NISM VIII Equity Futures and Options Strategies — Practice Questions
Questions on the strategies the exam expects you to recognise and price: covered call, protective put, straddle, strangle, spreads and collars, plus hedging with futures and calendar-spread arbitrage.
74 questions on Trading Strategies in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Covered call and protective put
- Straddles, strangles and spreads
- Hedging with futures
- Payoff diagrams and break-evens
Free sample questions
1. On the derivatives futures market, if there are three series of one, two and three months open at a point of time, how many calendar spread can one have ?
- A. 1
- B. 2
- C. 3 ✅
- D. 4
Answer: C — 3
Why: The three calendar spreads can be between months 1 and 2, 2 and 3 and 1 and 3.
💡 3 series -> pairs (1-2, 2-3, 1-3) = 3 calendar spreads. nC2 = 3.
2. Which of these options is an example of a Calendar Spread?
- A. Going short on the underpriced futures contract of one month and at the same time buying the overpriced futures contract of another month
- B. Buying stock futures contract while at the same time shorting the stock
- C. Buying the underpriced futures contract of one month and simultaneously selling the overpriced futures contract of another month ✅
- D. Going short on the stock futures contract while simultaneously buying the stock
Answer: C — Buying the underpriced futures contract of one month and simultaneously selling the overpriced futures contract of another month
Why: Calendar spread refers to the arbitrage between futures contracts of different expiration months. In this strategy, the arbitrageur buys and sells the futures contracts of two different months. To execute this strategy, the arbitrageur must identify which contract to buy or sell. The principal rule of arbitrage is that one must buy the underpriced contract and sell the overpriced one. Hence, the arbitrageur needs to compute the fair price of both futures contracts and compare these with the traded prices, to decide which contract is overpriced and which one is underpriced.
💡 Calendar spread arbitrage: BUY underpriced month, SELL overpriced month.
3. In Option Spreads there is a combination of options constructed in such a way that there is limited profit or limited loss - State True or False ?
- A. True ✅
- B. False
Answer: A — True
Why: Option Spreads involve combining options on the same underlying and of same type (call/ put) but with different strikes and maturities. These are limited profit and limited loss positions.
💡 Option SPREAD = same type (call/put), different strikes/maturities -> LIMITED profit + LIMITED loss.
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