NISM Series VIII: Equity Derivatives Exam Guide

What are derivatives, types (forwards, futures, options, swaps), the role they play in price discovery and risk transfer, history of derivatives markets in India, and the distinction between OTC and exchange-traded instruments.

What is a stock index, index construction methodology (market-cap weighted, price-weighted), the NIFTY 50 and SENSEX as underlying assets for equity derivatives, and how index derivatives differ from single-stock derivatives.

Futures pricing using cost-of-carry model, basis and convergence, arbitrage between cash and futures, contango vs. backwardation, hedge ratio, minimum variance hedge, and practical applications of equity index futures for institutional investors.

The single most important chapter. Call and put mechanics, moneyness (ITM/ATM/OTM), intrinsic value and time value decomposition, put-call parity, option Greeks in detail (Delta, Gamma, Theta, Vega, Rho). Black-Scholes model components.

Payoff diagrams and break-even analysis for: Covered Call, Protective Put, Bull Call Spread, Bear Put Spread, Long/Short Straddle, Long/Short Strangle, Butterfly Spread, and Iron Condor. Market views and profit/loss profiles.

Order types (market, limit, stop-loss), trading hours for equity F&O, lot sizes, contract specifications, margins on entry, and position monitoring during the trading day.

Role of NSCCL, types of margin (Initial Margin, Extreme Loss Margin, Calendar Spread Margin), SPAN-based margining system, daily MTM settlement, final settlement at expiry, and physical delivery settlement.

SEBI's F&O regulations, criteria for inclusion and exclusion of stocks in the F&O segment, position limit norms (client, proprietary, member-wise), prevention of market manipulation, and self-regulatory organizations.

Classification of F&O income as business income (not capital gains), Tax Audit requirement under Section 44AB, GST on brokerage, accounting treatment for open futures and options positions as per ICAI guidance.

Know Your Client (KYC) process, suitability assessment for derivative products, investor grievance redressal mechanism, SCORES portal, prohibition on mis-selling, and the code of conduct for registered persons.