Introduction to Options
13 questions. Each answer is explained.
Question 1 of 10Practice · Series V-D — Mutual Fund - Specialized Investment Fund Distributors
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Learn these topics
More units in NISM Series V-D
- The Investment Landscape5
- Concept & Role of a Mutual Fund4
- Legal Structure of Mutual Funds in India3
- Legal and Regulatory Framework7
- Scheme Related Information7
- Fund Distribution and Channel Management Practices4
- Net Asset Value, Total Expense Ratio and Pricing of Units5
- Taxation3
- Investor Services10
- Risk, Return and Performance of Funds5
- Mutual Fund Scheme Performance5
- Mutual Fund Scheme Selection10
- Basics of Derivatives10
- Understanding Index5
- Introduction to Forwards and Futures15
- Strategies Using Equity Futures and Equity Options9
- Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets6
- Interest Rate Derivatives2
- Exchange Traded Interest Rate Futures10
- Exchange Traded Interest Rate Options6
- Strategies Using Interest Rate Derivatives6
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 10% · 0.1 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | 13 of 150 marks (8.7%) |
Source: July 2026 Annexure I, Chapter 16: Introduction to Options
NISM Series V-D Mutual Fund - Specialized Investment Fund Distributors
Exam rules read on NISM's site on 30 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 30 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 13 questions on Introduction to Options, with answers
Q1Which description best captures the buyer’s contractual right in a plain call option on a share?
Option A. The right, without the obligation, to sell the specified quantity at the strike on expiry.
Why it is wrong: That describes the basic right in a put option.
Option B. The right, without the obligation, to buy the specified quantity at the strike under the contract’s exercise terms. — Correct answer
Option C. An unconditional obligation to buy the specified quantity at the strike regardless of the option terms.
Why it is wrong: That removes the buyer’s choice, which is central to an option.
Option D. Ownership of the issuer’s voting rights and dividends from the moment the premium is paid.
Why it is wrong: Buying an option does not itself make the buyer a shareholder.
Answer: B. 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, shown before you answer in practice mode: Separate the call buyer’s right from a put right and a futures obligation.
V-D-099easyconceptual
Q2A 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.
Option A. In the money, with ₹20 intrinsic value. — Correct answer
Option B. At the money, with ₹20 intrinsic value.
Why it is wrong: At-the-money means the strike and underlying price are equal.
Option C. In the money, with ₹480 intrinsic value.
Why it is wrong: ₹480 is the underlying price, not the put’s exercise advantage.
Option D. Out of the money, with zero intrinsic value.
Why it is wrong: A put is in the money when its strike exceeds the underlying price.
Answer: A. 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: Moneyness describes exercise value, not total trade profit after premium.
Hint, shown before you answer in practice mode: For a put, compare the right to sell at the strike with the current price.
V-D-100easynumerical
Q3A 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.
Option A. ₹15 — Correct answer
Option B. ₹20
Why it is wrong: This is the call’s intrinsic value.
Option C. ₹35
Why it is wrong: This is the full premium, including intrinsic value.
Option D. ₹55
Why it is wrong: This adds intrinsic value to premium rather than subtracting it.
Answer: A. 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, shown before you answer in practice mode: A call’s intrinsic value is the positive part of spot minus strike.
V-D-101mediumnumerical
Q4A 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.
Option A. A profit of ₹320.
Why it is wrong: This reverses the sign after deducting the premium.
Option B. A loss of ₹720.
Why it is wrong: This assumes the call expires with no intrinsic value.
Option C. A profit of ₹400.
Why it is wrong: This reports exercise payoff but ignores the premium paid.
Option D. A loss of ₹320. — Correct answer
Answer: D. 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, shown before you answer in practice mode: Being in the money does not necessarily recover the premium.
V-D-102mediumnumerical
Q5A 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.
Option A. A loss of ₹2,000.
Why it is wrong: This reports the exercise liability before crediting premium.
Option B. A profit of ₹700.
Why it is wrong: This counts premium but ignores the put’s exercise liability.
Option C. A profit of ₹1,300.
Why it is wrong: This reverses the writer’s net result.
Option D. A loss of ₹1,300. — Correct answer
Answer: D. 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, shown before you answer in practice mode: For the writer, subtract the put payoff from premium received.
V-D-103mediumnumerical
Q6An 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.
Option A. Zero because exercise is optional.
Why it is wrong: The premium can be lost even if the buyer chooses not to exercise.
Option B. Unlimited loss.
Why it is wrong: The standalone call buyer can lose the premium but is not the uncovered call writer.
Option C. ₹900 — Correct answer
Option D. ₹15
Why it is wrong: This omits the 60-unit quantity.
Answer: C. 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, shown before you answer in practice mode: The buyer has already paid for the contractual right.
V-D-104easyapplication
Q7A contract is explicitly described as a European-style option. What does that exercise style mean?
Option A. The contract must be traded on a European exchange under European rules.
Why it is wrong: The label describes exercise timing, not trading geography.
Option B. Exercise is permitted on any day up to expiry under the contract terms.
Why it is wrong: That describes an American-style exercise right.
Option C. Exercise is permitted only at the specified expiry under the contract terms. — Correct answer
Option D. The premium can be paid only in euros, whatever the contract currency.
Why it is wrong: Exercise style does not determine the premium currency.
Answer: C. 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, shown before you answer in practice mode: Exercise style concerns the timing of the holder’s exercise right.
V-D-105easyconceptual
Q8A 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.
Option A. An increase of ₹8.33.
Why it is wrong: This divides by delta instead of multiplying.
Option B. An increase of ₹3. — Correct answer
Option C. A decrease of ₹3.
Why it is wrong: A positive call delta gives a positive first-order change when the underlying rises.
Option D. An increase of ₹5.
Why it is wrong: This treats the option as having delta one.
Answer: B. 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: Delta is a sensitivity estimate, not a guaranteed price forecast.
Hint, shown before you answer in practice mode: Use the stated local sensitivity as a multiplier.
V-D-106mediumnumerical
Q9For 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.
Option A. 0.10 per ₹1 move in the underlying.
Why it is wrong: This is the total delta change before dividing by the ₹2 underlying move.
Option B. 0.05 per ₹1 move in the underlying. — Correct answer
Option C. 0.20 per ₹1 move in the underlying.
Why it is wrong: This multiplies the delta change by ₹2 instead of dividing.
Option D. 0.45 per ₹1 move in the underlying.
Why it is wrong: This is the average of the two deltas, not gamma.
Answer: B. Delta rises by 0.50 − 0.40 = 0.10. Dividing by the ₹2 move gives approximate average gamma of 0.10 ÷ 2 = 0.05 per rupee. Remember: Gamma describes how delta changes as the underlying moves.
Hint, shown before you answer in practice mode: Compute the change in delta first.
V-D-107mediumnumerical
Q10In 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?
Option A. Call value rises but put value must fall.
Why it is wrong: Volatility changes the spread of possible outcomes, not just the direction of the underlying.
Option B. Both call and put values increase. — Correct answer
Option C. Neither value can change unless the underlying price changes.
Why it is wrong: Volatility is itself an option-pricing input.
Option D. Both values fall because the market is less predictable.
Why it is wrong: Greater uncertainty generally increases the value of the holder’s asymmetric option right.
Answer: B. 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, shown before you answer in practice mode: Volatility measures the range of possible outcomes rather than a bullish or bearish direction.
V-D-108mediumconceptual
Q11An 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.
Option A. An increase of ₹480.
Why it is wrong: This counts the vega benefit but omits two days of theta loss.
Option B. An increase of ₹20.
Why it is wrong: This reverses the sign of the combined estimate.
Option C. A decrease of ₹20. — Correct answer
Option D. A decrease of ₹500.
Why it is wrong: This counts theta but omits the volatility benefit.
Answer: C. Theta contributes −₹2.50 × 2 = −₹5 per unit. Vega 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, shown before you answer in practice mode: Add the two sensitivity effects per unit, then multiply by quantity.
V-D-109hardnumerical
Q12In 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.
Option A. ₹3.33
Why it is wrong: This applies the risk-neutral probability to a ₹10 payoff rather than the ₹20 call payoff.
Option B. ₹10.00
Why it is wrong: This assumes equally likely risk-neutral states instead of using the supplied probability.
Option C. ₹20.00
Why it is wrong: This is the up-state payoff, not its discounted probability-weighted value.
Option D. ₹6.67 — Correct answer
Answer: D. 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, shown before you answer in practice mode: Find the payoff in each state, then weight it by the supplied risk-neutral probability.
V-D-110hardnumerical
Q13An 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?
Option A. The historical standard deviation calculated directly from past returns.
Why it is wrong: That requires a historical return series and is a different calculation.
Option B. Implied volatility under that pricing model. — Correct answer
Option C. The option’s intrinsic value.
Why it is wrong: Intrinsic value uses the underlying and strike, not an inversion of a pricing model.
Option D. The volatility that is guaranteed to occur before expiry.
Why it is wrong: The solved input is not a guarantee of future realised volatility.
Answer: B. Implied volatility 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, shown before you answer in practice mode: The model is being inverted from price to one of its inputs.
V-D-111mediumapplication
Introduction to Options: common questions
How many practice questions are there on Introduction to Options?
13 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 22 practice topics for NISM Series V-D, which has 150 questions in total.
Are these real NISM Series V-D questions on Introduction to 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.
How much of the NISM Series V-D exam is Introduction to Options?
NISM's published syllabus outline gives it 13 of the paper's 150 marks, or 8.7% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 16: Introduction to Options
Does negative marking apply to NISM Series V-D?
Yes. NISM takes off 10% of a question's marks for a wrong answer. On a 1-mark question that is 0.1 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.
Strategies Using Equity Futures and Equity Options
9 questions on Strategies Using Equity Futures and Equity Options. Its quiz opens on that unit.
Open Strategies Using Equity Futures and Equity OptionsPaper Trading Try it on the practice trading desk