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In this we dive into the NISM Exam VIII Series, providing you with essential tips, strategies, and insights to help you ace your exam. Whether you're a beginner or looking to refine your knowledge, we've got you covered! Join us as we explore key concepts and answer commonly asked questions to ensure you're fully prepared
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EduExam Prep
Here are 30 multiple-choice questions (MCQs) based on the NISM Series VIII – Equity Derivatives exam. The questions progress in difficulty from simple to very hard.
Simple Level
What is the primary purpose of an equity derivative?
a) To invest in stocks directly
b) To hedge or speculate on stock price movements
c) To earn fixed interest income
d) To invest in commodities
Answer: b) To hedge or speculate on stock price movements
Which of the following is an example of an equity derivative?
a) Mutual Fund
b) Fixed Deposit
c) Futures and Options
d) Corporate Bonds
Answer: c) Futures and Options
In a Call Option, the buyer has the right to:
a) Sell the underlying asset at a fixed price
b) Buy the underlying asset at a fixed price
c) Hold the asset forever
d) Avoid paying any margin
Answer: b) Buy the underlying asset at a fixed price
The underlying asset in an equity futures contract is usually:
a) Gold
b) Equity Shares or Stock Index
c) Commodities
d) Real Estate
Answer: b) Equity Shares or Stock Index
What is the lot size in derivatives trading?
a) The maximum number of shares that can be traded in one contract
b) A fixed number of shares per contract as determined by the exchange
c) The minimum number of shares required to open a demat account
d) The brokerage fees for trading futures and options
Answer: b) A fixed number of shares per contract as determined by the exchange
Moderate Level
Which regulatory body oversees equity derivatives trading in India?
a) Reserve Bank of India (RBI)
b) Securities and Exchange Board of India (SEBI)
c) Ministry of Finance
d) National Stock Exchange (NSE)
Answer: b) Securities and Exchange Board of India (SEBI)
What happens to an option contract if it is not exercised before expiry?
a) It is automatically renewed for another month
b) It becomes worthless
c) It is converted into a futures contract
d) The seller of the option has to pay double margin
Answer: b) It becomes worthless
What is the maximum loss for a Call Option buyer?
a) Unlimited
b) Limited to the premium paid
c) Twice the premium paid
d) Equal to the stock price
Answer: b) Limited to the premium paid
Which of the following factors increase the price of an option?
a) Increase in volatility
b) Decrease in time to expiry
c) Decrease in interest rates
d) Decrease in stock price
Answer: a) Increase in volatility
A Put Option gives the holder the right to:
a) Buy shares at a fixed price
b) Sell shares at a fixed price
c) Receive dividends on stock
d) Hold shares for an unlimited time
Answer: b) Sell shares at a fixed price
Hard Level
Which of the following is not a valid options trading strategy?
a) Covered Call
b) Iron Condor
c) Butterfly Spread
d) Arbitrage Discount
Answer: d) Arbitrage Discount
What does mark-to-market (MTM) mean in derivatives trading?
a) Adjusting daily profits/losses in a futures contract
b) Calculating the total capital in a trading account
c) Finding the intrinsic value of an option
d) Determining the dividend yield of an index
Answer: a) Adjusting daily profits/losses in a futures contract
If a trader sells a Call Option without holding the underlying stock, it is called:
a) Naked Call Writing
b) Covered Call
c) Bull Put Spread
d) Protective Put
Answer: a) Naked Call Writing
What is implied volatility in options trading?
a) The expected future volatility of the stock
b) The actual past volatility of the stock
c) The difference between put and call prices
d) The interest rate used to discount options premium
Answer: a) The expected future volatility of the stock
Which of the following statements is true about European-style options?
a) They can be exercised at any time before expiry
b) They can only be exercised on the expiration date
c) They always have a higher premium than American options
d) They are only available for commodities
Answer: b) They can only be exercised on the expiration date
Very Hard Level
What is the put-call parity relationship in options?
a) Call Premium + Present Value of Strike Price = Put Premium + Stock Price
b) Call Premium = Put Premium
c) Call Price + Interest Rate = Put Price
d) Call Premium - Put Premium = Dividends
Answer: a) Call Premium + Present Value of Strike Price = Put Premium + Stock Price
A trader executes a Straddle strategy when:
a) The market is expected to move sharply in either direction
b) The market is expected to remain stable
c) The trader wants to hedge an existing position
d) The trader expects a gradual upward movement
Answer: a) The market is expected to move sharply in either direction
What is delta hedging in options?
a) Adjusting the portfolio to maintain a delta-neutral position
b) Hedging against currency fluctuations
c) Buying only deep-in-the-money options
d) Avoiding margin calls
Answer: a) Adjusting the portfolio to maintain a delta-neutral position
Which option Greeks measure sensitivity to changes in implied volatility?
a) Delta
b) Theta
c) Vega
d) Gamma
Answer: c) Vega
If a trader sells a strangle strategy, what does it involve?
a) Selling an out-of-the-money call and an out-of-the-money put
b) Buying an in-the-money call and an in-the-money put
c) Selling deep-in-the-money options
d) Buying a protective put
Answer: a) Selling an out-of-the-money call and an out-of-the-money put
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