Preparing for the NISM-Series-VIII: Equity Derivatives Certification Examination (NISM 8) requires more than memorizing definitions and formulas. The examination tests your understanding of futures, options, hedging, trading strategies, clearing and settlement, risk management and other concepts related to equity derivatives.
NISM's current Series VIII curriculum covers topics including equity futures, options, futures pricing, option pricing, option strategies, trading mechanisms, clearing and settlement, margining, regulation, accounting and taxation, and investor protection.
One of the best ways to test whether you actually understand these concepts is to solve case-based questions.
In this article, you will find 5 original case studies with 20 questions, covering different concepts from NISM Series VIII.
Try to solve each question yourself before looking at the answer and explanation.
Case 1: Hedging a Share Purchase with Futures
An investor plans to purchase 1,000 shares of XYZ Ltd. on July 15, 20XX. The current spot price is ₹500 per share.
The investor is concerned that the share price may increase before the planned purchase. To hedge against a potential price rise, the investor goes long one XYZ futures contract expiring on July 27, 20XX, at a futures price of ₹505 per share.
The lot size is 1,000 shares.
On July 15, the investor purchases the shares in the spot market at ₹530 per share, while the XYZ futures contract is trading at ₹532 per share.
Question 1
What is the profit earned on the long futures position?
A. ₹25,000
B. ₹27,000
C. ₹30,000
D. ₹32,000
Answer: B. ₹27,000
Explanation:
The investor went long futures at ₹505 and closed the position at ₹532.
Futures profit per share:
₹532 − ₹505 = ₹27
Since the lot size is 1,000 shares:
₹27 × 1,000 = ₹27,000
Therefore, the investor earns a ₹27,000 profit on the futures position.
Question 2
What is the investor's effective purchase price per share after considering the futures hedge?
A. ₹503
B. ₹505
C. ₹530
D. ₹532
Answer: A. ₹503
Explanation:
The investor actually purchases the shares in the spot market at ₹530.
However, the investor earns ₹27 per share from the futures position.
Effective purchase price:
₹530 − ₹27 = ₹503
Therefore, the effective acquisition cost is ₹503 per share.
Question 3
What is the basis on July 15?
A. ₹2
B. −₹2
C. ₹27
D. −₹27
Answer: B. −₹2
Explanation:
Basis is:
Spot Price − Futures Price
Therefore:
₹530 − ₹532 = −₹2
The basis is therefore −₹2.
This also illustrates why a hedge may not completely eliminate risk. The change in basis affects the final effective price.
Question 4
Which type of participant is the investor in this case?
A. Speculator
B. Arbitrageur
C. Hedger
D. Market maker
Answer: C. Hedger
Explanation:
The investor has a genuine requirement to purchase shares and uses futures to protect against a possible increase in the share price.
The primary objective is risk reduction, not speculation.
Therefore, the investor is a hedger.
Case 2: Protective Put Strategy
Rohan owns 2,000 shares of ABC Ltd., purchased at ₹780 per share.
He is concerned that the stock price could decline significantly but does not want to sell the shares immediately.
To protect his position, he purchases 2,000 put options with a strike price of ₹770 by paying a premium of ₹12 per share.
At expiry, ABC Ltd. is trading at ₹720 per share.
Assume each option represents one share for this case.
Question 5
What is the intrinsic value of the put option at expiry?
A. ₹30
B. ₹40
C. ₹50
D. ₹70
Answer: C. ₹50
Explanation:
For a put option:
Intrinsic Value = Strike Price − Spot Price, when the put is in-the-money.
Therefore:
₹770 − ₹720 = ₹50
The put has an intrinsic value of ₹50 per share.
Question 6
What is the total payoff received from exercising the put options?
A. ₹50,000
B. ₹75,000
C. ₹100,000
D. ₹120,000
Answer: C. ₹100,000
Explanation:
Put payoff per share = ₹50.
Number of shares = 2,000.
Therefore:
₹50 × 2,000 = ₹100,000
The total payoff is ₹1,00,000.
Question 7
What is the total premium paid for the put options?
A. ₹12,000
B. ₹20,000
C. ₹24,000
D. ₹30,000
Answer: C. ₹24,000
Explanation:
Premium = ₹12 per share.
Number of shares = 2,000.
Therefore:
₹12 × 2,000 = ₹24,000
Question 8
Ignoring any transaction costs, what is the effective minimum exit price per share after considering the put premium?
A. ₹720
B. ₹746
C. ₹758
D. ₹770
Answer: C. ₹758
Explanation:
The put allows Rohan to effectively sell the shares at the strike price of ₹770 when the market price falls to ₹720.
However, he paid ₹12 as the option premium.
Effective protected price:
₹770 − ₹12 = ₹758
Therefore, the effective minimum exit value is ₹758 per share.
This demonstrates the purpose of a protective put: it provides downside protection while allowing the investor to continue holding the underlying asset.
Case 3: Buying a Call Option
Priya expects the share price of PQR Ltd. to increase significantly over the next month.
The current share price is ₹1,480.
She purchases one call option with:
-
Strike Price: ₹1,500
-
Call Premium: ₹45
-
Lot Size: 500 shares
At expiry, PQR Ltd. is trading at ₹1,580.
Question 9
What is the intrinsic value of the call option at expiry?
A. ₹45
B. ₹50
C. ₹80
D. ₹125
Answer: C. ₹80
Explanation:
For a call option:
Intrinsic Value = Spot Price − Strike Price, when the call is in-the-money.
Therefore:
₹1,580 − ₹1,500 = ₹80
The intrinsic value is ₹80 per share.
Question 10
What is the total payoff from the call option before considering the premium?
A. ₹20,000
B. ₹30,000
C. ₹40,000
D. ₹45,000
Answer: C. ₹40,000
Explanation:
Payoff per share = ₹80.
Lot size = 500.
Therefore:
₹80 × 500 = ₹40,000
Question 11
What is Priya's net profit after considering the option premium?
A. ₹12,500
B. ₹17,500
C. ₹20,000
D. ₹22,500
Answer: B. ₹17,500
Explanation:
Premium paid:
₹45 × 500 = ₹22,500
Option payoff:
₹80 × 500 = ₹40,000
Net profit:
₹40,000 − ₹22,500 = ₹17,500
Therefore, Priya earns a ₹17,500 net profit.
Question 12
At what price will the call buyer break even at expiry?
A. ₹1,500
B. ₹1,520
C. ₹1,545
D. ₹1,580
Answer: C. ₹1,545
Explanation:
For a call option:
Break-even Price = Strike Price + Premium
Therefore:
₹1,500 + ₹45 = ₹1,545
The call buyer begins making a net profit above ₹1,545 at expiry.
Case 4: Futures Pricing and Cash-and-Carry Arbitrage
The current spot price of ABC Ltd. is ₹2,000 per share.
A three-month futures contract is available.
Assume:
- Annual financing cost = 8%
- Contract period = 3 months
- Expected dividend during the period = ₹20 per share
- Lot size = 250 shares
For simplicity, assume simple interest is used for calculating the financing cost.
Question 13
What is the financing cost for three months?
A. ₹20
B. ₹30
C. ₹40
D. ₹50
Answer: C. ₹40
Explanation:
Annual financing cost:
₹2,000 × 8% = ₹160
For three months:
₹160 × 3/12 = ₹40
Therefore, the financing cost is ₹40 per share.
Question 14
What is the theoretical futures price, assuming the dividend is deducted from the cost of carry?
A. ₹1,980
B. ₹2,000
C. ₹2,020
D. ₹2,060
Answer: C. ₹2,020
Explanation:
Using the simplified cost-of-carry approach:
Futures Price = Spot Price + Financing Cost − Dividend
Therefore:
₹2,000 + ₹40 − ₹20 = ₹2,020
The theoretical futures price is ₹2,020.
Question 15
Suppose the three-month futures contract is actually trading at ₹2,050. Which strategy would be appropriate for an arbitrageur, assuming the assumptions above hold?
A. Buy futures and sell the stock short
B. Buy stock and sell futures
C. Buy both stock and futures
D. Sell both stock and futures
Answer: B. Buy stock and sell futures
Explanation:
The theoretical futures price is ₹2,020, while the market futures price is ₹2,050.
The futures contract appears overpriced by ₹30.
An arbitrageur can use a cash-and-carry strategy:
- Borrow funds.
- Buy the underlying asset.
- Sell the futures contract.
- Hold the asset until futures expiry.
- Deliver/sell the asset against the futures position as applicable.
The price difference can potentially create an arbitrage profit, subject to transaction costs, financing assumptions and market conditions.
Question 16
If the arbitrage opportunity provides ₹30 per share and the lot size is 250 shares, what is the gross price difference for one contract?
A. ₹5,000
B. ₹6,500
C. ₹7,500
D. ₹8,000
Answer: C. ₹7,500
Explanation:
Price difference:
₹2,050 − ₹2,020 = ₹30
Contract size = 250 shares.
Therefore:
₹30 × 250 = ₹7,500
The gross price difference is ₹7,500, before considering transaction costs, taxes and other expenses.
Case 5: Covered Call Strategy
Meera owns 1,000 shares of XYZ Ltd., purchased at ₹1,000 per share.
She believes the share price may rise moderately but does not expect a very large increase.
She decides to write 1,000 call options with:
-
Strike Price = ₹1,050
-
Call Premium = ₹25 per share
At expiry, XYZ Ltd. is trading at ₹1,100 per share.
Question 17
What is the profit on the underlying shares at expiry?
A. ₹25,000
B. ₹50,000
C. ₹75,000
D. ₹100,000
Answer: D. ₹100,000
Explanation:
Purchase price = ₹1,000.
Expiry price = ₹1,100.
Profit per share:
₹1,100 − ₹1,000 = ₹100
For 1,000 shares:
₹100 × 1,000 = ₹1,00,000
Question 18
How much premium does Meera receive from writing the call?
A. ₹15,000
B. ₹20,000
C. ₹25,000
D. ₹50,000
Answer: C. ₹25,000
Explanation:
Premium received per share = ₹25.
Number of shares = 1,000.
Therefore:
₹25 × 1,000 = ₹25,000
Question 19
At expiry, the call option is exercised. What is the loss on the written call position?
A. ₹25,000
B. ₹40,000
C. ₹50,000
D. ₹75,000
Answer: C. ₹50,000
Explanation:
The call has a strike price of ₹1,050 and the stock is at ₹1,100.
The call writer's loss before premium is:
₹1,100 − ₹1,050 = ₹50 per share
For 1,000 shares:
₹50 × 1,000 = ₹50,000
Therefore, the loss on the written call is ₹50,000 before considering the premium received.
Question 20
What is Meera's net profit from the combined covered call position?
A. ₹50,000
B. ₹60,000
C. ₹75,000
D. ₹1,25,000
Answer: C. ₹75,000
Explanation:
Profit on shares:
₹1,00,000
Profit/loss on written call:
−₹50,000
Premium received:
+₹25,000
Net profit:
₹1,00,000 − ₹50,000 + ₹25,000
= ₹75,000
Therefore, the total net profit is ₹75,000.
The covered call strategy generates premium income but limits the upside beyond the call's strike price.
Your NISM VIII Case-Based Score
You have completed all 20 questions.
Use the following scale to evaluate your preparation:
| Score | Your Preparation Level |
|---|---|
| 18–20 | Excellent – Strong understanding |
| 15–17 | Very Good – Minor revision required |
| 12–14 | Good – Revise important concepts |
| 8–11 | Needs Improvement – More practice recommended |
| 0–7 | Start with fundamentals and practice regularly |
Remember that this score is only an indicator based on these practice questions. It is not a prediction of your actual NISM examination score.
What These Case Studies Test
These five cases cover several important concepts from the NISM-Series-VIII curriculum:
| Case | Main Concepts |
|---|---|
| Case 1 | Futures, hedging, basis, long futures |
| Case 2 | Put options, protective put, intrinsic value |
| Case 3 | Call options, premium, payoff, break-even |
| Case 4 | Futures pricing, cost of carry, arbitrage |
| Case 5 | Covered call, option writing, payoff |
NISM's published Series VIII objectives specifically include futures payoffs, futures pricing, hedging, speculation and arbitrage, option payoffs, option pricing, option strategies and related market concepts.
Important NISM Series VIII Exam Information
The NISM-Series-VIII: Equity Derivatives Certification Examination currently consists of 100 questions carrying 1 mark each, with a 2-hour duration and a 60% passing score. Negative marking of 25% of the marks assigned to a question applies for incorrect answers.Official Details from NISM
This makes accuracy particularly important. Candidates should therefore practice not only direct questions but also calculation-based and case-based questions.
How to Prepare for NISM Series VIII
Case-based questions are most useful when combined with systematic preparation.
1. Understand the Fundamentals
Start with:
- Derivatives
- Futures
- Options
- Index
- Market participants
- Hedging
- Speculation
- Arbitrage
2. Master the Calculations
Practice:
- Futures profit and loss
- Basis
- Cost of carry
- Option payoff
- Intrinsic value
- Time value
- Break-even
- Option strategies
3. Understand Trading Strategies
You should be comfortable identifying when strategies such as:
- Protective Put
- Covered Call
- Straddle
- Strangle
- Collar
- Butterfly Spread
may be appropriate.
4. Practice Case-Based Questions
Don't stop after calculating the answer.
Ask yourself:
Why was this strategy selected?
Who benefits from the position?
What happens if the underlying price moves in the opposite direction?
This approach helps develop the conceptual understanding required for application-based questions.
Ready for More NISM VIII Practice?
If you found these case-based questions useful, continue your preparation with more NISM Series VIII Equity Derivatives MCQs and mock tests.
At PassNISM, you can practice NISM questions covering different certification modules and test your understanding before appearing for the actual examination.
Practice more NISM Series VIII questions →
Final Takeaway
The NISM-Series-VIII examination is not only about remembering definitions. You need to understand how futures and options behave when market prices change.
The best way to build that understanding is to solve practical scenarios.
Practice cases involving:
Spot Price → Futures Price → Option Premium → Payoff → Profit/Loss → Hedging Strategy
The more scenarios you solve, the easier it becomes to identify the correct strategy and calculate the final outcome.
Keep practicing, review every mistake, and use the official NISM study material alongside mock tests for your preparation.
Disclaimer
These are original practice questions created for educational and exam-preparation purposes. They are not official NISM examination questions and should not be treated as a prediction of actual examination questions.
For the latest examination structure, syllabus and certification information, candidates should refer to the official NISM resources.