NISM VIII — Equity Derivatives
Complete NISM-VIII Equity Derivatives prep — derivatives basics, indices, forwards & futures, options pricing & Greeks, trading strategies, clearing & SPAN margins, regulation, taxation and sales practices. Built from the December 2024 workbook.
What is a Derivative?
A derivative is a contract whose value is derived from the price of another asset — the underlying. The underlying can be a stock, an index, a commodi...
Market Participants — Hedgers, Speculators, Arbitrageurs
Derivatives markets have three broad participant types — hedgers (transfer risk), speculators (take risk for profit) and arbitrageurs (exploit price d...
OTC vs Exchange-Traded Derivatives
Derivatives trade either on an organised exchange (standardised, cleared, margined, transparent) or over-the-counter (customised, bilateral, privately...
Risks in Derivatives Trading
Participation in derivatives exposes a trader to five broad risk categories — market (price) risk, liquidity risk, credit (counterparty) risk, legal/r...
Stock Indices — Types and Construction
A stock index is a statistical indicator of the price movement of a basket of stocks — a proxy for overall market or sector performance. Indices are b...
Major Indian Indices and Their Applications
India's main benchmark indices are Nifty 50 and BSE Sensex (broad market), Bank Nifty (sector), Nifty Next 50, Nifty 500, Nifty Midcap and Smallcap se...
Forward Contracts
A forward contract is a bilateral, customised, over-the-counter agreement to buy or sell an underlying asset at a specified future date for a price fi...
Futures Contracts and Contract Specifications
A futures contract is a standardised, exchange-traded version of a forward — same economic promise to buy/sell at a fixed price on a fixed future date...
Key Futures Terminology — Spot, Basis, Contango, Backwardation
Spot price is the current cash-market price of the underlying. Futures price is the traded price of the derivative. Basis = Spot − Futures. When Futur...
Futures Payoffs — Long and Short
A futures payoff is linear and symmetric. Long futures profits ₹1 for every ₹1 the underlying rises above the entry price, and loses ₹1 for every ₹1 i...
Futures Pricing — Cost of Carry Model
Fair futures price = Spot × e^((r − q) × t) for continuous compounding, or Spot + Cost of Carry for simple. r is the risk-free rate, q is the dividend...
Options — Call, Put, Buyer, Writer
An option is a contract that gives the buyer the right — but NOT the obligation — to buy (Call) or sell (Put) the underlying at a predetermined strike...
Moneyness, Intrinsic Value and Time Value
Moneyness describes the relationship between the strike price and the spot price. ITM (In-The-Money) — exercise today yields profit. ATM (At-The-Money...
Option Payoffs — Long Call, Short Call, Long Put, Short Put
Option payoffs are asymmetric and non-linear. Long Call has limited loss (premium) and unlimited profit. Short Call has limited profit (premium) and u...
Option Pricing — Black-Scholes and the Greeks
The Black-Scholes-Merton model prices a European option on a non-dividend stock. Its inputs are Spot, Strike, Time, Volatility and Risk-free rate. The...
Hedging Strategies — Protective Put, Covered Call, Beta Hedge
Hedging strategies neutralise or reduce specific price risk. Protective Put = long stock + long put (downside insurance). Covered Call = long stock + ...
Speculation Strategies — Spreads, Straddles, Strangles
Multi-leg speculation strategies express directional or volatility views while managing cost and risk. Bull Spread (long low-strike + short high-strik...
Trading Mechanism — F&O Segment, Orders, Eligibility
India's F&O segment runs on NSE's NEAT-F&O and BSE's BOLT platforms with continuous anonymous auction. Orders are routed through registered trading me...
Corporate Actions — Adjustments and Trading Costs
Corporate actions (bonus, split, dividend, M&A) on the underlying stock require the exchange to adjust the open derivative contracts so that the econo...
Clearing, Settlement and Novation
Clearing is the process of calculating each party's obligations after trading. Settlement is the actual transfer of cash or securities to fulfil them....
SPAN Margin and Position Limits
SPAN (Standard Portfolio Analysis of Risk) is the portfolio-based margining system used by Indian clearing corporations. It calculates worst-case one-...
Legal & Regulatory Environment
SEBI is the primary regulator for Indian derivatives, supported by RBI (for interest-rate and currency products), exchanges (NSE/BSE/MSEI) and clearin...
Accounting and Taxation of Derivatives
Derivative income is classified as "non-speculative business income" under Section 43(5) of the Income Tax Act — eligible for business-expense deducti...
Sales Practices and Investor Protection
SEBI mandates a code of conduct for brokers dealing in derivatives — fair execution, full disclosure, suitability assessment, fair charges, prompt gri...
Ready to start NISM VIII — Equity Derivatives?
Begin with the first topic and work through all 24 topics at your own pace.