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NISM Series VIII - Equity Derivatives Exam - Demo

Q 1.

Tick size depends on

The Delta of the security
Its xed by the exchange
Volume in that security
The Interest rates

Wrong Answer
Correct Answer:
Its xed by the exchange

Explanation:
Tick size is the minimum move allowed in the price quotations. Exchanges
decide the tick sizes on traded contracts as part of contract specication.
Tick size for Nifty futures is 5 paisa.

Q 2.

A buyer of Call Option

Has the obligation to take delivery of asset
Has the obligation to give delivery of asset
Has the right to buy the underlying asset
Has the right to sell the underlying asset
Correct Answer

Explanation:
CALL OPTION : An agreement that gives an investor the right (but not the
obligation) to buy a stock, bond, commodity, or other instrument at a
specied price within a specic time period.
It may help you to remember that a call option gives you the right to "call in"
(buy) an asset. You prot on a call when the underlying asset increases in
price.

Q 3.

If the price of a stock is volatile, then the option premium would be relatively
______.
Lower
Higher
No eect of volatility
zero
Correct Answer

Explanation:
Higher volatility means higher risk and higher risk means one has to pay a
higher premium.

Q 4.

All the orders entered on the Trading System of a Derivative Exchange are at
Prices exclusive of brokerage. True or False ?
False
True

Wrong Answer
Correct Answer:
True

Explanation:
The prices are exclusive ie. with out any brokerage. Brokerage is added later
and is reected in the contract note.

Q 5.

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 _______ .
Bearish Spread
Bullish Spread
Long term Investment
Buttery

Wrong Answer
Correct Answer:
Bearish Spread

Explanation:
A bear call spread is a limited prot, limited risk option strategy that can be
used when the options trader is moderately bearish on the underlying
security.
It is entered by buying call options of a certain strike price and selling the
same number of call options of lower strike price (in the money) on the same
underlying security with the same expiration month.

Q 6.

A trader buys a call and a put option of same strike price and same expiry.
This is called as _________ .
Buttery
Short Straddle
Long Straddle
Calendar Spread

Wrong Answer
Correct Answer:
Long Straddle

Explanation:
To do a long straddle strategy one has to buy a call and a put option of the
same strike price and expiry. Together, they produce a position which will
lead to prots if the market / stock is very volatile and it makes a big move either up or down.
For eg- A person buys a Rs 200 call at Rs 30 and a Rs 200 put at Rs 20 of a
stock. If the stock rises signicantly the call will rise greatly but his put will
fall by maximum Rs 20. So he makes a good prot. If the stock falls
signicantly, he loses his call money buy gains greatly in the put option as it
rises.
Thus the Long Straddle is used when a trader expects a big move in the stock
- in any direction is ok.

Q 7.

A ____________ is created by shorting a call and a put option of same strike

and same expiry.
Long Straddle
Short Straddle
Bullish spread
None of the above

Wrong Answer
Correct Answer:
Short Straddle

Explanation:
A Short Stradlle strategy carried out by holding a short position in both a call
and a put that have the same strike price and expiration date. He sells a call
and a put so that he can prot from the premiums.The maximum prot is the
amount of premium collected by writing the options.
The short straddle is a risky strategy an investor uses when he or she
believes that a stock's price will not move up or down signicantly. Because
of its riskiness, the short straddle should be employed only by advanced
traders due to the unlimited amount of risk associated with a very large move
up or down.

Q 8.

Mr A buys a August futures contract of ICICI Bank at Rs 900. On the last

Thursday of the month ie. expiry, the last traded price in August futures is Rs
912 and the closing price in cash / spot market is Rs 910. What is the prot /
loss of Mr A if his position is sq-up by the exchange. Market lot of ICICI Bank
is 250.
Rs 3000
Rs 2500
Rs -3000
Rs -2500
Correct Answer

Explanation:
As Mr A has not squared up his position, the exchane will do it and the same
is done at the CASH MARKET CLOSING PRICE.
So Buying Price - Rs 900
Sq Up price - Rs 910
Prot of Rs 10 x 250 lot = Rs 2500

Q 9.

A long position in a CALL option can be closed by taking a short position in

PUT option.
False
True
Correct Answer

Explanation:
A long position in any option can be closed by selling that option and not in
any other way.
So a long position in a CALL option can be closed by selling that CALL option.

Q 10.

An exchange traded option after maturity __________ .

Can be traded in the spot market
Can be traded for next 7 days
Cannot be traded
None of the above

Wrong Answer
Correct Answer:
Cannot be traded

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