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BCFM exams
MOST IMPORTANT 400 - 500 QUESTIONS - ANSWERS AND EXPLANATIONS FOR EASY
CLEARING OF EXAMS.
Q 1.
Wrong Answer
Correct Answer:
Its xed by the exchange
Explanation:
Tick size is the minimum move allowed in the price quotations. Exchanges
decide the tick sizes on traded contracts as part of contract specication.
Tick size for Nifty futures is 5 paisa.
Q 2.
Explanation:
CALL OPTION : An agreement that gives an investor the right (but not the
obligation) to buy a stock, bond, commodity, or other instrument at a
specied price within a specic time period.
It may help you to remember that a call option gives you the right to "call in"
(buy) an asset. You prot on a call when the underlying asset increases in
price.
Q 3.
If the price of a stock is volatile, then the option premium would be relatively
______.
Lower
Higher
No eect of volatility
zero
Correct Answer
Explanation:
Higher volatility means higher risk and higher risk means one has to pay a
higher premium.
Q 4.
All the orders entered on the Trading System of a Derivative Exchange are at
Prices exclusive of brokerage. True or False ?
False
True
Wrong Answer
Correct Answer:
True
Explanation:
The prices are exclusive ie. with out any brokerage. Brokerage is added later
and is reected in the contract note.
Q 5.
A trader sells a lower strike price CALL option and buys a higher strike price
CALL option, both of the same scrip and same expiry date. This strategy is
called _______ .
Bearish Spread
Bullish Spread
Long term Investment
Buttery
Wrong Answer
Correct Answer:
Bearish Spread
Explanation:
A bear call spread is a limited prot, limited risk option strategy that can be
used when the options trader is moderately bearish on the underlying
security.
It is entered by buying call options of a certain strike price and selling the
same number of call options of lower strike price (in the money) on the same
underlying security with the same expiration month.
Q 6.
A trader buys a call and a put option of same strike price and same expiry.
This is called as _________ .
Buttery
Short Straddle
Long Straddle
Calendar Spread
Wrong Answer
Correct Answer:
Long Straddle
Explanation:
To do a long straddle strategy one has to buy a call and a put option of the
same strike price and expiry. Together, they produce a position which will
lead to prots if the market / stock is very volatile and it makes a big move either up or down.
For eg- A person buys a Rs 200 call at Rs 30 and a Rs 200 put at Rs 20 of a
stock. If the stock rises signicantly the call will rise greatly but his put will
fall by maximum Rs 20. So he makes a good prot. If the stock falls
signicantly, he loses his call money buy gains greatly in the put option as it
rises.
Thus the Long Straddle is used when a trader expects a big move in the stock
- in any direction is ok.
Q 7.
Wrong Answer
Correct Answer:
Short Straddle
Explanation:
A Short Stradlle strategy carried out by holding a short position in both a call
and a put that have the same strike price and expiration date. He sells a call
and a put so that he can prot from the premiums.The maximum prot is the
amount of premium collected by writing the options.
The short straddle is a risky strategy an investor uses when he or she
believes that a stock's price will not move up or down signicantly. Because
of its riskiness, the short straddle should be employed only by advanced
traders due to the unlimited amount of risk associated with a very large move
up or down.
Q 8.
Explanation:
As Mr A has not squared up his position, the exchane will do it and the same
is done at the CASH MARKET CLOSING PRICE.
So Buying Price - Rs 900
Sq Up price - Rs 910
Prot of Rs 10 x 250 lot = Rs 2500
Q 9.
Explanation:
A long position in any option can be closed by selling that option and not in
any other way.
So a long position in a CALL option can be closed by selling that CALL option.
Q 10.
Wrong Answer
Correct Answer:
Cannot be traded
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