NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 1

If one makes does a calendar spread contract in index futures, then it attracts_________

(a) Lower margin than sum of two independent legs of futures contract

(b) No margin need to be paid for calendar spread positions

(c) Higher margin than sum of two independent legs of futures contract

(d) Same margin as sum of two independent legs of futures contract

Question 2 An exchange traded option after maturity __________ .

(a) Can be traded in the spot market

(b) Can be traded for next 7 days

(c) Cannot be traded

(d) None of the above

Correct Answer 1 Lower margin than sum of two independent legs of futures contract

Answer

Explanation

Calendar spread position is a combination of two positions in futures on the same underlying -

long on one maturity contract and short on a different maturity contract.

When the market fluctuates, if there is a loss in the long position then there will be an almost

equal profit in short postion.

So Calendar spreads carry no market risk - hence lower margins are adequate.

Calendar spread carries on only basis risk. Basis risk means both the contracts will not

fluctuate identically.

Correct Answer 2 Cannot be traded

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 3 A trader Mr. Raj wants to sell 10 contracts of June series at Rs.5200 and

a trader Mr. Rahul wants to buy 5 contracts of July series at Rs. 5250.

Lot size is 50 for both these contracts. The Initial Margin is fixed at 10%.

They both have their accounts with the same broker. How much Initial

Margin is required to be collected from both these investors by the

broker ?

(a) Rs 2,60,000

(b) Rs 1,31,250

(c) Rs 3,91,250

(d) Rs 1,28,750

Question 4 The Spot Price of ABC Stock is Rs. 347. Rs. 325 strike call is quoted at Rs. 39. What is the

Intrinsic Value?

(a) 0

(b) 22

(c) 39

(d) 61

Correct Answer 3 Rs 3,91,250

Answer

Explanation

Payment of Initial Margin by a broker cannot be netted against two or more

clients. So he will have to pay the margin for the open position of each of his

clients.

So margin payable for Mr. Raj is : 10 x 5200 x 50 at 10% = Rs 2,60,000

Margin payable for Mr. Rahul is : 5 x 5250 x 50 at 10% = Rs 1,31,250

Total = Rs 3,91,250.

Correct Answer 4 22

Answer

Explanation

When the Strike Price is below the Spot Price, the Call Option is '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 CERTIFICATION

DEMO TEST

Question 5 Tick size depends on

(a) The Delta of the security

(b) Its fixed by the exchange

(c) Volume in that security

(d) The Interest rates

Question 6 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

Correct Answer 5 Its fixed by the exchange

Answer

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.

Correct Answer 6 TRUE

Answer

Explanation

Derivatives market and mainly the options market are difficult to understand

when compared to cash markets.

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 7 Mr R wants to sell 17 contracts of January series at Rs.4550 and Mr S wants to sell 20

contracts of February series at Rs. 4500. Lot size is 50. The Initial Margin is fixed at

9%. How much Initial Margin is required to be collected from both these investors by

the broker?

(a) Rs 3,48,075

(b) Rs 4,05,000

(c) Rs 5,87,500

(d) Rs 7,53,075

Question 8 When you buy a put option on a stock you are owning, this strategy is

called _____________ .

(a) Straddle

(b) writing a covered call

(c) calender spread

(d) protective put

Correct Answer 7 Rs 7,53,075

Answer

Explanation

The Broker has to collect -

From Mr. R : 17 x 4550 x 50 x 9% = Rs 3,48,075

From Mr. S : 20 x 4500 x 50 x 9% = Rs 4,05,000

Therefore the total margin to be collected is 348075 + 405000 = Rs 7,53,075

Correct Answer 8 protective put

Answer

Explanation

Protective Put is a a risk-management strategy that investors can use to guard

against the loss of unrealized gains.

The put option acts like an insurance policy - it costs money, which reduces

the investor's potential gains from owning the security, but it also reduces his

risk of losing money if the security declines in value.

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 9 OTC derivative market is less regulated market because these

transactions occur in private among qualified counterparties, who are

supposed to be capable enough to take care of themselves. True or False

(a) FALSE

(b) TRUE

Question 10 A member has two clients Rohit and Mohit. Rohit has purchased 100

contracts and Mohit has sold 300 contracts in March Tata Steel futures

series. What is the outstanding liability (open Position) of the member

towards Clearing Corporation in number of contracts?

(a) 100

(b) 300

(c) 400

(d) 200

Correct Answer 9 TRUE

Answer

Explanation

In an OTC market, no exchange is involved.

Correct Answer 10 400

Answer

Explanation

For a member ie. Stock Broker, the liability will be the sum of all the contracts

of all his clients. The contracts cannot be netted inbetween two clients. So in

this case the sum of contracts is 100 + 300 = 400 contracts.

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NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST