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Derivatives and risk concepts can feel abstract until you test yourself with questions that look like actual exam material. This article brings you a compact set of 15 MCQs covering futures, options, ETFs, operational risk, investor protection and portfolio beta - each followed immediately by its answer and a short explanation.
In the futures market, while contracts have a maturity of several months, profits and losses are settled on a day-to-day basis and are called:
A. Upfront MTM
B. Initial
C. Today's margin
D. Margin
Answer: A. Upfront MTM
Explanation: In futures trading, positions are revalued daily to the settlement price and profit or loss is adjusted using mark-to-market (MTM). This day-to-day settlement is often referred to as MTM, separate from initial or exposure margins.
Exchange Traded Funds (ETFs) are:
A. A basket of securities that trade like individual stock, on an exchange
B. They can be bought and sold on the exchange
C. ETFs are traded on exchanges; intraday transactions are possible
D. All of the above
Answer: D. All of the above
Explanation: ETFs represent a diversified basket of securities but trade on an exchange like a single stock. Because they allow intraday buying and selling and are listed instruments, all the statements given are correct.
Operational risk consists of:
A. Fraud
B. Inadequate documentation
C. Improper execution
D. All of the above
Answer: D. All of the above
Explanation: Operational risk covers losses arising from internal process failures, people and systems issues or external events. Fraud, poor documentation and wrong execution are classic operational risk examples, so all options are included.
_______ gives the information about the ratio of trading volume of put options to call options.
A. Buy call ratio
B. Put–call ratio
C. Option–future ratio
D. Stock index ratio
Answer: B. Put–call ratio
Explanation: The put–call ratio compares put option volume to call option volume in the market. Traders use it as a sentiment gauge, where relatively higher put activity can indicate more bearish expectations.
The ______ of a portfolio refers to excessive trading or turnover of investments within a portfolio. It occurs when a financial advisor or broker engages in frequent buying and selling of securities within an investment account, often to generate additional commissions or fees for themselves.
A. Investing
B. Mixing
C. Churning
D. Curing
Answer: C. Churning
Explanation: Churning is an unethical practice where a broker executes unnecessary trades mainly to earn more commission. It creates excessive turnover and costs for the client without meaningful investment advantage.
On exercise of the option, the buyer/holder will receive a favourable difference, between the final settlement price as on the exercise/expiry date and the strike price, which will be recognised as income.
A. True
B. False
Answer: A. True
Explanation: Exercising an in-the-money option gives the holder a gain equal to the settlement price minus the strike (for calls) or strike minus settlement price (for puts). This favourable difference is treated as income because it is realized profit.
SEBI's web-based complaints redressal system is called:
A. NCLT (National Company Law Tribunal)
B. SCORES (SEBI Complaints Redress System)
C. SEBI (Securities and Exchange Board of India)
D. RBI (Reserve Bank of India)
Answer: B. SCORES (SEBI Complaints Redress System)
Explanation: SCORES is SEBI's online platform where investors can lodge and track complaints against listed companies and market intermediaries. It standardises grievance redressal through a web-based mechanism.
If the option is deeply in-the-money, the intrinsic value will be low and so the option value/premium will be lower.
A. True
B. False
Answer: B. False
Explanation: A deep in-the-money option has a large favourable gap between market price and strike price, so its intrinsic value is high. This usually makes the option premium higher, not lower, compared to at-the-money or out-of-the-money options.
The delta is often called the ______ ratio.
A. Call
B. Put
C. Short
D. Hedge
Answer: D. Hedge
Explanation: Delta measures how much an option's price changes for a small change in the underlying price. It is called the hedge ratio because it tells you how many units of underlying asset are needed to hedge one option position.
If all other factors affecting an option's price remain the same, the time value portion of an option's premium will decrease with the passage of time. This is also known as:
A. Value decay
B. Value passage
C. Time decay
D. Premium fall
Answer: C. Time decay
Explanation: Time value reflects the potential for favourable future price movements before expiry. As time passes and expiry approaches, this potential reduces and time value erodes, a process known as time decay and represented by the Greek theta.
If the price of the underlying asset goes up, the value of the call option decreases while the value of the put option increases.
A. True
B. False
Answer: B. False
Explanation: When the underlying price rises, call options generally gain value because they confer the right to buy at a lower strike. Put options tend to lose value since they benefit from price falls, so the relationship stated in the question is reversed and incorrect.
________ measures the sensitivity of a stock/portfolio vis-à-vis index movement over a period of time, on the basis of historical prices.
A. Beta
B. Alpha
C. Gamma
D. Theta
Answer: A. Beta
Explanation: Beta captures how much a security or portfolio typically moves relative to a benchmark index. A beta greater than 1 implies higher volatility than the market, while a beta less than 1 implies lower sensitivity.
Option premium = Intrinsic value – time value.
A. True
B. False
Answer: B. False
Explanation: Option premium is generally broken into intrinsic value plus time value. Intrinsic value reflects current in-the-money amount, and time value captures future possibilities; subtracting one from the other is therefore incorrect.
Vega is positive for a long call and a long put.
A. True
B. False
Answer: A. True
Explanation: Both long calls and long puts benefit from higher volatility because wider price swings increase the chance of large favourable moves. As a result, vega for these positions is positive: option values rise when volatility increases.
A portfolio consists of two stocks:
What is the beta of the portfolio?
A. 1.08
B. 1.26
C. 1.44
D. 1.62
Answer: C. 1.44
Explanation: Portfolio beta is the weighted average of the individual betas: ( 1.8 \times 0.60 = 1.08 ) and ( 0.9 \times 0.40 = 0.36 ), giving a total of 1.44. This means the portfolio is more volatile than the index, amplifying market movements in both directions.
Mastering derivatives and options strategies requires more than just theoretical knowledge; consistent practice with exam-style questions is the key to building confidence for NISM certification. Regularly testing your understanding helps identify gaps and reinforce core concepts such as margin settlements and option Greeks. To take your preparation to the next level, we invite you to explore our comprehensive mock test program designed to simulate the actual exam environment. You can access the program here: NISM Equity Derivatives Program
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