Nism Series Viii Equity Derivatives Certification Exam 2.Aspx

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NISM Series VIII - Equity Derivatives Exam - Demo

Q 1.

Tick size depends on – The Delta of the security Its fixed by the exchange Volume in that security The Interest rates

  Wrong Answer Correct Answer: Its fixed 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 specification. 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 specified price within a specific time period. It may help you to remember that a call option gives you the right to "call in" (buy) an asset. You profit 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 effect 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 reflected 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 Butterfly

  Wrong Answer Correct Answer: Bearish Spread

Explanation: A bear call spread is a limited profit, 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 pu t option of same strike price and same expiry. This is called as _________ . Butterfly 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 profits 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 significantly the call will rise greatly but his put will fall by maximum Rs 20. So he makes a good profit. If the stock falls significantly, 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 ca ll and a put that have the same strike price and expiration date. He sells a call and a put so that he can profit from the premiums.The maximum profit 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 significantly. 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 Augu st futures contract of ICICI Bank at Rs 900. On the last Thursday of the m onth ie. expiry, the last traded price in A ugust futures is Rs 912 and the closing price in cash / spot market is Rs 910. What is the profit / 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 Profit of Rs 10 x 250 lot = Rs 25 00

Q 9.

A long position in a CALL option can b e 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 w ay. 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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