Introduction to Options – Options on Equities and Currencies
22 questions. Each answer is explained.
Question 1 of 10Practice · Series XIII — Common Derivatives
0 right · 0 wrong · 10 to go
A–D or 1–4 to answer · Enter or → for the next question · ← to go back
Learn these topics
More units in NISM Series XIII
- Basics of Derivatives (Equity, Currency and Interest Rate)6
- Introduction to the Underlying Markets24
- Introduction to Forwards and Futures20
- Strategies Using Futures24
- Option Trading Strategies – Strategies using Equity Options and Currency options4
- Introduction to Trading, Clearing, Settlement & Risk Management25
- Legal and Regulatory Environment14
- Accounting and Taxation of Derivatives6
- Sales Practices, Code of Conduct and Investor Protection Measures5
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XIII Common Derivatives
Exam rules read on NISM's site on 17 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 17 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 22 questions on Introduction to Options – Options on Equities and Currencies, with answers
Q1What right does the buyer of a call option obtain?
Option A. The right to sell the underlying at the strike under contract terms
Why it is wrong: The right to sell belongs to a put buyer.
Option B. The obligation to buy the underlying on any trading day
Why it is wrong: The call buyer has a right rather than an exercise obligation.
Option C. A guaranteed dividend from the company that issued the shares
Why it is wrong: A call option does not promise dividends.
Option D. The right to buy the underlying at the strike under contract terms — Correct answer
Answer: D. A call option gives its buyer the right to buy the specified underlying exposure at the agreed strike subject to contract settlement terms. Remember: A call grants a buying right to its holder.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse a call buyer with a call writer. Distinguish buying rights from selling rights.
XIII-075easyconceptual
Q2What right does the buyer of a put option obtain?
Option A. The right to buy the underlying at the strike under contract terms
Why it is wrong: A buying right is associated with a call.
Option B. An obligation to buy the underlying at the strike
Why it is wrong: A put buyer has a right, not a required purchase.
Option C. The right to sell the underlying at the strike under contract terms — Correct answer
Option D. A guaranteed coupon from the underlying issuer
Why it is wrong: Put options do not promise bond coupons.
Answer: C. A put gives the holder a right to sell the specified underlying exposure under the contract's settlement terms. Remember: Puts provide a selling right.
Hint, shown before you answer in practice mode: Common mistake: Do not swap call and put exercise rights. Recall the direction of a put option.
XIII-076easyconceptual
Q3What does an option premium represent to the person who buys the contract?
Option A. The fixed face value of the underlying equity share
Why it is wrong: An equity face value is not an option premium.
Option B. The amount paid by the buyer for the option contract — Correct answer
Option C. A guaranteed gain for the option buyer
Why it is wrong: Option buyers can lose their premium.
Option D. The annual coupon of an associated bond
Why it is wrong: A bond coupon is a different cash flow.
Answer: B. The option premium is the price paid by the option buyer and received by the writer, before costs. Remember: Premium is the contract's purchase price.
Hint, shown before you answer in practice mode: Common mistake: A high premium does not guarantee future profit. Think about the cost of acquiring the option right.
XIII-077easyconceptual
Q4How does an American-style option differ from a European-style option?
Option A. It can only be exercised on the expiry date itself
Why it is wrong: Expiry-only exercise describes a European option.
Option B. It can be exercised before expiry as allowed by its terms — Correct answer
Option C. It has no strike price
Why it is wrong: American options still have an exercise price.
Option D. Its value cannot change before expiry
Why it is wrong: Option values can change before exercise.
Answer: B. An American-style option allows exercise before or at expiry under its contract terms. Remember: Exercise style is about permitted timing.
Hint, shown before you answer in practice mode: Common mistake: American style is not about the currency of denomination. Focus on when exercise is permitted.
XIII-078easyconceptual
Q5What does an option writer take on when selling an uncovered option?
Option A. An unconditional right to ignore exercise
Why it is wrong: Writers cannot simply ignore valid contractual exercise.
Option B. A guaranteed maximum profit equal to the underlying price
Why it is wrong: Profit is not guaranteed and is bounded by premium for a standalone writer.
Option C. Direct ownership of the underlying security in every case
Why it is wrong: Writing an option does not automatically give ownership.
Option D. An obligation to perform if the option is exercised against them — Correct answer
Answer: D. An option writer receives premium but accepts the contractual settlement obligation if required. Remember: Option writers receive premium in exchange for obligation.
Hint, shown before you answer in practice mode: Common mistake: Selling options is not riskless income. Compare a holder's right with a writer's duty.
XIII-079easyconceptual
Q6When is a call option at the money?
Option A. When the underlying price is far above its strike price
Why it is wrong: A call far above its strike is in the money.
Option B. When the underlying price is far below its strike price
Why it is wrong: A call far below its strike is out of the money.
Option C. When the underlying price approximately equals its strike price — Correct answer
Option D. When the option has no trading volume
Why it is wrong: Trading volume does not define moneyness.
Answer: C. An at-the-money call has an underlying price at or near its strike price. Remember: Moneyness compares underlying price with strike.
Hint, shown before you answer in practice mode: Common mistake: An option can be at the money even with a premium. Compare spot price with the strike.
XIII-080easyconceptual
Q7In options pricing, what market sensitivity does the Greek called delta primarily estimate?
Option A. Change in option value for one day of time passing
Why it is wrong: Time sensitivity is associated with theta.
Option B. Change in option value for a volatility change
Why it is wrong: Volatility sensitivity is associated with vega.
Option C. Change in option value for a market interest-rate change
Why it is wrong: Interest-rate sensitivity is associated with rho.
Option D. Change in option value for a small move in the underlying price — Correct answer
Answer: D. Delta measures the first-order sensitivity of option value to the underlying price. Remember: Delta links option price to underlying price.
Hint, shown before you answer in practice mode: Common mistake: Do not use delta as a time-decay measure. Think about which input is moved.
XIII-081easyconceptual
Q8A call has strike ₹100 and its underlying trades at ₹113. What is the call's intrinsic value per unit?
Option A. ₹13 — Correct answer
Option B. ₹0
Why it is wrong: A call in the money has positive intrinsic value.
Option C. ₹100
Why it is wrong: ₹100 is the strike, not intrinsic value.
Option D. ₹113
Why it is wrong: ₹113 is the underlying price, not intrinsic value.
Answer: A. Call intrinsic value = max(113 − 100, 0) = ₹13. Remember: Call intrinsic value cannot be negative.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse spot price with option value. Compare underlying price and call strike.
XIII-082mediumnumerical
Q9A put has strike ₹120 and its underlying trades at ₹105. What is the put's intrinsic value per unit?
Option A. ₹15 — Correct answer
Option B. ₹0
Why it is wrong: The put is in the money rather than worthless intrinsically.
Option C. ₹105
Why it is wrong: ₹105 is the underlying price.
Option D. ₹120
Why it is wrong: ₹120 is the exercise price.
Answer: A. Put intrinsic value = max(120 − 105, 0) = ₹15. Remember: Put intrinsic value rises as the underlying falls below strike.
Hint, shown before you answer in practice mode: Common mistake: Do not subtract strike from spot for put intrinsic value. A put benefits from a strike above the current underlying price.
XIII-083mediumnumerical
Q10A call premium is ₹19 and intrinsic value is ₹12. What is its time value?
Option A. ₹12
Why it is wrong: ₹12 is intrinsic value already given.
Option B. ₹19
Why it is wrong: ₹19 is the total premium.
Option C. ₹7 — Correct answer
Option D. ₹31
Why it is wrong: ₹31 incorrectly adds intrinsic value to premium.
Answer: C. Time value = premium − intrinsic value = ₹19 − ₹12 = ₹7. Remember: Option premium includes intrinsic and time value.
Hint, shown before you answer in practice mode: Common mistake: Do not treat the total premium as time value. Separate intrinsic value from the remaining option premium.
XIII-084mediumnumerical
Q11What is the maximum expiry loss per unit for a fully paid long call purchased at ₹9?
Option A. Unlimited rupee loss
Why it is wrong: Unlimited loss is not the profile of a fully paid long call.
Option B. ₹9 — Correct answer
Option C. ₹0 in every outcome
Why it is wrong: A worthless option can lose the entire premium.
Option D. The full underlying share price
Why it is wrong: The underlying share price is not automatically at risk.
Answer: B. A long call's maximum expiry loss is its ₹9 premium per unit, excluding other costs. Remember: Purchased options have a premium-limited loss.
Hint, shown before you answer in practice mode: Common mistake: Do not apply the naked call writer's loss profile to a buyer. Think about the initial cost of a purchased option.
XIII-085mediumconceptual
Q12A call is bought for ₹8 with strike ₹100. What expiry underlying price gives zero profit before costs?
Option A. ₹108 — Correct answer
Option B. ₹92
Why it is wrong: ₹92 subtracts the premium instead of adding it.
Option C. ₹100
Why it is wrong: ₹100 ignores the paid premium.
Option D. ₹116
Why it is wrong: ₹116 counts the premium twice.
Answer: A. Long call break-even = ₹100 + ₹8 = ₹108. Remember: Long call break-even is above strike by premium.
Hint, shown before you answer in practice mode: Common mistake: At-the-money expiry does not repay a call premium. Account for strike and paid premium.
XIII-086mediumnumerical
Q13A put is bought for ₹7 with strike ₹120. What expiry underlying price gives zero profit before costs?
Option A. ₹113 — Correct answer
Option B. ₹127
Why it is wrong: ₹127 adds instead of subtracting the premium.
Option C. ₹120
Why it is wrong: ₹120 ignores the cost of the option.
Option D. ₹107
Why it is wrong: ₹107 subtracts too much from the strike.
Answer: A. Long put break-even = ₹120 − ₹7 = ₹113. Remember: Long put break-even lies below strike by the premium.
Hint, shown before you answer in practice mode: Common mistake: Do not use the long call break-even rule for a put. A long put must earn back the premium through an intrinsic payoff.
XIII-087mediumnumerical
Q14Which Greek estimates an option's value loss from time passing, with other inputs held constant?
Option A. Delta
Why it is wrong: Delta measures underlying-price sensitivity.
Option B. Theta — Correct answer
Option C. Vega
Why it is wrong: Vega measures implied-volatility sensitivity.
Option D. Rho
Why it is wrong: Rho measures interest-rate sensitivity.
Answer: B. Theta represents option-price sensitivity to the passage of time. Remember: Theta tracks time sensitivity.
Hint, shown before you answer in practice mode: Common mistake: Time decay is not the same as a change in implied volatility. Which factor changes as expiry gets closer?
XIII-088mediumconceptual
Q15A call has delta 0.60. If its underlying rises ₹2, what is its approximate first-order premium change?
Option A. Decrease of ₹1.20
Why it is wrong: A positive call delta does not imply a fall for an underlying rise.
Option B. Increase of ₹0.60
Why it is wrong: ₹0.60 applies only a ₹1 underlying move.
Option C. Increase of ₹1.20 — Correct answer
Option D. Increase of ₹3.20
Why it is wrong: ₹3.20 adds instead of multiplying the sensitivity.
Answer: C. Approximate change = delta × underlying move = 0.60 × ₹2 = ₹1.20 upward. Remember: Delta gives a local approximation, not an exact forecast.
Hint, shown before you answer in practice mode: Common mistake: Remember gamma can alter delta during a larger move. Use delta as a small-move estimate.
XIII-089mediumnumerical
Q16With other inputs fixed, what usually happens to a standard option's value when implied volatility increases?
Option A. It generally increases — Correct answer
Option B. It necessarily becomes zero
Why it is wrong: Greater volatility does not force value to zero.
Option C. It falls by exactly the volatility increase
Why it is wrong: Option value does not fall by the exact volatility change.
Option D. It becomes equal to the strike price
Why it is wrong: Strike price is not the option premium.
Answer: A. Higher implied volatility generally increases the values of standard calls and puts, other inputs equal. Remember: Standard options generally have positive vega.
Hint, shown before you answer in practice mode: Common mistake: A high-volatility option is not automatically profitable to buy. Consider uncertainty and possible option payoff.
XIII-090mediumconceptual
Q17Which Greek describes how an option's delta changes for a small move in the underlying?
Option A. Theta
Why it is wrong: Theta measures the effect of time.
Option B. Gamma — Correct answer
Option C. Vega
Why it is wrong: Vega measures the effect of volatility.
Option D. Rho
Why it is wrong: Rho measures the effect of interest rates.
Answer: B. Gamma measures the rate of change of delta as the underlying price moves. Remember: Gamma shows how quickly delta changes.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse delta with gamma. Think of the sensitivity of a sensitivity.
XIII-091mediumconceptual
Q18An underlying trades at ₹105. A call has strike ₹110 and positive premium. Which moneyness category applies?
Option A. In the money
Why it is wrong: A call is in the money when spot exceeds strike.
Option B. At the money
Why it is wrong: Spot and strike are not approximately equal in this example.
Option C. Deep in the money
Why it is wrong: Deep in the money requires the opposite ordering.
Option D. Out of the money — Correct answer
Answer: D. The call is out of the money because buying at ₹110 is worse than the ₹105 underlying price. Remember: Out-of-the-money calls can still have time value.
Hint, shown before you answer in practice mode: Common mistake: Positive premium does not imply positive intrinsic value. Compare the exercise price with the market price.
XIII-092mediumapplication
Q19A call with strike ₹110 is purchased for ₹8. At expiry the underlying is ₹130. What is profit per unit?
Option A. ₹20
Why it is wrong: ₹20 is payoff before deducting premium.
Option B. ₹28
Why it is wrong: ₹28 adds the premium to payoff.
Option C. ₹12 — Correct answer
Option D. ₹8
Why it is wrong: ₹8 is the initial premium, not the expiry profit.
Answer: C. Call intrinsic payoff = max(130 − 110, 0) = ₹20. Net profit = ₹20 − ₹8 = ₹12. Remember: Option payoff and net profit are different.
Hint, shown before you answer in practice mode: Common mistake: Always include premium when calculating option profit. Subtract the paid premium from the expiry exercise benefit.
XIII-093hardnumerical
Q20A trader writes a put with strike ₹95 for ₹6 premium. At expiry the underlying is ₹85. What is profit per unit?
Option A. ₹6
Why it is wrong: ₹6 ignores the in-the-money settlement obligation.
Option B. ₹10
Why it is wrong: ₹10 is the intrinsic loss before premium.
Option C. −₹4 — Correct answer
Option D. −₹16
Why it is wrong: −₹16 incorrectly adds premium to the loss.
Answer: C. Short put profit = premium − max(strike − spot, 0) = 6 − (95 − 85) = −₹4. Remember: Option writers must account for exercise loss net of premium.
Hint, shown before you answer in practice mode: Common mistake: Premium received does not ensure a profitable short put. Combine premium received with the writer's intrinsic obligation.
XIII-094hardnumerical
Q21A put with strike ₹120 costs ₹9. At expiry its underlying is ₹90. What is the buyer's net profit per unit?
Option A. ₹21 — Correct answer
Option B. ₹30
Why it is wrong: ₹30 ignores the paid premium.
Option C. ₹9
Why it is wrong: ₹9 is only the acquisition cost.
Option D. ₹39
Why it is wrong: ₹39 adds premium instead of deducting it.
Answer: A. Put intrinsic payoff = 120 − 90 = ₹30. Net profit = 30 − 9 = ₹21. Remember: Long put profit is intrinsic payoff less premium.
Hint, shown before you answer in practice mode: Common mistake: A large decline still requires deducting option cost. Calculate put exercise value and deduct cost.
XIII-095hardnumerical
Q22In a one-period model, a ₹100 share becomes ₹120 or ₹90. Interest is zero and a ₹100-strike call expires then. What is the no-arbitrage call value?
Option A. ₹10.00
Why it is wrong: ₹10 assumes equal probabilities rather than pricing probabilities.
Option B. ₹13.33
Why it is wrong: ₹13.33 uses two-thirds as the up probability.
Option C. ₹20.00
Why it is wrong: ₹20 ignores the chance of zero payoff.
Option D. ₹6.67 — Correct answer
Answer: D. Risk-neutral up probability = (100 − 90) ÷ (120 − 90) = 1/3. Call payoffs are ₹20 and ₹0. Value = 20 × 1/3 = approximately ₹6.67. Remember: A binomial price weights contingent payoffs using risk-neutral probabilities.
Hint, shown before you answer in practice mode: Common mistake: Do not use an unprovided subjective probability. Use risk-neutral probabilities rather than assuming equal chances.
XIII-096hardnumerical
Introduction to Options – Options on Equities and Currencies: common questions
How many practice questions are there on Introduction to Options – Options on Equities and Currencies?
22 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 10 practice topics for NISM Series XIII, which has 150 questions in total.
Are these real NISM Series XIII questions on Introduction to Options – Options on Equities and Currencies?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XIII?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Option Trading Strategies – Strategies using Equity Options and Currency options
4 questions on Option Trading Strategies – Strategies using Equity Options and Currency options. Its quiz opens on that unit.
Open Option Trading Strategies – Strategies using Equity Options and Currency optionsPaper Trading Try it on the practice trading desk