NCFM Model Test Paper

Options Trading Strategies Module

Maximum Marks: 100 Test Duration: 120 minutes Pass Marks: 60
Correct answers are shown in green. ttempted answers! i" wrong! are in red.

The number of breakeven points in a short straddle is/are ____. [ 2 Marks ] (a) (b) 1 (c) 2 (d) ! Q1 (e) " am not attemptin# the $uestion The %urrent sto%k pri%e of &'( )td. is *s. +!. ,t an e-er%ise pri%e of *s. +!. put option on &'( is pri%ed at *s. 2.1/ ea%h and the %all options are pri%ed at *s. 2.01 ea%h. 2a%h %ontra%t %onsists of 1!! options. 3hat is the ma-imum profit if 4ou bu4 a %all5 [ 2 Marks ] (a) *s. +201 (b) Unlimited (%) *s. 2611 (d) *s. +!!! Q2 (e) " am not attemptin# the $uestion The intrinsi% value of a put option is the ma-imum of _____. [ 2 Marks ] (a) (7pot 8ri%e 9 7trike 8ri%e). and :ero (b) (Strike Price - Spot Price), and zero (%) (7trike 8ri%e 9 7pot 8ri%e 9 8remium). and :ero (d) (7pot 8ri%e 9 7trike 8ri%e 9 8remium). and :ero Q+ Q (e) " am not attemptin# the $uestion ,n investor Mr. ;. sells 2 ,TM <all =ptions. ;u4s 1 "TM %all option and bu4s 1 =TM %all option. The strate#4 is a ___ strate#4. [ 2 Marks ] (a) ;ear spread (b) 7hort <ondor (c) Long Call Butterfly (d) ;ull spread

(e) " am not attemptin# the $uestion There is a put option on a sto%k >ith a strike pri%e of *s. +/ tradin# at *s. 2. 3hat >ould be the pri%e of the put option >ith a strike pri%e of *s. + 5 [ 1 Mark ] (a) Le (b) *s. + (%) *e. 1 (d) *s. 2 Q/ (e) " am not attemptin# the $uestion The profitable area of the pa4 off profile in a )on# <all <ondor is >ider than that of the ______. [ 2 Marks ] (a) )on# <all (b) )on# 8ut (c) Long Call Butterfly (d) )on# 7tran#le Q? (e) " am not attemptin# the $uestion The lo>er breakeven point in a lon# straddle _____. [ 2 Marks ] (a) 7trike 8ri%e of )on# <all 9 @et 8remium 8aid on put (b) 7trike 8ri%e of )on# <all 9 @et 8remium 8aid on %all (%) 7trike 8ri%e of )on# <all A @et 8remium 8aid (d) Strike Price of Long Call - $et Premium Paid Q6 (e) " am not attemptin# the $uestion <ompared to a lon# stran#le the %han%es of loss in )on# straddle are9 [ 1 Mark ] (a) more (b) less (%) the4 are e$ual (d) @one of the above Q0 (e) " am not attemptin# the $uestion Q1 Biven that at strike pri%e C *s. /! 8ut 8remium C *s. /. <all 8remium C *s. 2. "f an investor is usin# a )on# 7traddle 7trate#4. then his initial outflo> >ould be9 [ 1 Mark ] t!an " # 2

(a) *s. 2 (b) *s. / (c) " # % (d) *s. (e) " am not attemptin# the $uestion 3hi%h of the follo>in# is false >ith re#ard to )on# %all butterfl4 spread position5 [ 2 Marks ] (a) The seller e-pe%ts the market to move si#nifi%antl4 in either dire%tion (b) &!e profit for t!e buyer 'ould be t!e ma(imum '!en t!e market price i e)ual to t!e !ig!e t trike price (%) "t is %ombination of verti%al bullish and verti%al bearish strate#ies Q1 ! (d) The bu4er e-pe%ts the market to be more or less stable (e) " am not attemptin# the $uestion @ift4 is a ?!!. To do a 7hort 7tran#le Mr. , should sele%t >hi%h strike pri%es5 [ 1 Mark ] (a) *s. //! 8ut and *s. (b) *s. //! <all and *s. (%) *s. Q1 1 /! 8ut /! <all

/! <all and *s. //! 8ut

(d) " # *%++ Call and " # *,++ Put (e) " am not attemptin# the $uestion Mr. < sells 1 "TM <all =ption (lo>er strike). bu4s 1 "TM <all =ption (lo>er middle). bu4s 1 =TM <all =ption (hi#her middle). sells 1 =TM <all =ption (hi#her strike). De has entered into a _____ strate#4. [ 2 Marks ] (a) !ort call condor (b) lon# butterfl4 (%) short stran#le (d) short butterfl4 (e) " am not attemptin# the $uestion

Q1 2

Q1 7uppose ,;< )td. is tradin# at *s. +?0 in Eune. ,n investor bu4s a *s. 2!! %all + for *s. 10 >hile shortin# ,;< )td.. The breakeven point is ____. [ 2 Marks ] (a) " # *2%+

(b) *s. 210 (%) *s. ?? (d) *s. 1!2 (e) " am not attemptin# the $uestion ,n investor Mr. & e-pe%ts the pri%e of a sto%k ,;< )td. to in%rease. De ;u4s a <all and 7ells a 8ut. The strate#4 he has done is %alled as ____. [ 2 Marks ] (a) Long Combo (b) 7hort 7traddle (%) ;ear 8ut 7pread Q1 (d) )on# 7traddle (e) " am not attemptin# the $uestion 3hen 4ou are bullish about a sto%k 4ou %an do a _____. [ 2 Marks ] (a) ;ear 8ut 7pread (b) ;u4 8ut (%) 7ell <all Q1 / (d) Long Combo (e) " am not attemptin# the $uestion "n a 74ntheti% )on# <all strate#4 the investor is ___. [ 2 Marks ] (a) neutral to bearish (b) con er-ati-ely bulli ! (%) bearish Q1 ? (d) %onservativel4 bearish (e) " am not attemptin# the $uestion

Q1 @ift4 is at +2!!. Mr. &'( sells 2 ,TM @ift4 <all =ptions >ith a strike pri%e of 6 *s. +2!! at a premium of *s. 10 ea%h. bu4s 1 "TM @ift4 <all =ption >ith a strike pri%e of *s. +1!! at a premium of *s. 1 1.// and bu4s 1 =TM @ift4 <all =ption >ith a strike pri%e of *s. ++!! at a premium of *s. ? . The @et debit is _____. [ 1 Mark ] (a) " # .#,, (b) *s. 11.6/ (%) *s. 1.6/

(d) *s. 1!.6/ (e) " am not attemptin# the $uestion The profit in a %overed %all strate#4 is _____. [ + Marks ] (a) limited (b) al>a4s more than in lon# sto%k position (%) no risk Q1 0 (d) unlimited (e) " am not attemptin# the $uestion "n a 7hort <all ;utterfl4 there should be _____ distan%e bet>een ea%h strike. [ 2 Marks ] (a) une$ual (b) e)ual (%) an4 Q1 1 (d) :ero (e) " am not attemptin# the $uestion Mr. &'( is bullish on @ift4 >hen it is at 111.1!. De sells a 8ut option >ith a strike pri%e *s. 1!! at a premium of *s. 16!./! e-pirin# on +1st Eul4. "f @ift4 %loses at + !! at e-pir4 Mr. &'(Fs profit / loss >ill be ___. [ 1 Mark ] (a) loss of *s. 16!./! (b) lo of " # ,2.#,+ (%) #ain of *s. 16!./! Q2 ! (d) #ain of *s. /21./! (e) " am not attemptin# the $uestion

Q2 Mr. &'( sells a @ift4 8ut option >ith a strike pri%e of *s. !!! at a premium of 1 *s. 21. / and bu4s a further =TM @ift4 8ut option >ith a strike pri%e *s. +0!! at a premium of *s. +.!! >hen the %urrent @ift4 is at 111.1!. >ith both options e-pirin# on +1st Eul4. "f on e-pir4 the @ift4 %loses at +?!!. >hat is the net pa49off for Mr. &'(5 [ 1 Mark ] (a) #ain of *s. 10. / (b) loss of *s. 10. / (c) lo of " # /0/#,,

(d) #ain of *s. 101.// (e) " am not attemptin# the $uestion , _____________ is %reated b4 #oin# short on both put and %all options. and the strike pri%e and time to e-piration of both the options are same. [ 1 Mark ] (a) 74ntheti% put (b) lon# 7tran#le (c) S!ort traddle Q2 2 (d) )on# straddle (e) " am not attemptin# the $uestion The net effe%t of this strate#4 is to brin# do>n the %ost and raise the breakeven on bu4in# a 8ut ()on# 8ut). [ 2 Marks ] (a) )on# <ondor (b) Bear Put Spread (%) ;ull 8ut 7pread Q2 + (d) 7hort <ondor (e) " am not attemptin# the $uestion Mr. , bu4s a %all >ith strike pri%e of *s.1!! for *s. + and sells a %all >ith strike pri%e of *s. 1! for the same month for *s. ?. The ma-imum possible loss in the strate#4 is __. [ 2 Marks ] (a) *s. 1 (b) " # % (%) *s. 0 Q2 (d) *s. 1! (e) " am not attemptin# the $uestion , moderatel4 bearish investor >ill enter into a ______ strate#4. [ 2 Marks ] (a) ;u4 <all (b) Co-ered Put (%) )on# 7traddle Q2 / (d) 7ell 8ut (e) " am not attemptin# the $uestion

Q2 "n a ;ull <all 7pread if the sto%k pri%e rises to the hi#her (sold) strike. the investor

makes the ____. [ 2 Marks ] (a) ma-imum loss (b) ma-imum loss >hi%h is e$ual to the strike pri%e (%) ma-imum profit >hi%h is e$ual to the strike pri%e (d) ma(imum profit ? (e) " am not attemptin# the $uestion Mr. &'( sells a @ift4 "TM %all option >ith strike pri%e of *s. 2?!! at a premium of *s. 1/ and bu4s a @ift4 =TM %all option >ith strike pri%e *s. 20!! at a premium of *s. 1. "f on e-pir4 the @ift4 %loses at +2!!. the net pa49off for Mr. &'( is ___5 [ 1 Mark ] (a) lo of " # .,

(b) profit of *s. 1!/ (%) profit of *s. 1/ Q2 6 (d) loss of *s. 1!/ (e) " am not attemptin# the $uestion , sto%k ,;< )td. is tradin# at *s. /!. Mr. &'( is bullish on the sto%k. De sells a 8ut option >ith a strike pri%e *s. !! at a premium of *s. 1.!! and bu4s a <all =ption >ith a strike pri%e of *s. /!! at a premium of *s. 2. "f the sto%k %loses at *s. ?!!. his net pa4off is ___. [ 1 Mark ] (a) *s. 211 (b) " # .. (%) *s. 111 Q2 0 (d) *s. +11 (e) " am not attemptin# the $uestion , 7hort <all <ondor is suitable for ____ markets. [ 2 Marks ] (a) bullish onl4 markets (b) !ig!ly -olatile market (%) lo> volatilit4 markets Q2 1 (d) bearish onl4 markets (e) " am not attemptin# the $uestion

Q+ Mr. & bu4s a put >ith strike pri%e of *s. 11 for *s. 6 and sells a put >ith strike ! pri%e of *s. 11! for the same month for *s. /. "f at e-pir4. sto%k %loses at 1!!.

>hat is profit/loss for the strate#45 [ 2 Marks ] (a) *s. 92 (loss) (b) " # 2 (profit) (%) *s. / (profit) (d) *s. 9/ (loss) (e) " am not attemptin# the $uestion ;ull %all spreads %an be implemented b4 bu4in# an _____________ option . >hile simultaneousl4 >ritin# a hi#her strike _______________ option of the same underl4in# se%urit4 and the same e-piration month. [ 2 Marks ] (a) out9 of the mone4. at the mone4 (b) in-t!e money, out-of-t!e money (%) out9 of the mone4. out9of the mone4 Q+ 1 (d) out9of the mone4. in9 the mone4 (e) " am not attemptin# the $uestion @ift4 is presentl4 at 2?1 . Mr. &'( bu4s one @ift4 "TM 8ut >ith a strike pri%e *s. 20!! at a premium of *s. 1+2 and sells one @ift4 =TM 8ut >ith strike pri%e *s. 2?!! at a premium *s. /2. "f on e-pir4 of the options the @ift4 %loses at 22!!. then the net pa49off for Mr. &'( is ___. [ 1 Mark ] (a) ! (b) *s. 0! (%) *s. 2! Q+ 2 (d) " # /2+ (e) " am not attemptin# the $uestion

Q+ @ift4 is at +2!!. Mr. &'( bu4s 2 ,TM @ift4 <all =ptions >ith a strike pri%e of + *s. +2!! at a premium of *s. 16.1! ea%h. sells 1 "TM @ift4 <all =ption >ith a strike pri%e of *s. +1!! at a premium of *s. 1 1.// and sells 1 =TM @ift4 <all =ption >ith a strike pri%e of *s. ++!! at a premium of *s. ? . =n e-pir4 of the options @ift4 %loses at +?!!. The net pa4off for Mr. &'( is ____. [ 1 Mark ] (a) *s. 21.6/ (b) " # .#%, (%) *s. 11.6/ (d) *s. 1!.6/

(e) " am not attemptin# the $uestion 7uppose ,;< )td. is tradin# at *s. /!! in Eune. ,n investor. Mr. ,. shorts *s. +!! 8ut b4 sellin# a Eul4 8ut for *s. 2 >hile shortin# an ,;< )td. sto%k at *s. /!!. "f ,;< )td. %loses at *s. !! on e-pir4 of the options. the net pa4off for Mr. , is ____. [ 1 Mark ] (a) " # /2* (b) *s. 2 (%) *s. 22 Q+ (d) *s. 2+ (e) " am not attemptin# the $uestion <overed <all pa4off dia#ram has same shape as pa4off dia#ram of a _____. [ 2 Marks ] (a) )on# put (b) 8rote%tive put (%) 7hort <all Q+ / (d) S!ort put (e) " am not attemptin# the $uestion The seller of a %all option does not e-pe%tG [ 2 Marks ] (a) ;earishness in the markets (b) Ho>nside volatilit4 in the pri%e of the underl4in# asset (%) He%rease in the pri%e of underl4in# asset Q+ ? (d) 1ncrea e in t!e price of t!e underlying a et (e) " am not attemptin# the $uestion

Q+ 7uppose an investor Mr. , bu4s ,;< )td. for *s. 6/0. De >rites a <all of strike 6 pri%e *s. /!!! for *s. +1 >hile simultaneousl4 pur%hasin# a *s. 6!! strike pri%e 8ut for *s. 26. ,t e-pir4 of the options the sto%k %loses at *s. /1!!. The @et pa4off for Mr. , is ___. [ 1 Mark ] (a) A *s. 2?/ (b) A *s. 2+/ (%) A *s. 2/! (d) 2 " # 2,*

(e) " am not attemptin# the $uestion 7uppose @ift4 is at +/1 in Ma4. ,n investor e-e%utes a lon# stran#le b4 bu4in# a Eune *s. +!! put for *s. 12+ and a Eune *s. /0/! %all for *s. 0/. The net debit taken to enter the trade is ____. [ 2 Marks ] (a) " # 2+0 (b) *s. 0/ (%) *s. +0 Q+ 0 (d) *s. 12+ (e) " am not attemptin# the $uestion , )on# 7traddle is a ____ strate#4. [ 2 Marks ] (a) -olatile (b) bullish (%) bearish Q+ 1 (d) neither bullish nor bearish (e) " am not attemptin# the $uestion @ift4 is at +?!!. Mr. &'( sells 1 "TM @ift4 <all =ption >ith a strike pri%e of *s. + !! at a premium of *s. 1.2/. bu4s 1 "TM @ift4 <all =ption >ith a strike pri%e of *s. +/!! at a premium of *s. 2?. bu4s 1 =TM @ift4 <all =ption >ith a strike pri%e of *s. +6!! at a premium of *s. 1.0! and sells 1 =TM @ift4 <all =ption >ith a strike pri%e of *s. +0!! at a premium of *s. ?.!!. =n e-pir4 of the options if @ift4 %loses at +1!!. the net pa49off for Mr. &'( is ____. [ 1 Mark ] (a) *s. 9 11. / (loss) (b) *s. 00.// (profit) (%) *s. 900.// (loss) Q ! (d) " # //#*, (profit) (e) " am not attemptin# the $uestion

Q The losses in a s4ntheti% lon# %all are ____. [ 1 Mark ] 1 (a) limited (b) depends on the strike pri%e (%) depends on the premium (d) unlimited

(e) " am not attemptin# the $uestion ,n investor adopts a short straddle at a strike pri%e of *s. 1. premium for %all bein# *s. 2.+! and put bein# *s. +./!. the ma-imum #ain >ould beG [ 2 Marks ] (a) *s. 2.+! (b) *s. +./! (%) *s. 1.2! Q 2 (d) " # ,#0+ (e) " am not attemptin# the $uestion Mr. M bu4s 1 "TM <all (lo>er strike). sells 1 "TM <all (lo>er middle). sells 1 =TM <all (hi#her middle) and bu4s 1 =TM <all (hi#her strike). De has entered into a _____ strate#4. [ 2 Marks ] (a) lon# stran#le (b) long call Condor (%) lon# butterfl4 Q + (d) short butterfl4 (e) " am not attemptin# the $uestion , 7hort 7tran#le is a sli#ht modifi%ation to the _____. [ 2 Marks ] (a) , )on# 7tran#le (b) , )on# <ondor (%) , )on# ;utterfl4 spread Q (d) S!ort Straddle (e) " am not attemptin# the $uestion 3hat is the reason for investors to opt for a lon# stran#le strate#4 instead of a lon# straddle strate#45 [ 2 Marks ] (a) its safer (b) it #ives a hi#her return (c) t!e premium paid i lo'er Q / (d) the premium re%eived is hi#her (e) " am not attemptin# the $uestion

Q 7uppose ,;< )td. is tradin# at *s. /6 in Eune. ,n investor Mr. , bu4s a *s. ? /!! %all for *s. 1!! >hile shortin# the sto%k at *s. /6. "f ,;< )td. %loses at

*s. 1!! on e-pir4 of the options %ontra%t. the net pa4off for the investor is *s. _____. [ 1 Mark ] (a) *s. +/6 (b) *s. //6 (%) *s. /6 (d) " # 2,% (e) " am not attemptin# the $uestion The profit in a %ollar strate#4 is ____. [ 2 Marks ] (a) limited (b) unlimited (%) limited to premium re%eived on the %all Q 6 (d) limited to premium re%eived on the put (e) " am not attemptin# the $uestion @ift4 is at +?!!. Mr. &'( bu4s 1 "TM @ift4 <all =ption >ith a strike pri%e of *s. + !! at a premium of *s. 1.2/. sells 1 "TM @ift4 <all =ption >ith a strike pri%e of *s. +/!! at a premium of *s. 2?. sells 1 =TM @ift4 <all =ption >ith a strike pri%e of *s. +6!! at a premium of *s. 1.0! and bu4s 1 =TM @ift4 <all =ption >ith a strike pri%e of *s. +0!! at a premium of *s. ?.!!. =n e-pir4 of the options if @ift4 %loses at +2!!. the net pa49off for Mr. &'( is ____. [ 1 Mark ] (a) *s. 900.// (loss) (b) " # -//#*, (lo ) (%) *s. 11. / (profit) Q 0 (d) *s. 00.// (profit) (e) " am not attemptin# the $uestion 3hi%h strate#4 involves >ritin# a %all and put option at different strike pri%e but same maturit4 ____. [ 2 Marks ] (a) short straddle (b) lon# straddle (%) lon# stran#le Q 1 (d) !ort trangle (e) " am not attemptin# the $uestion

Q/ Mr. & bu4s a put >ith strike pri%e of *s. 1!! for *s. / and sells a put >ith strike

pri%e of *s. 1!0 for the same month for *s. 1!. The ma-imum possible #ain in the strate#4 is ___. [ 2 Marks ] (a) *s. 6 (b) *s. 0 (c) " # , (d) *s. ? ! (e) " am not attemptin# the $uestion Mr. &'( bu4s 2 ,TM %all options. sells 1 "TM %all option and sells 1 =TM %all option. De has entered into a _____ strate#4. [ 2 Marks ] (a) 7hort straddle (b) )on# <all ;utterfl4 (%) 7hort 7tran#le Q/ 1 (d) S!ort Call Butterfly (e) " am not attemptin# the $uestion 3hi%h of the follo>in# options strate#4 is not a bullish strate#45 [ 1 Mark ] (a) ;u4in# a Iutures %ontra%t on the 7to%k (b) ;u4in# a %all option (%) 3ritin# a put option Q/ 2 (d) 3riting a call option (e) " am not attemptin# the $uestion ,n investor sells a sto%k and sells a put on the sto%k. De has done a _____. [ 2 Marks ] (a) )on# 7tran#le (b) 7hort 7traddle (%) )on# 7traddle Q/ + (d) Co-ered Put (e) " am not attemptin# the $uestion

Q/ Mr. , bu4s a %all >ith strike pri%e of *s. 11 for *s. ? and sells a %all >ith strike pri%e of *s. 1!/ for the same month for *s. +. "f at e-pir4.sto%k %loses at 1!/. >hat is the profit/loss for the strate#45 [ 1 Mark ]

(a) *s. 9+ (loss) (b) *s. 9? (loss) (c) " # 4 (profit) (d) *s. ? (profit) (e) " am not attemptin# the $uestion "n %ase of ;ull 8ut 7pread Ma-imum 8rofit is a%hieved >hen ____. [ 2 Marks ] (a) 8ri%e of Jnderl4in# K 7trike 8ri%e of 7hort 8ut (b) 8ri%e of Jnderl4in# KC 7trike 8ri%e of 7hort 8ut (%) 8ri%e of Jnderl4in# L 7trike 8ri%e of 7hort 8ut Q/ / (d) Price of Underlying 56 Strike Price of S!ort Put (e) " am not attemptin# the $uestion Mr. H ;u4s a 7to%k. ;u4s a 8ut and 7ells a <all on the sto%k. This strate#4 is ____. [ 2 Marks ] (a) a lon# straddle (b) a lon# butterfl4 (%) a lon# stran#le Q/ ? (d) a collar (e) " am not attemptin# the $uestion 7uppose a Eune %all option on a sto%k & is %urrentl4 tradin# at *s. +1 >ith a strike pri%e *s. +/. =n the e-piration date the pri%e of the sto%k is *s. +2. Then. >hi%h of the follo>in# is %orre%t 5 [ 1 Mark ] (a) =ption is in9the9mone4 (b) 8a4 off is *s. + (c) 7ption i out -of- money Q/ 6 (d) =ption is at9the9mone4 (e) " am not attemptin# the $uestion

Q/ Mr. &'( shorts a sto%k 8Q* )td. and bu4s <all options on 8Q* )td. for an e$ual 0 amount. De has %reated a _______ strate#4. [ 2 Marks ] (a) )on# 7traddle (b) Protecti-e Call (%) )on# stran#le

(d) 7hort 7traddle (e) " am not attemptin# the $uestion Mr. *amesh is adoptin# a ;ear <all spread strate#4 usin# %all options on a sto%k havin# the strike pri%es of *s. 1/! and *s.12/. pri%ed at *s. 6 and *s. 2! respe%tivel4. ,t >hat pri%e of the sto%k durin# the e-piration. >ould he break even 5 [ 2 Marks ] (a) *s. 1+6 (b) *s. 1+! (%) *s. 1+2 Q/ 1 (d) " # /40 (e) " am not attemptin# the $uestion 3hi%h of the follo>in# statements about a %overed %all >ritin# strate#4 is true5 [ 2 Marks ] (a) *e>ards are unlimited (b) ;reak even is 7to%k 8ri%e paid A 8remium re%eived (%) "t is a bearish strate#4 Q? ! (d) "e'ard are limited (e) " am not attemptin# the $uestion