Unit ko samjho · NISM Series V-D
Introduction to Options
13 questions is unit mein
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Is unit mein kya hai
- Which description best captures the buyer’s contractual right in a plain call option on a share?
- A put option has a strike of ₹500 while the underlying share is ₹480. What is its moneyness and intrinsic value per share? Assumptions: The supplied prices refer to the same observation time.
- A call has strike ₹620, the underlying is ₹640 and its premium is ₹35. Using time value = premium − intrinsic value, what is the time value per share? Assumptions: Use the decomposition expressly supplied.
- A trader buys a hypothetical 40-unit call contract with strike ₹500 for ₹18 per unit. At expiry the underlying settles at ₹510. Ignoring fees, what is the net profit or loss on the option? Assumptions: The multiplier is hypothetical and all fees are ignored.
- A trader writes a put covering 100 units, with strike ₹200, and receives ₹7 per unit. The underlying settles at ₹180 at expiry. Assume cash settlement and no charges. What is the writer’s net result? Assumptions: The position is cash-settled. The 100-unit quantity is hypothetical. Costs are excluded.
- An investor pays ₹15 per unit for one standalone call covering 60 units. There is no borrowed money, no other position and no fee. What is the maximum loss on the option itself if it is held to expiry? Assumptions: This is a standalone fully paid call. No borrowing, fees or other exposures apply.
- A contract is explicitly described as a European-style option. What does that exercise style mean?
- A call has delta 0.60. For a small move, use change in option price ≈ delta × change in the underlying, holding other factors unchanged. The underlying rises ₹5. What is the estimated option-price change per unit? Assumptions: The move is small and all other pricing inputs are held fixed.
- For a small underlying-price rise of ₹2, an option’s delta changes from 0.40 to 0.50. Using average gamma ≈ change in delta ÷ change in underlying price, what is the approximate gamma over that move? Assumptions: Use the average-sensitivity approximation supplied for the stated small interval.
- In a standard model for plain European calls and puts with positive time remaining before expiry, suppose only expected volatility increases while spot, strike, interest rates, dividends and time to expiry remain fixed. What is the usual effect on the values of both options?
- An option has theta of −₹2.50 per unit per day and vega of ₹6 per unit for a one-percentage-point rise in implied volatility. Over two days, implied volatility rises by 0.80 percentage points and the underlying is unchanged. Use a linear estimate, hold the Greeks fixed and ignore other effects. What is the estimated total value change for 100 long option units? Assumptions: Use fixed Greeks and a linear estimate. Vega is per one percentage point of implied volatility.
- In a one-period model, a non-dividend-paying share costs ₹100 and ends at either ₹120 or ₹90. The risk-free rate for the period is zero. Use risk-neutral up probability p = (100 − 90) ÷ (120 − 90). A European call has strike ₹100. What is its model value, rounded to two decimals? Assumptions: Use the one-period model and supplied risk-neutral formula. There are no dividends or financing costs.
- An analyst enters an observed option premium, spot, strike, interest rate, dividends and time to expiry into a pricing model, then solves for the volatility input that reproduces the premium. What has the analyst estimated?
Zaroori ideas
Practice bank se · 1
Which description best captures the buyer’s contractual right in a plain call option on a share?
A call gives its buyer a choice to buy at the agreed strike subject to the exercise conditions. The premium pays for that contractual right. It does not itself buy the underlying shares. Remember: An option right and an underlying ownership interest are different.
Hint Separate the call buyer’s right from a put right and a futures obligation.
V-D-099Practice bank se · 2
A put option has a strike of ₹500 while the underlying share is ₹480. What is its moneyness and intrinsic value per share? Assumptions: The supplied prices refer to the same observation time.
The put permits sale at ₹500 when the underlying is ₹480, giving intrinsic value max(500 − 480, 0) = ₹20. A positive intrinsic value makes this put in the money. Remember: describes exercise value, not total trade profit after premium.
Hint For a put, compare the right to sell at the strike with the current price.
V-D-100Practice bank se · 3
A call has strike ₹620, the underlying is ₹640 and its premium is ₹35. Using time value = premium − intrinsic value, what is the time value per share? Assumptions: Use the decomposition expressly supplied.
Intrinsic value = max(₹640 − ₹620, 0) = ₹20. The remaining ₹35 − ₹20 = ₹15 is the time-value component under the stated decomposition. Remember: Premium and intrinsic value are not interchangeable.
Hint A call’s intrinsic value is the positive part of spot minus strike.
V-D-101Practice bank se · 4
A trader buys a hypothetical 40-unit call contract with strike ₹500 for ₹18 per unit. At expiry the underlying settles at ₹510. Ignoring fees, what is the net profit or loss on the option? Assumptions: The multiplier is hypothetical and all fees are ignored.
The expiry payoff is (₹510 − ₹500) × 40 = ₹400. Premium paid is ₹18 × 40 = ₹720, so the net result is ₹400 − ₹720 = −₹320. Remember: Distinguish moneyness from profitability after premium.
Hint Being in the money does not necessarily recover the premium.
V-D-102Practice bank se · 5
A trader writes a put covering 100 units, with strike ₹200, and receives ₹7 per unit. The underlying settles at ₹180 at expiry. Assume cash settlement and no charges. What is the writer’s net result? Assumptions: The position is cash-settled. The 100-unit quantity is hypothetical. Costs are excluded.
The writer receives ₹700 premium but owes (₹200 − ₹180) × 100 = ₹2,000. Net result = ₹700 − ₹2,000 = −₹1,300. Remember: Premium received does not cap the option writer’s potential loss.
Hint For the writer, subtract the put payoff from premium received.
V-D-103Practice bank se · 6
An investor pays ₹15 per unit for one standalone call covering 60 units. There is no borrowed money, no other position and no fee. What is the maximum loss on the option itself if it is held to expiry? Assumptions: This is a standalone fully paid call. No borrowing, fees or other exposures apply.
The largest loss on the option itself is the premium paid: ₹15 × 60 = ₹900. If it expires without value, that premium is not recovered. Remember: A buyer’s limited option loss can still equal the entire premium investment.
Hint The buyer has already paid for the contractual right.
V-D-104Practice bank se · 7
A contract is explicitly described as a European-style option. What does that exercise style mean?
European-style exercise is restricted to the contract’s expiry exercise point. A contract can use this style regardless of where it trades or the currency in which it is quoted. Remember: Do not infer geography from an option exercise-style label.
Hint Exercise style concerns the timing of the holder’s exercise right.
V-D-105Practice bank se · 8
A call has delta 0.60. For a small move, use change in option price ≈ delta × change in the underlying, holding other factors unchanged. The underlying rises ₹5. What is the estimated option-price change per unit? Assumptions: The move is small and all other pricing inputs are held fixed.
Estimated change = 0.60 × ₹5 = ₹3 per unit. This is a local approximation. Larger moves or changes in volatility and time can produce a different actual change. Remember: is a sensitivity estimate, not a guaranteed price forecast.
Hint Use the stated local sensitivity as a multiplier.
V-D-106Practice bank se · 9
For a small underlying-price rise of ₹2, an option’s delta changes from 0.40 to 0.50. Using average gamma ≈ change in delta ÷ change in underlying price, what is the approximate gamma over that move? Assumptions: Use the average-sensitivity approximation supplied for the stated small interval.
Delta rises by 0.50 − 0.40 = 0.10. Dividing by the ₹2 move gives approximate average of 0.10 ÷ 2 = 0.05 per rupee. Remember: Gamma describes how delta changes as the underlying moves.
Hint Compute the change in delta first.
V-D-107Practice bank se · 10
In a standard model for plain European calls and puts with positive time remaining before expiry, suppose only expected volatility increases while spot, strike, interest rates, dividends and time to expiry remain fixed. What is the usual effect on the values of both options?
Plain calls and puts generally have positive sensitivity to volatility under the stated standard-model conditions. A wider range of possible outcomes increases the value of a right whose holder can decline unfavourable exercise. Remember: A volatility view is different from a directional price view.
Hint Volatility measures the range of possible outcomes rather than a bullish or bearish direction.
V-D-108Practice bank se · 11
An option has theta of −₹2.50 per unit per day and vega of ₹6 per unit for a one-percentage-point rise in implied volatility. Over two days, implied volatility rises by 0.80 percentage points and the underlying is unchanged. Use a linear estimate, hold the Greeks fixed and ignore other effects. What is the estimated total value change for 100 long option units? Assumptions: Use fixed Greeks and a linear estimate. Vega is per one percentage point of implied volatility.
contributes −₹2.50 × 2 = −₹5 per unit. contributes ₹6 × 0.80 = ₹4.80, so the combined change is −₹0.20 × 100 = −₹20. Remember: State Greek units carefully, especially percentage points versus percentage changes.
Hint Add the two sensitivity effects per unit, then multiply by quantity.
V-D-109Practice bank se · 12
In a one-period model, a non-dividend-paying share costs ₹100 and ends at either ₹120 or ₹90. The risk-free rate for the period is zero. Use risk-neutral up probability p = (100 − 90) ÷ (120 − 90). A European call has strike ₹100. What is its model value, rounded to two decimals? Assumptions: Use the one-period model and supplied risk-neutral formula. There are no dividends or financing costs.
The call pays ₹20 in the up state and zero in the down state. The supplied p is 10/30 = 1/3. With no discounting, its model value is (1/3) × ₹20 = ₹6.67. Remember: Risk-neutral valuation weights payoffs under the model. It is not a claim about actual outcome probabilities.
Hint Find the payoff in each state, then weight it by the supplied risk-neutral probability.
V-D-110Practice bank se · 13
An analyst enters an observed option premium, spot, strike, interest rate, dividends and time to expiry into a pricing model, then solves for the volatility input that reproduces the premium. What has the analyst estimated?
is the volatility parameter consistent with the observed premium and the specified model inputs. It depends on the chosen model and quote and may differ from later realised volatility. Remember: Implied and historical volatility are different measurements.
Hint The model is being inverted from price to one of its inputs.
V-D-111Moneyness describes where an option's strike sits relative to the current level of the underlying.
Aage padhoDelta is the rate at which an option's premium changes for a one-unit change in the underlying.
Aage padhoGamma is the rate at which an option's delta changes as the underlying moves.
Aage padhoTheta is the rate at which an option's premium erodes as one day passes.
Aage padhoVega measures how much an option's theoretical price changes when implied volatility changes.
Aage padhoIV full form is implied volatility.
Aage padho