This PPT talks about the scope and basic feature of equity derivatives market and introduction to the equity derivatives market with examples. this also gives some strategies and gives suggestions as on if the newbies should consider this as an investing option?
2. “A derivative is a contract of selling or buying
of financial securities between to parties
expected to settle on a future specific date
and its value is derived from the value of
underlying assets ”
4. FUNCTIONS OF DERIVATES INSTRUMENTS
1. The derivatives assist to encounter the financial risks associated due
to fluctuation of price, interest rate and currency exchange rate.
2. The financial derivatives protect sellers from loss due to price
fluctuation ( price downfall) because it ensures the commitment of
the price of financial securities in future.
3. It also provides a platform to speculate and make a profit for those
who are ready to take risks.
4. The financial derivatives transfer the risks from those who want to
avoid it to those are ready to accept it.
6. FUTURE CONTRACT
A future contract is an agreement between two parties in which one
party commits to buying and other party commits to sell specified
units of specified assets on a specific date in future at a price agreed
by both. .
7.
8. FORWARD CONTRACT
A forward contract is OTC (over the
counter) type contract which is not
regulated under the stock exchange
or derivative market. It is not
marketable derivative instruments
and therefore, performed and
settled by both the parties directly.
9. SWAP CONTRACT
A Swap Derivative is a contract wherein two parties decide to
exchange liabilities or cash flows from separate financial
instruments. Often, swap trading is based on loans or bonds,
otherwise known as a notional principal amount.
10. OPTIONS CONTRACT
An option contract is a contract between two parties to buy or sell
shares, commodities or currency in future date at a price agreed
today but option holder is not bound to exercise this contract at the
date of maturity. It is up to the option holder whether he wants to
exercise it or not.
13. TERMINOLOGIES WITH DEFINATIONS
1. Option type: There are two types of options you can buy or sell:
Call: An options contract that gives you the right to buy stock at a set price within a certain time period.
Put: An options contract that gives you the right to sell stock at a set price within a certain time period.
2. Expiration date: The date when the options contract becomes void. It’s the due date for you to do something
with the contract, and it can be days, weeks, months or years in the future.
3. Strike price, or exercise price: The price at which you can buy or sell the stock if you choose to exercise the
option.
4. Premium: The per-share price you pay for an option. The premium consists of:
Intrinsic value: The value of an option based on the difference between a stock’s current market price and the
option’s strike price.
Time value: The value of an option based on the amount of time before the contract expires. Time is valuable
to investors because of the possibility that an option’s intrinsic value will increase during the contract’s time
frame. As the expiration date approaches, time value decreases. This is known as time decay or "theta," after
the options pricing model used to calculate it.
14. TERMINOLOGIES WITH DEFINATIONS
5.Strike: The price you'd pay or receive if you exercised the option.
6.Contract name: Just like stocks have ticker symbols, options contracts have option symbols with letters and
numbers that correspond to the details in a contract. In a real option chain, the company’s ticker symbol would
come before the contract name.
7.Last: The price that was paid or received the last time the option was traded.
8.Bid: The price a buyer is willing to pay for the option. If you're selling an option, this is the premium you'd
receive for the contract.
9.Ask: The price a seller is willing to accept for the option. If you want to buy an option, this is the premium
you'd pay.
10.Change: The price change since the previous trading day’s close, also expressed in percentage terms.
11.Volume: The number of contracts traded that day.
12.Open interest: The number of options contracts currently in play.
13.Volatility: A measurement of how much a stock price swings between the high and low price each day.
Historic volatility, as the name implies, is calculated using past price data. It can be measured on an annual
basis or during a certain time frame.
18. Options are more complex than basic stocks trading and require margin.. Therefore, basic options
strategies may be appropriate for certain beginners but only after all risks are understood as well as
how options work. In general, options used to hedge existing positions or for taking long positions in
puts or calls are the most appropriate for less-experienced traders.
