NISM Series 8 Equity Derivatives: Margining, Payoff & Futures Pricing Cheat Sheet
NISM Series VIII enforces strict 25% negative marking and a 60% passing cutoff. Mastering cost-of-carry futures pricing, option payoff profiles, put-call parity, and SPAN/ELM margining guarantees high accuracy on 25+ numerical marks.
Quick Facts & Exam At-A-Glance
Overview & Context
The NISM Series VIII: Equity Derivatives Certification Examination is notoriously tougher than Series V-A due to 0.25 negative marking and heavy quantitative problems on futures arbitrage, options payoffs, Greeks, and clearing corporation risk management. Use this formula sheet to lock down every calculation type.
1. Futures Fair Pricing & Cost-of-Carry Model
The theoretical (fair) price of an equity or index futures contract depends on the current spot price, the risk-free cost of borrowing (interest rate), time to expiration, and expected dividends.
Fair Futures Price (Simple) = S × (1 + r × t) - Present Value of Expected DividendsFair Futures Price (Continuous Compounding) = S × e^((r - q) × t)Where:
S= Current Spot Price of the underlying stock or indexr= Risk-free rate of interest (per annum, in decimal)t= Time to expiry in years (e.g.,Days to Expiry ÷ 365)q= Expected continuous dividend yield
Basis & Cash-and-Carry Arbitrage:
- Basis =
Spot Price - Futures Price(In normal contango markets where Futures > Spot, Basis is negative). - Arbitrage Rule: If
Actual Futures Price > Fair Futures Price, Buy Spot & Sell Futures (Cash-and-Carry). IfActual Futures Price < Fair Futures Price, Sell Spot & Buy Futures (Reverse Cash-and-Carry).
2. Options Payoffs, Breakeven Formulas & Put-Call Parity
Understanding intrinsic value, net profit/loss at expiry, and breakeven points for Calls and Puts accounts for 10+ marks in the NISM 8 exam.
| Option Position | Maximum Profit | Maximum Loss | Breakeven Point (BEP) |
|---|---|---|---|
| Long Call (Buy Call) | Unlimited | Premium Paid | Strike Price (K) + Premium |
| Short Call (Sell Call) | Premium Received | Unlimited | Strike Price (K) + Premium |
| Long Put (Buy Put) | Strike Price - Premium | Premium Paid | Strike Price (K) - Premium |
| Short Put (Sell Put) | Premium Received | Strike Price - Premium | Strike Price (K) - Premium |
Option Value Decomposition:
- Call Intrinsic Value =
Max(0, Spot - Strike) - Put Intrinsic Value =
Max(0, Strike - Spot) - Time Value =
Option Premium - Intrinsic Value
Put-Call Parity Equation (European Options):
Call Price + PV(Strike) = Put Price + Spot Price3. Clearing Margins (SPAN + ELM) & Daily MTM Settlement
Clearing corporations (like NSE Clearing / ICCL) collect upfront and daily mark-to-market margins to eliminate counterparty default risk.
- Initial Margin =
SPAN Margin (VaR-based portfolio risk) + Extreme Loss Margin (ELM).
- SPAN (Standard Portfolio Analysis of Risk) calculates worst-case portfolio loss over a 1-day/2-day horizon across 16 price and volatility scenarios (minimum 6-sigma / 99% VaR coverage).
- ELM (Extreme Loss Margin) acts as a supplementary cushion against tail events beyond SPAN scenarios.
- Mark-to-Market (MTM) Settlement:
- At the end of every trading day, open futures positions are marked to the Daily Settlement Price (usually the volume-weighted average price of the last 30 minutes of trading).
- Daily MTM Profit/Loss =
(Today's Settlement Price - Yesterday's Settlement Price) × Lot Size × Number of Lots. - MTM settlement happens in cash on a T+1 basis.
Practice Test: NISM Series 8 Equity Derivatives
Test your comprehension right now with high-yield multiple-choice questions. Select an answer to see instant explanations.
Spot Nifty is trading at 22,000. The risk-free interest rate is 8% per annum (simple interest) and the contract expires in 90 days. Ignoring dividends, what is the approximate fair price of the 90-day Nifty Futures contract?
A trader buys a Reliance Industries ₹2,900 Strike Call Option by paying a premium of ₹75. The lot size is 250 shares. If Reliance closes at ₹3,020 on expiry day, what is the trader's net profit?
An investor sells (writes) a Nifty 22,500 Put Option at a premium of ₹140. What is the breakeven point for this Short Put position at expiry?
A trader holds 2 lots of Infosys Futures (lot size 400) bought at ₹1,510. Yesterday's settlement price was ₹1,530 and today's closing settlement price is ₹1,515. What is today's Mark-to-Market (MTM) debit or credit?
Which of the following combinations accurately represents the Upfront Initial Margin collected by a Clearing Corporation on Equity Futures positions?
Stock XYZ is trading at ₹500 in the spot market. A ₹500 Strike Put Option is trading at a premium of ₹24. What is the Time Value component of this Put Option?
Frequently Asked Questions (FAQ)
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