Equity Derivatives Certification Free Demo Test 1

Explanation:

Cost of Carry is the relationship between futures prices and spot prices. For equity derivatives, carrying cost is the interest paid to finance the purchase less (minus) dividend earned.

Explanation:

Time value of the option depends upon how much time is remaining for the option to expire. Longer the time to maturity, higher will be the time value.

The effect of time to expiration on both call and put options is similar to that of volatility on option premiums. Generally, longer the maturity of the option greater is the uncertainty and hence the higher premiums. If all other factors affecting an option’s price remain same, the time value portion of an option’s premium will decrease with the passage of time.

Explanation:

More the volatility in a stock, higher will be its price of its call and put option as compared to less volatile stocks of the same price.

Vega is the measure of the sensitivity of an option price to changes in market volatility. It is the change of an option premium for a given change in the underlying volatility.

Explanation:

A short position in a Put Option can be closed out (squared up) only by buying the same Put Option of the same exercise date and exercise (strike) price.

Explanation:

Although NSE and BSE allows trading in interest rate futures but it is not a part of equity derivatives.

Explanation:

Expiration Day: This is the day on which a derivative contract ceases to exist. It is the last trading day of the contract. Generally, it is the last Thursday of the expiry. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.

Explanation:

Securities Transaction Tax (STT) is levied on every purchase and sale of securities that are listed on the Indian stock exchanges. STT is levied on transactions involving equity, derivatives and equity oriented mutual funds.

Explanation:

Option Premium is the price which the option buyer pays to the option seller.

Explanation:

Creating a Short Position means selling the asset on an exchange with a view to buy it back when the price falls.

So a Closing Buy transaction will be used to buy back / offset the short position created.

Explanation:

Good Till Cancel (GTC) is a type of order that enables client to place buying and selling orders with specifying time interval for which instruction of request remains valid. The maximum validity of a GTC order is 365 days.

Explanation:

To square up / cover a long position, the same quantity of the same stock has to be sold.

Explanation:

In case of declaration of “extra-ordinary” dividend by any company, the total dividend amount (special and / or ordinary) would be reduced from all the strike prices of the option contracts on that stock. The revised strike prices would be applicable from the ex-dividend date specified by the exchange.

Explanation:

The amount one needs to deposit in the margin account at the time of entering into a futures contract is known as the initial margin.

This can be paid by Cash, Bank Guarantee, Fixed Deposit Receipts and approved securities etc.

Explanation:

In-the-money (ITM) option: This option would give the option holder a positive cash flow, if it were exercised immediately.

The intrinsic value of an option refers to the amount by which the option is in-themoney i.e., the amount an option buyer will realize, before adjusting for premium paid, if he exercises the option instantly. Therefore, only in-the-money options have intrinsic value whereas at-the-money and out-of-the-money options have zero intrinsic value.

The intrinsic value of an option can never be negative.

Explanation:

A call option gives the buyer the right but not the obligation to buy from the seller an underlying asset at the prevailing market price on or before the expiry date.

Explanation:

In a derivative exchange, the networth requirement for a clearing member is higher than that of a non-clearing member.

Explanation:

The Dow Jones Industrial Average (DJIA) a stock market index of 30 prominent companies listed on stock exchanges in the United States.

The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States.

Therefore, Dow Jones can be considered as narrow index as it covers only 30 companies where as S&P is a broad index as it covers 500 companies.

Explanation:

In-the-money (ITM) option: This option would give the option holder a positive cash flow, if it were exercised immediately.

A call option is said to be ITM, when market price is higher than strike price.

(A put option is said to be ITM when market price is lower than strike price)

Explanation:

Clearing member is required to provide liquid assets which adequately cover various margins and liquid Net-worth requirements. The total liquid assets comprise of at least 50% of the cash component and the rest is non-cash component – This means 50% to 100% can be the cash component. Non-cash component cannot be more than 50%.

All collateral deposits are segregated into cash component and non-cash component. Cash component means cash, bank guarantee, fixed deposit receipts, T-bills and dated government securities. Non-cash component means all other forms of collateral deposits like deposit of approved demat equity securities.

Explanation:

You had sold ABC futures believing that its price will fall down, but it has risen – so there will be a loss.

2500 – 2700 = -200 Loss

-200 x 50 shares = – Rs 10000