Commodity Options
22 questions. Each answer is explained.
Question 1 of 10Practice · Series XVI — Commodity 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 XVI
- Introduction to Commodity Markets15
- Commodity Futures22
- Commodity Indices12
- Uses of Commodity Derivatives23
- Trading Mechanism13
- Clearing Settlement and Risk Management of Commodity Derivatives20
- Accounting and Taxation8
- Legal & Regulatory Environment of Commodity Derivatives8
- Code of Conduct and Investor Protection Measures7
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 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 XVI Commodity Derivatives
Exam rules read on NISM's site on 3 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 3 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 Commodity Options, with answers
Q1A warehouse owner buys a put on a commodity to protect a future sale price. What is the option right being acquired?
Option A. The obligation to buy the underlying at the strike whenever its price falls
Why it is wrong: This resembles the obligation of an assigned put writer, not the holder.
Option B. The right to receive every increase in the underlying’s market price
Why it is wrong: That is not the put’s payoff direction. Its intrinsic value increases as the underlying falls below strike.
Option C. The obligation to sell the underlying immediately on buying the put
Why it is wrong: Purchasing the right does not itself require an immediate sale of the commodity.
Option D. The right to sell the specified underlying at the strike, under the option’s terms — Correct answer
Answer: D. A purchased put protects against a falling underlying price by providing a conditional selling right. A put concerns selling the underlying at its strike. The holder pays premium for that right rather than undertaking the seller’s option obligation. The exact exercise and settlement mechanism depends on whether the underlying is goods or a futures contract. Buying the option alone is not immediate delivery. Remember: Call holders have a buying right. Put holders have a selling right.
Hint, shown before you answer in practice mode: Common mistake: Confusing an option buyer’s right with the writer’s obligation.
XVI-020easyconceptual
Q2A commodity-futures call has strike ₹7,000, underlying futures price ₹7,180 and premium ₹245 per unit. What are its intrinsic value and residual time value per unit?
Option A. ₹65 and ₹180
Why it is wrong: This reverses the intrinsic and time-value amounts.
Option B. ₹245 and ₹180
Why it is wrong: The full premium cannot also be counted as intrinsic while adding another ₹180.
Option C. ₹180 and ₹65 — Correct answer
Option D. ₹0 and ₹245
Why it is wrong: The call is in the money because futures exceed the strike.
Answer: C. Intrinsic value measures the favourable underlying-versus-strike difference. The remaining premium is time value in this stated example. Call intrinsic value = max(₹7,180 − ₹7,000, 0) = ₹180. Residual time value = ₹245 − ₹180 = ₹65. These are per-unit amounts, not multiplied contract amounts. Remember: Premium and intrinsic value are not synonyms.
Hint, shown before you answer in practice mode: Common mistake: Reporting the full traded premium as the immediate intrinsic value.
XVI-021mediumnumerical
Q3A call with strike ₹600 costs ₹35 per unit. At expiry the underlying is ₹620. On a cash-equivalent intrinsic-value basis, what is the buyer’s net result per unit, ignoring costs and financing?
Option A. ₹15 profit after recovering premium
Why it is wrong: This reverses the sign of the net ₹15 loss.
Option B. ₹15 loss despite being in the money — Correct answer
Option C. ₹20 profit because it is in the money
Why it is wrong: ₹20 is gross intrinsic value before subtracting the ₹35 premium.
Option D. ₹35 loss because the option is out of the money
Why it is wrong: The option is not out of the money, and its ₹20 value reduces the premium loss.
Answer: B. Moneyness describes intrinsic value, while investment profit also includes the premium paid. The option has ₹20 intrinsic value because ₹620 exceeds the ₹600 strike. It is in the money. Net result = ₹20 − ₹35 = −₹15 per unit. Its break-even is ₹635, so an in-the-money expiry can still leave a net loss. Remember: An option can finish in the money without reaching the buyer’s break-even.
Hint, shown before you answer in practice mode: Common mistake: Using the strike rather than strike plus premium as a call buyer’s break-even.
XVI-022mediumnumerical
Q4A trader buys 2 puts covering 100 units each, with strike ₹950 and premium ₹28 per unit. Expiry underlying is ₹900. Intrinsic value is realised in cash equivalent, and total charges are ₹400. What is net profit?
Option A. ₹9,600
Why it is wrong: It subtracts charges but omits the premium paid.
Option B. ₹5,200
Why it is wrong: It incorrectly treats the total charge as a per-lot or reversed cash flow.
Option C. ₹4,000 — Correct answer
Option D. ₹4,400
Why it is wrong: It excludes the ₹400 charges.
Answer: C. Net option profit includes the payoff, the total premium and the stated transaction costs. Intrinsic value = (₹950 − ₹900) × 200 = ₹10,000. Premium paid = ₹28 × 200 = ₹5,600. Net profit = ₹10,000 − ₹5,600 − ₹400 = ₹4,000. No extra exercise-stage futures result is added because the question uses realised intrinsic-value equivalence. Remember: Convert every per-unit amount to the total quantity before adding fixed charges.
Hint, shown before you answer in practice mode: Common mistake: Mixing per-unit premium with total contract payoff.
XVI-023mediumnumerical
Q5A call writer receives ₹12 per unit on 500 units at strike ₹400. At exercise the underlying future is ₹438, and the resulting futures position is immediately closed at that price. Ignoring all other costs, what is the writer’s net result?
Option A. ₹19,000 loss
Why it is wrong: This is the exercise loss before crediting premium.
Option B. ₹13,000 loss — Correct answer
Option C. ₹6,000 profit
Why it is wrong: This ignores the exercised call’s liability.
Option D. ₹13,000 profit
Why it is wrong: This reverses the writer’s net loss into a gain.
Answer: B. An option writer keeps the premium but must also recognise the settlement liability when the option is exercised. Assignment of the written call creates the obligation economically equivalent to selling at ₹400 while the underlying future is ₹438. Closing the resulting short future loses ₹38 × 500 = ₹19,000. Premium received = ₹12 × 500 = ₹6,000. Net result = ₹6,000 − ₹19,000 = −₹13,000. Remember: Premium received is not the writer’s final profit until liabilities are included.
Hint, shown before you answer in practice mode: Common mistake: Treating an in-the-money written option as though it expired worthless.
XVI-024mediumnumerical
Q6A hypothetical option premium is ₹1.80 per kg. One lot represents 5 tonnes. How much premium is paid for 3 lots, excluding charges? Use 1 tonne = 1,000 kg.
Option A. ₹27
Why it is wrong: This omits the tonne-to-kg conversion.
Option B. ₹9,000
Why it is wrong: This pays for only one five-tonne lot.
Option C. ₹27,000 — Correct answer
Option D. ₹2,70,000
Why it is wrong: This makes the total ten times too big, as if the premium were ₹18 per kg.
Answer: C. An option’s quoted premium must be multiplied by the underlying quantity represented by all lots. Total quantity = 3 × 5 × 1,000 = 15,000 kg. Premium paid = ₹1.80/kg × 15,000 kg = ₹27,000. The number of contracts is not the number of kg. Remember: Premium quotation units matter just as much as futures quotation units.
Hint, shown before you answer in practice mode: Common mistake: Multiplying premium by lot count while omitting the lot quantity.
XVI-025easynumerical
Q7Before expiry, a call’s strike equals its underlying futures price, and its quoted premium is positive. Which statement is correct?
Option A. The equal strike and futures prices require the premium to be zero
Why it is wrong: There is time remaining and the question states a positive traded premium.
Option B. Its intrinsic value must equal its positive premium
Why it is wrong: The favourable price difference is zero even though premium is positive.
Option C. Its intrinsic value is zero, but the option can still have time value — Correct answer
Option D. A positive premium proves that the call is already in the money
Why it is wrong: Premium is not the test for in-the-money status.
Answer: C. At-the-money refers to equality of the underlying and strike, not equality of the premium to zero. Immediate intrinsic value is max(F − K, 0), which is zero at F = K. Before expiry, potential future favourable movements can support a positive premium. In this example the premium is residual time value. Remember: Moneyness ignores what you paid for the option.
Hint, shown before you answer in practice mode: Common mistake: Using option premium to decide whether the underlying is above the strike.
XVI-026easyconceptual
Q8A commodity option has a futures contract as its underlying. When a long put is exercised at strike ₹2,400, what underlying position is created for the put holder under the stated devolvement mechanism?
Option A. A short futures position opened at the original option premium
Why it is wrong: The premium is not the price at which the underlying future opens.
Option B. A long futures position opened at ₹2,400
Why it is wrong: A long future corresponds to a buying obligation rather than the long put’s selling right.
Option C. Immediate ownership of physical goods in every case
Why it is wrong: A futures position is created first, and physical delivery is not automatic for every option exercise.
Option D. A short futures position opened at ₹2,400 — Correct answer
Answer: D. A put holder’s selling right translates into a short underlying futures position when a futures option is exercised. The long put provides a right to sell the futures contract at the strike. Exercising it therefore opens a short futures position at ₹2,400. The option premium is a separate cash flow. Physical delivery depends on the underlying future and subsequent position management, not merely on the name of the option. Remember: Translate a futures-option right into the direction of the resulting future.
Hint, shown before you answer in practice mode: Common mistake: Confusing the underlying future with immediate physical goods.
XVI-027easyconceptual
Q9A trader has written a put on a commodity future. The put is exercised by its holder and assigned to the trader. Which obligation does the writer acquire at the strike?
Option A. A short position in the underlying future
Why it is wrong: A short future would be the exercised long put holder’s position, not the assigned writer’s.
Option B. A new long put with the same premium
Why it is wrong: Assignment does not purchase another option for the writer.
Option C. A long position in the underlying future — Correct answer
Option D. No position because the writer already received premium
Why it is wrong: Receiving premium is compensation for an obligation, not a discharge of it.
Answer: C. The writer takes the opposite side of the exercised option holder’s right. A put holder sells the underlying future at the strike. The assigned put writer must take the buying side. Thus the writer receives a long futures position at the strike. Margin and later futures settlement can then become relevant even though option premium was received earlier. Remember: On assignment, a short put becomes long the futures underlying.
Hint, shown before you answer in practice mode: Common mistake: Remembering only the premium receipt and forgetting post-assignment exposure.
XVI-028mediumconceptual
Q10Why should a participant distinguish a commodity option on goods from an option on a commodity future before expiry?
Option A. A futures option never creates any position after exercise
Why it is wrong: Exercise of a futures option can create a futures position and associated obligations.
Option B. The underlying and exercise-settlement obligations can differ — Correct answer
Option C. An option on goods has no defined commodity quantity
Why it is wrong: Goods options still specify the amount of the underlying.
Option D. The two names always describe identical delivery obligations
Why it is wrong: One contract concerns goods and the other a future, so the mechanisms cannot be assumed identical.
Answer: B. The identity of the underlying determines what right is exercised and what settlement arrangements apply. An option on goods concerns the goods directly under the contract’s delivery mechanism. A futures option can devolve into an underlying futures position. The participant must read the exact exercise, delivery and margin terms instead of assuming that every commodity option settles as a cash-only premium trade. Remember: Read the underlying and settlement mechanism, not just the word “option”.
Hint, shown before you answer in practice mode: Common mistake: Assuming that closing an option and exercising it have the same operational result.
XVI-029mediumconceptual
Q11A European-style commodity option has one month remaining and can be traded in a liquid secondary market. What does “European-style” restrict?
Option A. Whether the option’s premium is allowed to change in the market during the month
Why it is wrong: A restriction on exercise timing does not freeze the option’s market premium.
Option B. The nationality of the option holder, so only investors from Europe may hold it
Why it is wrong: Exercise style is not the investor’s citizenship.
Option C. When the option can be exercised, not whether it can be sold before expiry — Correct answer
Option D. Any sale of the option to another trader before its expiry date
Why it is wrong: It confuses exercise with a market sale.
Answer: C. Exercise uses a contractual right against the writer. Selling an existing option transfers the market position. European-style exercise takes place at expiry under the option’s terms. That exercise restriction does not by itself prohibit a secondary-market sale. An owner may close the option through an available market trade before expiry. Execution still depends on liquidity and the contract’s trading rules. Remember: Exercise, offsetting sale and expiry are different events.
Hint, shown before you answer in practice mode: Common mistake: Assuming that a European option must be held until expiry.
XVI-030mediumconceptual
Q12Two analysts use the same option-pricing model and all the same inputs except volatility. One varies volatility until the model value equals the observed market premium. What has been estimated?
Option A. The past standard deviation of the commodity’s daily returns
Why it is wrong: Historical volatility is measured from past returns rather than obtained by matching an option premium.
Option B. The option’s delta, worked out without relying on any model
Why it is wrong: Delta is price sensitivity to the underlying, not the volatility parameter being solved for.
Option C. A guaranteed level of future realised volatility for the commodity
Why it is wrong: An inferred market parameter is not a guaranteed future outcome.
Option D. Implied volatility, based on that model and its other inputs — Correct answer
Answer: D. Implied volatility is inferred by matching an option price under a specified model. The observed option premium is the target and volatility is the unknown parameter adjusted to match it. The result depends on the model and the remaining inputs. It is not a promise that future realised price fluctuations will match the estimate. Remember: Implied volatility is price-implied and model-dependent, not a certainty about future volatility.
Hint, shown before you answer in practice mode: Common mistake: Treating implied volatility as a guaranteed forecast.
XVI-094mediumconceptual
Q13A portfolio is long 2 calls with delta +0.60 each and short 3 puts whose long-put delta is −0.40 each. Every option covers 100 units of the same future. Using delta only, what is the approximate gain for a ₹1 rise in that future?
Option A. ₹360
Why it is wrong: This overstates the sum of the signed components.
Option B. ₹120
Why it is wrong: This counts only the calls or only the short puts.
Option C. ₹240 — Correct answer
Option D. ₹0
Why it is wrong: This fails to reverse the delta of the written puts.
Answer: C. Position delta includes the sign of the holding and the quantity represented by each option. The long calls contribute 2 × 100 × 0.60 = +120 units of delta. Shorting a put reverses its long-holder delta. The three short puts contribute −3 × 100 × (−0.40) = +120. Total delta is +240. A ₹1 underlying rise therefore gives an approximate ₹240 gain, with other factors unchanged. Remember: Apply the long-or-short position sign before aggregating Greeks.
Hint, shown before you answer in practice mode: Common mistake: Using a long put’s negative delta unchanged for a short put.
XVI-095hardnumerical
Q14Per unit, an option has delta 0.40 and gamma 0.03. The underlying future rises ₹2. Using ΔV ≈ delta × ΔF + 0.5 × gamma × (ΔF)² and holding other factors fixed, what is the estimated value change per unit?
Option A. ₹0.46 increase
Why it is wrong: It does not apply the stated two-rupee move to the delta term.
Option B. ₹0.86 increase — Correct answer
Option C. ₹0.92 increase
Why it is wrong: It omits the one-half factor in the gamma contribution.
Option D. ₹0.80 increase
Why it is wrong: It uses delta alone and omits curvature.
Answer: B. The second-order gamma term adjusts the first-order delta estimate for curvature. Delta contribution = 0.40 × ₹2 = ₹0.80. Gamma contribution = 0.5 × 0.03 × 2² = ₹0.06. Total estimated increase = ₹0.86 per unit. The expression is a local approximation using the supplied starting sensitivities. It is not an exact revaluation for every price movement. Remember: For a second-order approximation, gamma enters with one-half times the squared price change.
Hint, shown before you answer in practice mode: Common mistake: Using delta plus gamma without respecting their different units.
XVI-096hardnumerical
Q15A long option position covers 400 units. Vega is ₹0.75 per unit for a one-percentage-point rise in volatility. Volatility rises from 18% to 21%. Using a constant-vega approximation, what is the value increase?
Option A. ₹300
Why it is wrong: It uses only a one-percentage-point change.
Option B. ₹9
Why it is wrong: It substitutes 0.03 into a vega quoted per whole percentage point.
Option C. ₹6,300
Why it is wrong: It uses the final volatility level of 21 rather than its change of 3 points.
Option D. ₹900 — Correct answer
Answer: D. Volatility sensitivity must use the unit in which vega is stated. The change is 3 percentage points, not 0.03 percentage points. Estimated increase = ₹0.75 × 3 × 400 = ₹900, holding the underlying price and other inputs fixed. Remember: Use the change in volatility in the same units as the quoted vega.
Hint, shown before you answer in practice mode: Common mistake: Confusing percentage points with decimal percentages.
XVI-097mediumnumerical
Q16A long commodity option has theta of −₹0.20 per underlying unit per calendar day. It covers 300 units. Over three calendar days, using constant theta and holding other inputs fixed, what is the estimated value change?
Option A. ₹60 decrease
Why it is wrong: It counts only one day.
Option B. ₹180 decrease — Correct answer
Option C. ₹180 increase
Why it is wrong: It reverses the sign of the supplied negative theta.
Option D. ₹0.60 decrease
Why it is wrong: It is the per-unit change before multiplying by 300.
Answer: B. Time sensitivity must be applied using the period and position quantity in its definition. Per-unit change = −₹0.20 × 3 = −₹0.60. Total change = −₹0.60 × 300 = −₹180. The question specifically uses calendar days and supplies a constant-theta approximation. Remember: Check whether theta is quoted per calendar day, trading day or another period.
Hint, shown before you answer in practice mode: Common mistake: Applying a time sensitivity without checking its period convention.
XVI-098mediumnumerical
Q17For a supplied model, an option’s rho is −₹1.50 per unit per one-percentage-point increase in the interest rate. The rate rises from 5% to 5.4%. On 200 units, what is the approximate value change with other inputs fixed?
Option A. ₹120 increase
Why it is wrong: It discards the negative sign of rho.
Option B. ₹300 decrease
Why it is wrong: It applies a full one-point increase rather than 0.4 point.
Option C. ₹120 decrease — Correct answer
Option D. ₹12 decrease
Why it is wrong: It understates the change by a factor of ten.
Answer: C. Rho measures interest-rate sensitivity, and its sign and percentage-point convention must be retained. The rate increase is 0.4 percentage point. Per-unit effect = −₹1.50 × 0.4 = −₹0.60. For 200 units the change is −₹120. This supplied negative rho is not a claim that all calls or all commodity options have the same rho sign. Remember: Use the supplied sensitivity rather than assuming every option type has a fixed Greek sign.
Hint, shown before you answer in practice mode: Common mistake: Confusing a 0.4-percentage-point move with a 4% or 0.04-point move.
XVI-099mediumnumerical
Q18A commodity call and put are both stated to have positive vega. Underlying price, time, rates and all other model inputs stay fixed while implied volatility increases. What is the local effect on their values?
Option A. Both values must decrease
Why it is wrong: It contradicts the given positive sensitivity.
Option B. The call increases and the put decreases
Why it is wrong: This confuses a volatility increase with an increase in the underlying price.
Option C. The put increases and the call decreases
Why it is wrong: This confuses increased volatility with a fall in the underlying.
Option D. Both values increase — Correct answer
Answer: D. Vega concerns the size of possible price fluctuations, not their bullish or bearish direction. Positive vega means that an increase in volatility increases the option’s value locally. This property is explicitly given for both options. A call and a put can both benefit from increased uncertainty. That does not imply that their deltas have the same sign. Remember: Separate volatility exposure from directional price exposure.
Hint, shown before you answer in practice mode: Common mistake: Assuming that a benefit to a call must be a loss to a put.
XVI-100mediumconceptual
Q19In a supplied one-period model, a commodity future ends at ₹120 or ₹80 with risk-neutral probabilities 0.5 each. A cash-settled European call has strike ₹100. The discount factor is 0.98. What is the model premium per unit?
Option A. ₹10.00
Why it is wrong: This is the expected payoff before discounting.
Option B. ₹19.60
Why it is wrong: This discounts the favourable payoff without multiplying by its probability.
Option C. ₹0.00
Why it is wrong: This incorrectly applies the call payoff to the average underlying of ₹100.
Option D. ₹9.80 — Correct answer
Answer: D. Risk-neutral model valuation discounts the probability-weighted option payoff, not the payoff of the average underlying price. The two call payoffs are max(120 − 100, 0) = ₹20 and max(80 − 100, 0) = ₹0. Expected model payoff = 0.5 × ₹20 + 0.5 × ₹0 = ₹10. Discounted value = 0.98 × ₹10 = ₹9.80. The given probabilities are pricing-model probabilities. They are not asserted to be actual forecasts of the two outcomes. Remember: Apply the payoff separately in each state before averaging and discounting.
Hint, shown before you answer in practice mode: Common mistake: Taking the option payoff of the expected underlying price.
XVI-101hardnumerical
Q20An analyst compares a copper call expiring in June with a copper put expiring in July and claims a put-call parity violation. Both have the same strike. What is the central defect in this test?
Option A. Copper options cannot have a payoff relationship
Why it is wrong: The issue is mismatch, not the absence of parity principles for commodities.
Option B. A common strike makes every parity comparison valid
Why it is wrong: Strike is one requirement, not the only requirement.
Option C. The option expiries do not match — Correct answer
Option D. Parity applies only when both option premiums are equal
Why it is wrong: Equal premiums are not a universal condition for parity.
Answer: C. Put-call parity compares properly matched contracts and financing conventions. Matching only the commodity and strike is insufficient. The expiry and exact underlying future must also match for the standard comparison. The additional month changes the put’s payoff date and exposure. The quoted difference therefore cannot be classified as a parity violation from these facts alone. Remember: Check underlying, strike, expiry and financing assumptions before testing parity.
Hint, shown before you answer in practice mode: Common mistake: Treating similarly named options as interchangeable hedging legs.
XVI-102mediumconceptual
Q21A call and put on the same future have strike ₹1,000 and the same expiry. Their premiums are ₹42 and ₹27. A trader buys the call and writes the put. At expiry the future is ₹980. Ignoring financing and costs, what is the combined net result per unit?
Option A. ₹15 profit
Why it is wrong: The ₹15 is an initial payment, not a final profit.
Option B. ₹20 loss
Why it is wrong: This excludes the net premium paid.
Option C. ₹35 loss — Correct answer
Option D. ₹5 loss
Why it is wrong: This credits rather than debits the initial net premium.
Answer: C. A long call plus short put has a linear strike-based expiry payoff, but net profit must also include its initial net premium. Initial net premium paid = ₹42 − ₹27 = ₹15. At ₹980, the call payoff is zero and the written put owes ₹20. Combined expiry payoff = ₹980 − ₹1,000 = −₹20. Including the initial debit gives −₹20 − ₹15 = −₹35. This is a payoff calculation only. The question does not assert that the supplied premiums and an unspecified current futures price satisfy parity. Remember: Synthetic payoff identities do not eliminate the initial premium cash flow.
Hint, shown before you answer in practice mode: Common mistake: Equating a terminal payoff identity with equal net profit from any acquisition price.
XVI-103hardnumerical
Q22A valuation model is expressly specified for a call on the September commodity future. Spot, August futures and September futures have different prices. Which quoted price belongs in the model’s underlying-futures input?
Option A. The spot price because it is the physical commodity
Why it is wrong: Spot and September futures can differ through carry and maturity conditions.
Option B. The September futures price — Correct answer
Option C. The option premium because it is the traded price
Why it is wrong: Premium measures the option itself, not the future on which it is written.
Option D. The August futures price because it expires sooner
Why it is wrong: An earlier contract has a different maturity and is not the named underlying.
Answer: B. A model input must correspond to the actual underlying specified by the derivative contract. The option is on the September future, so the relevant futures-price input is that contract’s price. Spot and another expiry may help analyse the curve, but substituting them changes the modeled exposure. The option premium is the model output or calibration target, not the underlying price. Remember: Match model inputs to the exact underlying, not just the commodity name.
Hint, shown before you answer in practice mode: Common mistake: Using the nearest visible market price without checking the contract identifier.
XVI-104mediumconceptual
Commodity Options: common questions
How many practice questions are there on Commodity Options?
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 XVI, which has 150 questions in total.
Are these real NISM Series XVI questions on Commodity Options?
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 XVI?
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.
Commodity Indices
12 questions on Commodity Indices. Its quiz opens on that unit.
Open Commodity Indices