📊 NISM Series V-DChapter 17 of 22⚖ 9 of 150 marks weightage
Ch.17: Strategies using Equity Futures and Equity Options
Practice questions for NISM-Series-VD: Mutual Fund - Specialised Investment Fund Distributors Certification Examination, Chapter 17: Strategies using Equity Futures and Equity Options — covering hedging and arbitrage with futures, and the full range of option strategies (spreads, straddles, strangles, covered calls, collars, butterflies, protective puts, put-call parity, and delta hedging). Carries 9 out of 150 marks. The exam has 150 MCQs, 60% passing score, and −10% negative marking per wrong answer.
41
MCQ
41
Total Qs
9
Exam Marks
60%
Pass Score
-10%
Neg. Marking
What You Will Learn in This Chapter
Hedging (long/short) and arbitrage (cash-and-carry, reverse, calendar spread) using futures contracts
Vertical, horizontal and diagonal option spreads for bullish and bearish views
Straddles and strangles for volatility-based views, and their risk-reward profiles
Covered calls, collars, butterfly spreads and protective puts — and why they're called 'synthetic' positions
Put-call parity arbitrage, delta hedging, and interpreting open interest and the put-call ratio
AShorts a low-strike call (high premium) and goes long a higher-strike call (lower premium), starting with a net inflow
BBuys a low-strike call and sells nothing else
CShorts both a call and a put at different strikes
DOnly buys puts, never calls
Q2MCQHardBull Call Spread
A trader buys a 17,500 call for Rs.185 and sells a 17,800 call for Rs.61 (bull call spread). The maximum profit, maximum loss, and BEP are:
AMax profit Rs.124; max loss Rs.176; BEP 17,624
BMax profit Rs.176; max loss Rs.124; BEP 17,624
CMax profit unlimited; max loss Rs.124; BEP 17,500
DMax profit Rs.61; max loss Rs.185; BEP 17,800
Q3MCQMediumBull Put Spread
A bullish vertical spread using puts (bull put spread) is constructed by:
ABuying a higher-strike put and selling a lower-strike put
BShorting a higher-strike put (higher premium received) and buying a lower-strike put (lower premium paid) as insurance
CBuying two puts at the same strike
DShorting both a call and a put at the same strike
Q4MCQHardButterfly Spread
A butterfly spread using only calls is built with which combination of positions?
ALong one low-strike call, short two middle-strike calls, long one high-strike call — all same expiry
BLong two low-strike calls, short one high-strike call
CLong a call and a put at the same strike
DShort one call and long one put, different strikes
Q5MCQMediumCalendar Spread Arbitrage
Calendar spread arbitrage is generally described in the workbook as a:
AHigh-risk, high-return directional bet
BLow-risk, low-return strategy with no directional bet, since opposite positions are taken in both contracts
CStrategy that guarantees unlimited profit
DStrategy usable only on illiquid, thinly-traded contracts
Q6MCQHardCalendar Spread Arbitrage
A stock trades at Rs.120; near-month futures at Rs.121.30, mid-month futures at Rs.121.50. If the fair prices are Rs.120.80 and Rs.121.61 respectively (interest rate ~8% p.a.), what arbitrage action is indicated?
ABuy both futures contracts, since both look cheap
BShort the near-month futures (relatively overpriced) and go long the mid-month futures (relatively underpriced)
CSell both futures contracts
DNo action, since the spread is already fair
Q7MCQHardCash-and-Carry Arbitrage
Stock A trades at Rs.1,500 (cash) and Rs.1,550 (3-month futures), with cost of carry ~9% p.a. If the fair futures price works out to Rs.1,534.13, and an arbitrageur buys 100 shares and sells 1 futures contract (multiplier 100), the risk-free profit is closest to:
ARs.500
BRs.1,587
CRs.3,413
DRs.5,000
Q8MCQMediumCash-and-Carry Arbitrage
Cash-and-carry arbitrage is triggered when:
AThe futures price is below its fair/theoretical price
BThe futures price is above its fair/theoretical price, making it profitable to buy the underlying and sell futures
CThe spot and futures prices are exactly equal
DThere is no cost of carry at all
Q9MCQMediumCollar
A collar strategy is built by adding which position to a covered call, to limit its downside risk?
AA long call at a higher strike
BA long put at a lower (out-of-the-money) strike
CA short put at the same strike as the call
DAnother short call at a different strike
Q10MCQHardCovered Call
Why is a covered call position described in the workbook as a 'synthetic short put'?
ABecause it has unlimited upside and limited downside, exactly like a short put
BBecause it restricts the upside (gains capped at the call strike plus premium) while still carrying unlimited downside risk on the stock — the same payoff shape as a short put
CBecause it involves literally selling a put option as part of the strategy
DBecause covered calls can never be profitable
Q11MCQMediumCovered Call
A covered call strategy involves:
ABuying a stock and simultaneously selling a call option on it, to earn extra income while holding the stock
BSelling a stock short and buying a call to hedge
CBuying a call and a put on the same stock
DBuying two calls at different strikes
Q12MCQHardDelta Hedging
A trader is short 10 lots (lot size 50) of ATM calls with delta 0.50 on a stock. To create a delta-neutral position, how many lots of the stock futures (delta ≈1) should they go long?
A10 lots
B5 lots
C2.5 lots
D20 lots
Q13MCQMediumDelta Hedging
Why must a delta-hedged position be continuously rebalanced ('dynamic hedging')?
ABecause delta is fixed and never changes
BBecause option delta itself changes as the underlying price moves, so the hedge ratio must be adjusted to stay delta-neutral
CBecause exchanges require rebalancing every hour by regulation
DBecause futures contracts expire daily
Q14MCQHardHedging a Portfolio with Index Futures
A portfolio worth Rs.90,00,000 has a beta of 1.3. Index futures trade at 17,700 with a lot size of 50. How many index futures contracts should be shorted to hedge this portfolio?
AApproximately 10 contracts
BApproximately 13 contracts
CApproximately 18 contracts
DApproximately 25 contracts
Q15MCQMediumHedging with Futures
An investor plans to buy shares one month from now (funds unavailable today) and fears the price will rise before then. To lock in today's effective price, they should:
ASell the stock futures contract today (short hedge)
BBuy the stock futures contract today (long hedge)
CBuy a put option and do nothing else
DWait and take no position until the funds arrive
Q16MCQMediumHedging with Futures
A person planning to sell shares in the future, worried the price may fall before the sale date, should hedge by:
ATaking a long position in stock futures
BTaking a short position in stock futures
CBuying a call option only
DDoing nothing, since futures cannot hedge sales
Q17MCQHardHedging with Futures
An investor takes a long hedge in ABC Ltd futures at Rs.457.30 (lot size 1,500) to lock in a planned purchase. If the stock rises to Rs.520 and futures are squared off at Rs.521.20, what is the approximate effective cost per share?
ARs.520.00 (the spot price)
BRs.457.30 (exactly the futures entry price)
CRs.456.10 (close to the entry futures price, after netting the futures gain against the higher cash cost)
DRs.63.90 (just the futures gain per share)
Q18MCQMediumHorizontal and Diagonal Spreads
A diagonal spread differs from a horizontal spread in that it combines options with:
AThe same strike and same expiry
BDifferent strikes AND different expiry dates
CThe same underlying is not required
DOnly European-style options are allowed
Q19MCQEasyHorizontal and Diagonal Spreads
A horizontal spread (also called a time spread or calendar spread in the options context) involves options with:
AThe same strike price but different expiry dates
BDifferent strike prices but the same expiry date
CBoth different strikes and different expiries
DDifferent underlyings
Q20MCQHardLong Strangle
With the stock at 6,100, a trader buys a 6,200 call for Rs.145 and a 6,000 put for Rs.140 (long strangle). The maximum loss and its range are:
AMax loss Rs.285, occurring anywhere the underlying expires between 6,000 and 6,200
BMax loss unlimited on both sides
CMax loss Rs.5, occurring only exactly at 6,100
DMax loss Rs.145 only, regardless of where the stock settles
Q21MCQHardNew Formulation of Open Interest
Per SEBI's new Future-Equivalent Open Interest (FutEq OI) formulation, how is open interest for an options position adjusted, compared to the old 'notional OI' method?
AOptions positions are excluded from OI entirely
BThe options position size is multiplied by its delta value, so a long call position of 500 units with delta 0.5 contributes FutEq OI of 250, not 500
COnly futures positions count towards OI now
DFutEq OI simply doubles the notional OI for all positions
Q22MCQMediumOpen Interest and Trading Signals
A rising futures price combined with declining open interest typically indicates:
ANew bullish long positions being built
BShort-covering — existing short positions being squared up
CA build-up of new short positions
DExisting long positions being squared up
Q23MCQHardOpen Interest and Trading Signals
Which combination of futures price and open interest (OI) movement signals a bullish trend, per the workbook?
ARising futures price with declining OI (short-covering)
BRising futures price with rising OI
CFalling futures price with rising OI
DFalling futures price with falling OI
Q24MCQMediumOption Spreads — Overview
An options 'spread' strategy, as defined in the workbook, involves:
ABuying and selling options on different underlyings
BCombining options on the same underlying and of the same type (call or put) but with different strikes and/or maturities
COnly ever buying options, never selling
DA strategy that always has unlimited risk
Q25MCQMediumProtective Put
A protective put strategy is constructed by:
ABuying a stock and simultaneously buying a put option on it
BSelling a stock and buying a call
CSelling both a call and a put
DBuying a call and selling the same stock short
Q26MCQHardProtective Put
Why is the protective put described as a 'synthetic long call'?
ABecause it literally involves buying a call option instead of a put
BBecause its payoff shape — limited loss (capped at the premium paid) with unlimited upside — mirrors a long call position exactly
CBecause protective puts always expire worthless
DBecause it requires no premium outlay at all
Q27MCQHardPut-Call Parity
The put-call parity principle describes the relationship between:
AFutures and options on the same stock
BCall options on the same stock with different strike prices
CCall and put options on the same stock with the same strike price and same maturity
DPut and call options with different strikes and different maturities
Q28MCQHardPut-Call Parity Arbitrage
A stock trades at Rs.1,251; a 1-month, 1,240-strike call trades at Rs.47.50; interest rate is 8% p.a. Put-call parity gives a fair put price of Rs.28.26, but the put trades at Rs.23.15. What does an arbitrageur do?
ANothing — the put is fairly priced
BBuy the underpriced put and the stock, and simultaneously short the call, funding the net outflow by borrowing
CShort the put and the stock, and buy the call
DOnly buy the put, ignoring the stock and call legs
Q29MCQHardPut-Call Ratio (PCR)
A Put-Call Ratio (PCR) greater than 1 is generally interpreted, as a contrarian indicator, as:
AA bearish signal, since put OI exceeds call OI
BA bullish signal, since higher put OI/selling suggests option sellers don't expect the market to fall
CIrrelevant to market sentiment
DAlways indicating an imminent market crash
Q30MCQMediumPut-Call Ratio (PCR)
The Put-Call Ratio (PCR) is calculated as:
ACall open interest (or volume) divided by put open interest (or volume)
BPut open interest (or volume) divided by call open interest (or volume)
CThe difference between call and put premiums
DThe sum of call and put open interest
Q31MCQMediumReverse Cash-and-Carry Arbitrage
Reverse cash-and-carry arbitrage is executed when:
AThe futures price trades at a premium reflecting a very high cost of carry
BThe futures price trades at a discount to the cash price (negative cost of carry), so a trader buys futures and sells the underlying
CThere is no arbitrage opportunity present
DThe underlying cannot be borrowed under any circumstances
Q32MCQMediumSample Question (Official NISM)
Which of the following is described in the workbook as a hedged position?
AShort straddle
BShort strangle
CCovered call
DProtective put
Q33MCQMediumSample Question (Official NISM)
Which of the following situations indicates a bullish trend in the underlying?
AA rising futures price along with falling open interest
BA falling futures price along with rising open interest
CA rising futures price along with rising open interest
DA falling futures price along with falling open interest
Q34MCQMediumSample Question (Official NISM)
An investor buys a call option with a lower strike price and sells another call option with a higher strike price, both on the same underlying share and expiry date. This strategy is called:
ABullish spread
BBearish spread
CButterfly spread
DCalendar spread
Q35MCQHardSample Question (Official NISM)
Put-call parity refers to the relationship between:
AFutures and options on the same stock
BCall options on the same stock with the same maturity but different strike prices
CPut and call options on the same stock but different strike prices and different maturity
DCall and put options on the same stock with the same strike prices and same maturity
Q36MCQMediumShort Straddle
A short straddle position has which risk-return profile?
ALimited profit (capped at premiums received), unlimited loss if the underlying moves sharply in either direction
BUnlimited profit, limited loss
CBoth profit and loss are always zero
DLimited profit and limited loss, like a spread
Q37MCQMediumStraddles
A long straddle is created by:
ABuying a call and a put with the same strike and same expiry date
BBuying a call and selling a put at different strikes
CSelling both a call and a put at the same strike
DBuying two calls at different strikes
Q38MCQHardStraddles
A stock is at Rs.6,000. ATM call premium is Rs.257, ATM put premium is Rs.136. For a long straddle, the maximum loss and the two break-even points (BEPs) are:
AMax loss Rs.393 (at strike); BEPs at 5,607 and 6,393
BMax loss Rs.121 (sum halved); BEPs at 5,800 and 6,200
CMax loss unlimited; no BEPs exist
DMax loss Rs.257; BEPs at 6,000 only
Q39MCQMediumStrangles
How does a strangle differ from a straddle in its construction?
AStrangles use the same strike price for call and put, like straddles
BStrangles use different (typically out-of-the-money) strike prices for the call and put, resulting in a lower upfront cost than a straddle
CStrangles can only be constructed using futures, not options
DThere is no difference between a straddle and a strangle
Q40MCQMediumTrading with Futures
Why do stock/index futures typically offer a much higher return on investment (ROI) than an outright cash-market purchase, for the same directional bet?
ABecause futures never lose money
BBecause of leverage — the cash outlay is only the margin, a fraction of the full contract value
CBecause futures are exempt from brokerage
DBecause futures always trade below the cash price
Q41MCQMediumVertical Spreads
A vertical spread is created using options that have:
AThe same strike price but different expiry dates
BThe same expiry date but different strike prices
CBoth different strikes and different expiry dates
DDifferent underlyings entirely
About this content: These practice questions are based on the
NISM-Series-VD: Mutual Fund - Specialised Investment Fund Distributors Certification Examination Workbook
published by the National Institute of Securities Markets (NISM), Mumbai (March 2026 edition).
NISM is a SEBI-established institution. Questions cover Chapter 17: Strategies using Equity Futures and Equity Options with verified answers and explanations.
BullWiser is an independent exam preparation platform — not affiliated with NISM, SEBI or AMFI.
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