10 x 100 shares ie. Rs 1000.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 35 The initial margin amount is large enough to cover a one-day loss
that can be encountered on % of the days.
(i) 100
(ii) 99
(iii) 95
(iv) 90
Correct Answer 99
35
Question 37 Client KKK has purchased 10 contracts of December series and sold
7 contracts of January series of the NSE Nifty futures. How many
lots will get categorized as regular (non-spread) open positions?
(i) 3
(ii) 5
(iii) 11
(iv) 15
Correct Answer 3
37
Question 41 In which option is the strike price not better than the market price
(i.e., price difference is not advantageous to the option holder)
and therefore it will lead to losses if the option is exercised ?
(i) In The Money
(ii) Out of the Money
(iii) Deep In the Money
(iv) All of the above
Question 47 You have sold a PUT option of strike price 100 for a premium of
Rs 12. Theoretically what can be your maximum loss ?
(i) Unlimited
(ii) Rs 112
(iii) Rs 88
(iv) Rs 12
Question 48 Which price is closest to the 3rd month future price of share if
the spot price is Rs 326 and the interest rate is 12% pa.
(i) 326
(ii) 335.8
(iii) 354.8
(iv) 362.1
Correct Answer Rs 88
47
Answer When you sell a put option you expect the price to rise.
Explanation If it falls you make a loss and theoretically the price can fall to zero.
In the above example the price can fall from 100 to zero, so the loss
can be Rs 100.
But you have received Rs 12 as premium, so the loss will be
Rs 100 - Rs 12 = Rs 88
Correct Answer Lower margin than sum of two independent legs of futures
50 contract
Question 51 You sold one Zee Ent Ltd. futures contract at Rs.260 and the lot
size is 1,000. What is your profit or loss, if you purchase the
contract back at Rs.251 ?
(i) 9000
(ii) -9000
(iii) 7500
(iv) -7500
Question 54 Impact cost is low when the liquidity in the system is poor –
True or False ?
(i) TRUE
(ii) FALSE
Question 55 If you have sold a ITC futures contract (contract multiplier 500)
at 300 and bought it back at 328, what is your gain/loss?
(i) A gain of RS. 6,800
(ii) A loss of Rs. 6,800
(iii) A loss of Rs. 14,000
(iv) A gain of Rs. 14,000
Question 58 If you are a buyer of put option, it will give you the right to sell
how much of the underlying to the writer of the option?
(i) The specified quantity or less than the specified quantity
(ii) The specified quantity or more than the specified quantity
(iii) Only the specified quantity (lot size of the option contract)
(iv) Any quantity
Correct Answer Only the specified quantity (lot size of the option contract)
58
Answer Only the quantity of the lot size as determined by the stock exchange.
Explanation
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Correct Answer
61 Only 1 and 2
Correct Answer
62 2.50%
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 63 FII Long positions in Index Derivatives should not exceed the FII's holding
of .
(i) stock futures and options
(ii) Stock futures
(iii) cash, Govt securities, t bills etc
(iv) cash
Question 65 The market wide position limit for single stock futures and stock option
contracts shall be linked to the free float market capitalization and shall
be equal to of the number of shares held by non-promoters in the
relevant underlying security.
(i) 10%
(ii) 20%
(iii) 30%
(iv) 40%
Question 66 In which options is the strike price better than the market price and
therefore its profitable to exercise the option ?
(i) At the money option
(ii) In the money option
(iii) Out of the money option
(iv) Profitable money option
Question 67 A member has two clients M1 and M2. M1 has purchased 1000 contracts
and M2 has sold 500 contracts in August XYZ futures series. What is the
outstanding liability (open position) of the member towards Clearing
Corporation in number of contracts?
(i) 500
(ii) 1500
(iii) 1000
(iv) 2500
Question 69 Which of the following is not the duty of the trading member ?
(i) Execution of Client Broker Agreement
(ii) Filling of 'Know Your Client' form
(iii) Bringing risk factors to the knowledge of client
(iv) Assisting the client to arrange for margins
Question 70 The market wide limit of open position of futures and options contracts
on a particular underlying stock should not be .
(i) 10% of free float holding
(ii) 20% of free float holding
(iii) 25% of free float holding
(iv) 30% free float holding
Question 72 Mr Dev bought a April Nifty future contract on 10th April which cost him
Rs 562000. The initial margin he had to pay was Rs 55400. On 23rd April
he sold the Nifty future at 5710. How much profit or loss did he make ?
( Nifty lot 100 )
(i) Loss of Rs 46400
(ii) Profit of 10300
(iii) Profit of Rs 9000
(iv) Profit of Rs 7800
Question 74 Arbitrage is a .
(i) Strategy used by Mutual Funds only
(ii) High Risk Strategy
(iii) Risk Free Strategy
(iv) strategy for bearish markets
Question 76 You have bought shares of Ranbaxy of Rs 1 lakh. The beta of Ranbaxy is
1.3. In order to hedge your risk you have shorted nifty of Rs 1.50 lakhs.
Which of the below is true ?
(i) You are Under Hedged
(ii) You are Over Hedged
(iii) You are perfectly hedged
(iv) Data is insufficient
Question 78 Mr Rohit has bought 8 lots of contracts of June BSE Sensex futures and
sold 6 lots of contracts of July BSE sensex futures. What is his regular
- non spread open position ?
(i) 14 lots
(ii) 2 lots
(iii) 8 lots
(iv) 6 lots
Question 79 What is the difference between Spot Price and Future Price known as ?
(i) Impact cost
(ii) Basis
(iii) Rho
(iv) Swap
Question 80 Mr. Ganesh thinks that the markets will go down, so he sell 10 lots of
index futures at 3500. His predictions come true and the index falls
and Mr. Ganesh buys back the futures contract at 3410. What is the profit
Mr. Ganesh has made if one lot of index is of 50.
(i) 35000
(ii) 45000
(iii) 55000
(iv) 65000
Question 81 An investor purchased one lot of Nifty futures at 6000. The closing price
of Nifty on that day was 5967. The margin on Nifty is 10%. What will
be the effective margin left in this contract ? Nifty lot is of 50.
(i) 30000
(ii) 28350
(iii) 29835
(iv) 25000
Question 83 You buy a PUT option of strike price 400 when the spot price is Rs 380.
This option is In the Money - True or False ?
(i) TRUE
(ii) FALSE
Correct Answer Its the difference between the intrinsic value and the premium
84
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 86 A person has bought an option so cannot lose more than the option
premium paid.
(i) False for all types of options
(ii) True only for American options
(iii) True only for European options
(iv) True for all types of options
Question 87 An option buyer pays the option premium to the option seller.
(i) TRUE
(ii) FALSE
Question 89 A trader believes that the future price of PQR company will rise and
being a smart trader he will .
(i) sell PQR futures now and buy them later when the price rises
(ii) buy PQR futures now and sell them later when it rises
(iii) wait till the price of PQR futures and cash market price become same
(iv) wait till the prices drop to the lowest level
Question 90 Mr. Singh purchases a call option on a stock at Rs. 10 per call with
strike price of Rs. 140. If on exercise date, stock price is Rs. 168 ,
ignoring transaction cost, Mr. Singh will choose
(i) To exercise the option
(ii) Not to exercise the option
(iii) May or may not depending on the balance he has in his bank account
(iv) May or may not depending on the recommendation of experts
Correct Answer buy PQR futures now and sell them later when it rises
89
Question 91 Which of the below options is the best way to manage risk in the
underlying cash market ?
(i) by speculating in the futures market
(ii) by hedging in the futures market
(iii) by playing in the options market
(iv) None of the above
Question 92 A put option gives the buyer a right to sell how much of the underlying
to the writer of the option?
(i) Only the specified quantity (lot size of the option contract)
(ii) The specified quantity or less than the specified quantity
(iii) The specified quantity or more than the specified quantity
(iv) Any quantity
Correct Answer
Only the specified quantity (lot size of the option contract)
92
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 93 The intrinsic value of a CALL option of Reliance of strike price 910 and
spot price 919 is .
(i) 10
(ii) 19
(iii) 9
(iv) 29
Question 94 The regulatory framework for derivatives markets in India have been
developed by .
(i) LC Gupta committee
(ii) JR Verma committee
(iii) Rangrajam Committee
(iv) PL Mehta Committee
Correct Answer
9
93
Answer Intrinsic Value for a Call Option is the difference between Spot Price and
Explanation Strike Price.
Correct Answer
LC Gupta committee
94
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 95 spread involves same strike, same type but different expiry
options.
(i) Vertical
(ii) Diagonal
(iii) Horizontal
(iv) Parbolical
Correct Answer
Horizontal
95
The reasoning behind horizontal spreads is that these two options would
Answer have different time values and the difference between the time values of
Explanation these two options would shrink or widen.
This is essentially a play on premium difference between two options prices
squeezing or widening
Correct Answer
National Institute of Securities Markets
96
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 97 The Client level position limits in derivative trading should not exceed
5% of the free float market capitalization or 10% of the open interest
in all derivative contracts in the same underlying stock whichever is
higher - True or False
(i) TRUE
(ii) FALSE
Correct Answer
Assigned Margin
98
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 3
Question 99 In the books of the buyer of the option, the premium paid would
be .
(i) Credited
(ii) Debited
(iii) No entry is passed
(iv) None of the above
Answer The buyer/ holder of the option is required to pay the premium. In the books
Explanation of the buyer/ holder, such premium should be debited to an appropriate
account.
In the books of the seller/ writer such premium received should be credited
to an appropriate account.
Question 2 The clearing corporation may utilize the client account margins
deposited with it for fulfilling the dues which a clearing member
may owe to the clearing corporation for the trades on the clearing
members own account. State True or False ?
(a) TRUE
(b) FALSE
Answer
Explanation An open interest is the total number of contracts outstanding (yet to
be settled) for an underlying asset.
Answer Clients money cannot be used by the Clearing or Trading member for
Explanation his trades.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 4
Question 3 A clearing member has deposited eligible liquid assets of Rs.75 lakhs.
The exchange has minimum liquid net worth requirement of Rs. 50
lakhs. The member has not entered into any transactions so far.
What is the margin available for trading. (in lakhs)
(a) 75
(b) 50
(c) 25
(d) 125
Correct Answer 3 25
Question 5 If the price of a future contract increases, the mark to market margin
account of the holder of the short position in that contract is credited
for the gain. State whether True or False ?
(a) TRUE
(b) FALSE
Answer In a short position, if the price increase their is a loss. So the mark to
Explanation market margin will be debited.
Answer Rho is the change in option price given a one percentage point change
Explanation in the risk-free interest rate.
Answer BID ASK price means Buyer and Seller price - eg Rs 100 - 101
Explanation So Ask price is the price at which the trader is prepared to sell the share.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 4
Question 10 Higher the price volatility, higher would be the initial margin
requirement - State True or False ?
(a) TRUE
(b) FALSE
Answer Only those stocks are included to be traded in the derivatives segment
Explanation which meet the SEBI / Exchange criteria for derivatives trading,
(a) TRUE
(b) FALSE
Question 12 Money and securities deposited by clients with the trading members
should be kept by them in a separate clients account - True or False ?
(a) TRUE
(b) FALSE
Question 13 All active members of the Exchange are required to make initial
contribution towards Trade Guarantee Fund of the Exchange –
State True or False ?
(a) TRUE
(b) FALSE
Question 15 In a forward contract, the party thats agrees to sell the underlying
asset on a certain specified date for a certain specified price is said
to have assumed
(a) A long position
(b) a square off position
(c) a short position
(d) a trade off position
Question 16 Mr. Hitesh is a trading member. One of his clients has purchased 12
contracts of March series index futures and another client as has sold
10 contracts of March series index futures. The exposure of Mr. Hitesh
as trading member is .
(a) grossed up at 22 contracts
(b) netted out at 2 contracts
(c) maximum of 10 and 12 which is 12 contracts
(d) The Exchange will decide to either gross up or net out the exposure
depending upon his past record
Question 17 In case of Call options, if the market price is less than the exercise
(strike) price, the option will .
(a) expire worthless
(b) seller of the option will exercise it
(c) will definitely get exercised
(d) none of the above
Question 18 Does the difference between exercise price of the option and spot
price affects option premium ? State Yes or No.
(a) Yes
(b) No
Question 19 A high initial margin level improves solvency & financial capability
of the clearing corporation - True or False ?
(a) TRUE
(b) FALSE
Question 20 An American put option gives the buyer the right but not the
obligations to sell to the writer an underlying asset at a specified
price on or before the expiry date - State whether True or False ?
(a) TRUE
(b) FALSE
Question 22 Mr A sold a put option of strike Rs.400 on PQR stock for a premium of
Rs.32. The lot size is 500. On the expiry day, PQR stock closed at
Rs. 350. What is your net profit or loss?
(a) -25000 (Loss)
(b) -9000 (Loss)
(c) 9000 (Profit)
(d) 25000 (Profit)
Question 23 In an Index Futures contract, the tick size is 0.2 of an index point &
the index multiple is Rs 50, then a tick is valued at .
(a) Rs 50
(b) Rs 100
(c) Rs 10
(d) Rs 2.50
Question 24 The securities which are placed by clearing members with the clearing
corporation as a part of liquid assets are .
(a) marked to market on a periodical basis
(b) is not marked to market as they are blue chip shares
(c) may or may not be marked to market depending on the decision of the
Stock Exchange
(d) None of the above
Correct Answer Rs 10
23
Answer Rs 50 X 0.2 = Rs 10.
Explanation Each tick movement will result in profit or loss of Rs 10 for the Index
buyer or seller resp.
Question 27 Daily Trading Price Limits define the maximum percentage by which
the price of a future contract can rise above or fall below the previous
days settlement price - State whether True or False ?
(a) TRUE
(b) FALSE
Question 28 For portfolio hedging by institutions and mutual funds, index based
derivatives are more suitable and are much more cost effective than
derivative based on individual stocks - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer strike price would be higher than the market price
34
Answer A put option is said to be In The Money when market price is lower
Explanation than strike price.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 4
Question 35 Delta measures the expected change in the option premium for a
unit change in .
(a) Volatility of underlying asset
(b) treasury interest rates
(c) time to option expiry
(d) spot price of underlying asset
Correct Answer Strike price would be lower than the market price
36
Answer A put option is said to be OTM when spot (market) price is higher than
Explanation strike price.
A call option is said to be OTM, when spot (market) price is lower than
strike price.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 4
Question 38 A trader sold on ABC Stock Futures Contract at Rs.354 & the lot size
is 900. What is your profit or loss if you purchase the contract back
at Rs.341 ?
(a) Rs 11700
(b) - Rs 11700 (Loss)
(c) Rs 8300
(d) - Rs 8300 (Loss)
Correct Answer he square of this short position by buying the September future at
39 lower price
Answer Profit can be made in a short position when the price falls and the same is
Explanation bought back.
For eg - You sold a stock at Rs 100 ie. created a short position. When price
falls to say Rs 80 and you buy it back, you make a profit of Rs 20.
In case of futures, you have to square up in the same expiry month.
Question 41 Options contracts are not symmetrical with respect to rights &
obligations of the parties involved - State True or False ?
(a) TRUE
(b) FALSE
Question 42 Time value and intrinsic value of a call option are always either
positive or zero- True or False ?
(a) TRUE
(b) FALSE
Question 43 The gain or loss is realized on daily basis due to mark to market
mechanism in which of the following contracts ?
(a) Forward Contracts
(b) Contracts in Swaps
(c) Future market contracts
(d) Equity Cash Market contracts
Question 44 Stock Brokers are allowed to fund margin requirement of their clients.
They may not collect such margins from their clients - State True or
False ?
(a) TRUE
(b) FALSE
Question 46 The seller of the put option gains if price of underlying asset
(a) Decreases
(b) Increases
(c) Does not change
(d) Both 2 and 3
Correct Answer prevent the market being unduly influenced by the activities of an
45 individual/group of investors
Answer Position limits are the maximum exposure levels which the entire market can
Explanation go up to and each Clearing Member / Trading member or investor can
go up to.
Thus no investor can take an extra ordinary large position and influence
the direction of a scrip / market.
Question 48 Mr A buys a call option with lower strike price and sells another
call option with higher strike price both on the same underlying share
and same expiration date, the strategy is called
(a) Bull Spread
(b) Bear Spread
(c) Butterfly Spread
(d) Calendar Spread
Question 49 Futures trading is considered more risky than equity trading due to .
(a) high leverage
(b) High pressure
(c) high volatility
(d) high liquidity
Question 50 Institutional investors pay higher margins than the individual investors
for derivatives trading - State True or False ?
(a) TRUE
(b) FALSE
Question 52 You have bought a futures contract and the price drops, you
will .
(a) Make a profit
(b) Make a loss
(c) given information is incomplete to arrive at a conclusion
(d) none of the above
Question 54 A naked call option means that the writer does not currently owns
the underlying - State True or False ?
(a) TRUE
(b) FALSE
Question 56 When ordinary cash dividends are declared, put option values will
decrease - State True or False ?
(a) TRUE
(b) FALSE
Question 59 The maximum possible loss for the option buyer is the premium paid ,
but the profits can be higher depending on the underlying price
movement. This is true for which type of options ?
(a) true for all types of options
(b) true for American options only
(c) true for European options only
(d) false for all types options
Question 60 If a Clearing members defaults, the margin paid on his own account
only is allowed to be used by the clearing corporation for realizing
its dues from the member. The clients margin remain unaffected –
State True or False ?
(a) TRUE
(b) FALSE
Question 61 A future contract is a very standardized contract that leaves very little
(except the price) open to negotiation - State True or False ?
(a) FALSE
(b) TRUE
Question 62 Shorter the time to maturity of the call option, higher will be the
time value - State whether True or False ?
(a) TRUE
(b) FALSE
Question 63 Mr. Anand asks his broker to buy certain number of contracts at
the market price, this instruction is called
(a) arbitrage order
(b) limit order
(c) stop loss order
(d) market order
Question 65 Any person who wishes to open a Trading Account must be given
the following documents by his trading member –
(a) Complete version of all the laws of SEBI
(b) Risk disclosure document
(c) All the rules & regulations of the exchange
(d) SEBI guidelines on the subject
Question 67 Mr. Mohan entered into a contract with Mr. Soham to buy 500 bags
of Cotton at a price of Rs 800 per bag. Delivery of goods and payment
of money will take place 4 months from now. Both Mr. Mohan and
Mr. Soham have a right as well as an obligation under this contract.
What type of contract is this?
(a) Options
(b) Forwards
(c) Futures
(d) Swaps
Question 70 If you have a long or short position in a futures contract, this can be
closed by initiating a reverse trade - True or False ?
(a) TRUE
(b) FALSE
Question 74 Investor Mr. X wants to sell 11 contracts of Feb series at Rs.6300 &
investor Mr. Y wants to sell 13 contracts of March series at Rs.6450. Lot
size is 50 for both these contracts. The initial margin is fixed at 6%.
How much initial margin is required to be collected from both these
investors(sum of initial margin of X and Y) by the broker?
(a) Rs 251550
(b) Rs 459450
(c) Rs 640000
(d) Rs 374900
Question 75 A trader has taken a short position of one contract in Sept ABC futures
(contract multiplier 50) at a price of Rs.1800. When he closed this
position after a few days, he realized that he has made a profit a
Rs.5000. Which of the foll closing actions would have enabled him
to generate the profit? ( Please ignore brokerage costs) .
(a) Buying 1 Sept ABC futures contract at 1900
(b) Buying 1 Sept ABC futures contract at 1700
(c) Selling 1 Sept ABC futures contract at 1900
(d) Selling 1 Sept ABC futures contract at 1700
Question 76 The option which gives the holder a right to buy the underlying asset
on or before a particular date for a certain price, is called as
(a) European put option
(b) American put option
(c) American call option
(d) European call option.
Question 77 A call option gives the holder a right to buy how much of the underlying
from the writer of the option?
(a) The specified quantity or less than the specified quantity
(b) The specified quantity or more than the specified quantity
(c) Only the specified quantity
(d) None of the above
Question 80 The concept in which the derivative trader gets a higher exposure
for the small portion of margin amount brought by him is called as .
(a) Arbitrage
(b) Leverage
(c) Delta Hedgeing
(d) Speculation
Correct Answer sell the shares of those specific companies and buy index futures
79
Question 81 The networth criterion for Professional clearing Members is the same
as that for Trading cum clearing members - State whether True or False ?
(a) TRUE
(b) FALSE
Question 82 Which of the following problem(s) that exist in the forward contracts are
solved by the Futures contracts ?
Question 84 A short position in a CALL option can be closed out by taking a long
position in a PUT option with same exercise date and exercise price.
(a) TRUE
(b) FALSE
Question 86 Mr. Ravi purchases 10 call option on stock at Rs. 20 per call with
strike price of Rs 350. If on exercise date, stock price is Rs. 310,
ignoring transaction cost, Mr. Ravi will choose
(a) to exercise the option
(b) not to exercise the option
(c) may or may not exercise the option depending on whether he likes the
company or not
(d) may or may not depending on whether he is in town or not
Question 88 A trader sold a call option on a share of strike price Rs. 200 and received
a premium of Rs. 12 from the option buyer. What can be his maximum
loss on this position.
(a) Rs 200
(b) Rs 188
(c) Rs 12
(d) Unlimited
Question 92 The mark-to-market margin debits for index options are made
on .
(a) weekly basis
(b) daily basis
(c) fortnightly basis
(d) every friday
Correct Answer False as the premium is paid by the buyer and not the seller
91
Question 95 Higher the interest rate, the higher the CALL option premium –
State True or False ?
(a) TRUE
(b) FALSE
Question 96 A Buyer or holder of the option is the party to the contract who has .
(a) the obligation but not the right
(b) the right but not the obligation
(c) the right and the obligation
(d) None of the above
Question 97 The Trading members on the exchanges derivatives segment are not
required to be registered with SEBI.- State whether True or False ?
(a) FALSE
(b) TRUE
Question 98 A unique principle of futures trading makes trading possible for those
who do not want to make or take delivery of underlying assets. Which
is that principle ?
(a) Traded on a recognised exchange
(b) Price uncertainty
(c) Standardisation of contracts
(d) Cash settlement
Question 99 On the National Stock Exchange, for its index futures, what would be
the opening day of its April series?
(a) Last Friday of March month
(b) Last Friday of April month
(c) Last Friday of January month
(d) Last Friday of February month
Lets assume the Jan, Feb and March series are active currently.
So that next day ie. on the last Friday of Jan, the April series will be
activated. This will be the opening day for April series. Thus we will
Question 2 Nifty is currently at 4900. An investor feels Nifty will not rise beyond
5000 in the next three months. He sells two Nifty calls of strike price
4900 at Rs 100 per lot. Because of positive indicators Nifty rises to
4950 on expiry day. What is his profit/loss ? (1 lot = 50 shares)
(i) Profit of Rs 5000
(ii) Loss of Rs 5000
(iii) Profit of Rs 10000
(iv) Loss of Rs 10000
Answer A long straddle position is created by buying a call and a put option
Explanation of same strike and same expiry.
His maximum loss will be equal to the sum of these two premiums paid.
Any significant move in either direction will result in handsome profits.
Question 9 If you sell a put option with strike of Rs. 375 at a premium of Rs.50,
how much is the maximum gain that you may have on expiry of this
position?
(i) Unlimited
(ii) Rs 50
(iii) Rs 325
(iv) None of the above
Correct Answer 9 Rs 50
Answer Seller of an option - be it Call or Put receives the premium and that shall
Explanation be his maximum profit.
Question 14 Around 60% of the trading volume on the American Stock Exchange
is from
(i) Index Futures
(ii) Index Funds
(iii) ETFs
(iv) Index Options
Question 20 Theta is .
(i) is the change in option price given a one percentage point change in
the risk-free interest rate
(ii) a measure of the sensitivity of an option price to changes in market
volatility
(iii) the change in option price given a one-day decrease in time to expiration.
(iv) speed with which an option moves with respect to price of the underlying
asset.
Correct Answer the change in option price given a one-day decrease in time to expiration.
20
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
Question 21 The basic test of whether a trade done in the future market is for
hedging or speculation is centered on the premise that there already
exist a related commercial position which is exposed to the risk due
to price fluctuations.
(i) TRUE
(ii) FALSE
Question 23 You are long in ICICI Bank Ltd futures at price Rs 1000. The prices
rises to Rs 1020 next day. The Mark to Market margin will be credited
to your account. True or False ?
(i) FALSE
(ii) TRUE
Question 25 The Option which gives its holder a positive cash flow is called
a .
(i) At the money option
(ii) Out of the money option
(iii) In the money option
(iv) Delta
(i) Options
(ii) Swaps
(iii) Debentures
(iv) Forwards
(ii) RBI
(iv) SEBI
Question 34 On exercise of the option, the seller/writer will pay the adverse
difference, between the final settlement price as on the exercise/
expiry date and the strike price. Such payment will be recognized
as a .
(i) Profit
(ii) Loss
(iii) Debt
Question 35 Are Treasury Bills included in the list of permitted liquid assets
which can be offered to Clearing Corporation by the Clearing
Members ?
(i) Yes
(ii) No
(ii) FALSE
Question 37 The Clearing Corporation can transfer client positions from one
broker member to another broker member in the event of a default
by the first broker member. No SEBI approval is required for this
action - State True or False ?
(i) TRUE
(ii) FALSE
Question 38 A short position in futures contract can be reversed only with the
same counter party to whom the contract was originally sold - State
True or False ?
(i) TRUE
(ii) FALSE
Question 39 The price at which the market maker is ready to buy is known as BID
price - State True or False ?
(i) TRUE
(ii) FALSE
Question 40 High level of initial margins deter brokers and clients from trading
in the derivatives market - State True or False ?
(i) TRUE
(ii) FALSE
Question 41 Among the given options, which one can be the main driver of the
movement of stock index ?
(i) Inflation
(i) get cancelled automatically once the trading time for the day is over
(ii) get executed the next day if its in the price range
Correct Answer get cancelled automatically once the trading time for the day is over
42 A Day order is an order which is valid for a single day on which it is entered.
Answer If the order is not executed during the day, the trading system cancels
Explanation the order automatically at the end of the day.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
(i) TRUE
(ii) FALSE
(i) TRUE
(ii) FALSE
(i) limited
(ii) unlimited
(i) TRUE
(ii) FALSE
(ii) SEBI
(iii) Exchange
Question 49 Strike price is the price per share for which the underlying security
may be purchased or sold by the option holder - State True or False ?
(i) TRUE
(ii) FALSE
Question 50 The ratio of change in delta for a unit change in the price of
underlying is called .
(i) Vega
(ii) Theta
(iii) Alpha
(iv) Gamma
Question 51 What happens when the price of the underlying rises after a future
contract is initiated ?
(i) Price changes in the underlying will not effect the price of futures
Question 52 When the price of a future contract rises, the margin account .
Question 53 When a new client opens a trading account with a trading member,
which of the following documents have to be compulsorily given
to him ?
Question 54 A trader sells a PUT option of strike Rs 100 on ABC stock for a
premium of Rs 25. On expiry day, the ABC stock closed at Rs 50.
What is the trader's profit or loss in Rs. ? ( Lot size is 1000 )
(i) 25000
(ii) -25000
(iii) 50000
(iv) -50000
Question 55 When an option moves more in the money, the absolute value of
Delta will .
(i) Increase
(ii) Decrease
Question 56 The liquid assets which are to be deposited by the clearing member
can be in the form of .
(iii) Cash, Bank Guarantees, Equity Securities and other Cash Equivalents
Correct Answer Cash, Bank Guarantees, Equity Securities and other Cash Equivalents
56
Answer Liquid Assets can be in the form of Cash, Cash Equivalents (Government
Explanation Securities, Fixed Deposits, Treasury Bills, Bank Guarantees, and Investment
Grade Debt Securities) and Equity Securities.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
Question 57 Which one of the below mentioned option will result in a Bear
Spread ?
(i) Selling a Call of a lower strike price and buying a Call of a higher strike price
(ii) Selling a Put of a lower strike price and buying a Call of a higher strike price
(iii) Selling one Call of a lower strike price and buying two Puts of a higher
strike price
Question 58 We can get high returns from many investment products in the
market in an absolutely risk free manner - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer Selling a Call of a lower strike price and buying a Call of a higher strike pri
57 Bear Spread can be created by :
Answer 1) Selling a low strike call and buying a high strike call OR
Explanation 2) Selling a low strike Put and buying a high strike Put
Remember : Bear spread involves either 2 Calls or 2 Puts and not Call
and Put.
(ii) FALSE
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
Question 62 Clearing member Ram has 6 trading members who are all in Mumbai
and Clearing member Shyam has 6 trading members who are all
outside Mumbai. Both of them have deposited same amount of
liquid assets with the clearing corporation. Which amongst the
following statement is True ?
(i) Clearing Member Ram will have a higher exposure limit than Clearing
Member Shyam
(ii) Clearing Member Shyam will have a higher exposure limit than Clearing
Member Ram
(iii) Both Ram and Shyam will have the equal exposure limits
Correct Answer Both Ram and Shyam will have the equal exposure limits
62
Answer As per Dr. L. C. Gupta Committee recommendations: Members’ exposure
Explanation should be linked to the amount of liquid assets maintained by them with
the clearing corporation.
There is no mention of any geographical limitations.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
Question 64 If the far month futures prices are less than near month futures prices,
this is known as .
(ii) Contango
(iii) Basis
(iv) Backwardation
Question 65 A trader sells a future contract and prices rises. The trader will
if he squares up the position.
(ii) FALSE
Question 67 An Equity based Mutual Fund can sell Index Futures to hedge its
position - True or False ?
(i) Currency
(ii) Securities
(iii) Gold
(iv) Commodities
Question 69 Among the following options, in which future contract, the contract
cannot be used as a means to acquire the underlying asset ?
(i) Copper
(ii) Gold
Question 70 If the price of the underlying stock of a PUT option is very volatile, .
Question 71 A trader is long on ABC stock April futures at 3100. He shall make
a loss if the futures price moves to .
(i) 3300
(ii) 3200
(iii) 3400
(iv) 3000
(iii) Only members who are registered as clearing members with the
derivative exchange
Correct Answer Only members who are registered as clearing members with the
72 derivative exchange
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
(ii) make the outcome as per SEBI and Stock market regulations
Question 75 The Risk Return profile for a Future contract is symmetric while
that of an Option contract is asymmetric - State True or False ?
(i) TRUE
(ii) FALSE
(i) a bond
For eg - If one buys a call option and the share prices go down the loss
will be limited ie. restricted to the premium paid. But if the share prices
move up, the profits can be huge/unlimited. This is known a asymmetric
return.
On the contrary in futures or cash market, the returns are symmetric ie.
equal value of profits or loss is possible.
Question 78 When a call option on an index is exercised, the call option holder
receives from the option writer an amount equal to excess of spot
price over the strike price of that call option - State True or False ?
(i) TRUE
(ii) FALSE
(i) TRUE
(ii) FALSE
Question 80 There is only CASH settlement for Nifty futures contract - State
True or False ?
(i) TRUE
(ii) FALSE
(ii) FALSE
Question 82 Investors who are called Bulls are those investors who believe the
market or stock will fall - State True or False ?
(i) TRUE
(ii) FALSE
Question 83 A Mutual Fund floats a new fund offer of a 100% equity scheme.
Till the time it invests this cash in equities, the fund can take equity
exposure by buying stock index futures - State True or False ?
(i) TRUE
(ii) FALSE
Question 84 A portfolio with 200 stocks is only half as risky as another portfolio
with 100 stocks - State True or False ?
(i) TRUE
(ii) FALSE
(ii) FALSE
Question 87 You have created a Short Position on futures contract. This can be
squared up by .
(i) TRUE
(ii) FALSE
Question 89 One can use Index Futures for hedging to eliminate or reduce
the .
(i) FALSE
(ii) TRUE
Question 91 To be eligible for options trading, the market wide position limit
(MWPL) in the stock shall not be less than .
(i) Rs 200 cr
(ii) Rs 300 cr
(iii) Rs 500 cr
(iv) Rs 600 cr
Correct Answer
Both the buyer and the seller
92
Correct Answer
50
94
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
Correct Answer
Unlimited
96
When a person buys a call option, he is bullish on that security.
Answer
Theoretically the security can rise to an unlimited level so the profits
Explanation
to the buyer of an call option can be unlimited.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
Correct Answer
Mark to Market settlement (MTM)
97
Correct Answer
by selling Nifty futures of Rs 30 lacs
98
Beta measures the sensitivity of a scrip/ portfolio vis-a-vis index movement
Answer over a period of time, on the basis of historical prices. A beta of 1 indicates
Explanation that the security's price will move with the market. A beta of less than 1
means that the security will be less volatile than the market. A beta
of greater than 1 indicates that the security's price will be more volatile
than the market. For example, if a stock's beta is 1.3, it's theoretically 30%
more volatile than the market.
So to obtain a hedge for a portfolio of shares, one has to sell Nifty futures.
The beta of a portfolio in the above case is 1.20. The portfolio value is
Rs 25 lacs.
25 Lacs x 1.20 = Rs 30 lacs. Therefore to get a complete hedge for this
portfolio, Nifty worth Rs 30 lacs have to be sold.
NISM SERIES VIII
EQUITY DERIVATIVES EXAM
QUESTION SET 5
Question 99 Who finalises the lot size and the margins in the derivative segment ?
(i) SEBI
(ii) The Stock Exchanges
(iii) The Clearing Members ie. Stock Brokers
(iv) CDSL or NSDL
Question 100 Which of the below options will lead to - Limited Profits but
potentially Unlimited Losses.
(i) Buyer of a futures contract
(ii) Seller of a future contract
(iii) Buyer of an option contract
(iv) Seller of an option contract
Correct Answer
The Stock Exchanges
99
Correct Answer
Seller of an option contract
100