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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options

Which of the following statements about the Indian index options traded on the exchanges is correct?

Index options in India are European style, meaning they can be exercised only on the expiry date, and they are cash settled rather than delivered. The buyer pays only the premium and no margin, so the other statements are wrong.

  1. AThey are American style and can be exercised on any day before expiry
  2. BThey are European style and can be exercised only on the expiry dateCorrect
  3. CThey are physically settled by delivery of all index constituent shares
  4. DThe buyer of the option has an obligation to pay the margin on the position

Explanation

Index options in India are European style, so exercise is possible only at expiry, and they are cash settled because delivery of an index is not possible. The buyer pays the full premium upfront and does not pay margin, since the buyer's loss is limited to the premium. Hence the statement on European style is correct.

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