NISM V-D Strategies Using Equity Futures and Options — Practice Questions
Questions on hedging, speculation and arbitrage with equity futures and options — protective puts, covered calls, spreads, straddles and strangles — and the strategies a SIF may run.
50 questions on Equity Derivative Strategies in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Hedging with futures
- Protective puts and covered calls
- Spreads, straddles and strangles
- Strategies a SIF may run
Free sample questions
1. The futures price of a stock has been RISING over the past few sessions while the open interest in the contract has been DECLINING. What does this combination indicate?
- A. A bullish trend, with new long positions being built
- B. Short covering, as existing short positions are being squared up ✅
- C. A bearish trend, with a build-up of fresh short positions
- D. Existing long positions being squared up
Answer: B — Short covering, as existing short positions are being squared up
Why: The workbook gives four scenarios: rising price with rising OI = bullish trend (go long); rising price with falling OI = short covering; falling price with rising OI = short build-up and bearish trend (go short); falling price with falling OI = longs being squared up.
💡 Price UP + OI DOWN = SHORT COVERING; price UP + OI UP = bullish; price DOWN + OI UP = bearish build-up.
2. A trader has sold 8 lots of at-the-money call options on a stock (lot size 100). The delta of the call is 0.50 and the delta of a stock futures contract is taken as 1. How many lots of stock futures should he buy to make the combined position delta-neutral?
- A. 8 lots
- B. 16 lots
- C. 2 lots
- D. 4 lots ✅
Answer: D — 4 lots
Why: Delta of the short calls = -0.50 x 8 x 100 = -400. Each long futures lot has a delta of 1 x 100 = +100, so 4 long lots give +400 and the combined delta is zero (delta-neutral). If the stock rises and the call delta increases to 0.60, he must buy more futures to keep the position neutral - this ongoing adjustment is delta hedging.
💡 Delta hedge: short call delta = -delta x lots x lot size; futures delta = 1 -> long futures lots = call delta x call lots.
3. The Beta of a portfolio is the _________ .
- A. Sum of the betas the constituent securities in that portfolio
- B. Simple average of the beta’s of the constituent securities in that portfolio
- C. Same as the beta of the stock with the highest market capitalization
- D. Value weighted average of the beta’s of the constituent securities in that portfolio ✅
Answer: D — Value weighted average of the beta’s of the constituent securities in that portfolio
Why: Portfolio beta is a weighted average of betas of individual stocks in the portfolio based on their investment proportion. For example, if there are four stocks in a portfolio with betas 0.5, 1.1, 1.30 and 0.90 having weights 35%, 15%, 20% and 30% respectively, the beta of this portfolio would be 0.87 ( = 0.5*0.35 +1.10*0.15 +1.30*0.20 +0.90*0.30)
💡 Portfolio beta = VALUE-WEIGHTED average of constituent betas (not a simple sum or average).
Practise all 50 Equity Derivative Strategies questions
Plus the full 853-question NISM V-D bank and real-feel mock exams.
Other NISM V-D topics
Investment LandscapeConcept & Role of Mutual FundsLegal StructureLegal & RegulatoryScheme Related InformationDistribution & ChannelsNAV, TER & PricingTaxationInvestor ServicesRisk, Return & PerformanceScheme PerformanceScheme SelectionBasics of DerivativesUnderstanding the IndexForwards & FuturesOptionsInterest Rates & Fixed IncomeInterest Rate DerivativesInterest Rate FuturesInterest Rate OptionsInterest Rate Strategies