This document discusses the payoff structures of various derivative instruments. It begins by introducing futures contracts and describes the payoff profiles for buyers and sellers of futures. It then covers call and put options, explaining the payoffs graphically for buyers and sellers under different market conditions. Specific strategies like protective puts and covered calls are also outlined. The key payoffs and risks of bearish options strategies aiming to profit from downward price moves are summarized at the end.

1. PAYOFF STRUCTURE OF DERIVATIVES
S. HASAN RAZA
HAFIZ ABDUL RAUF
MUHAMMAD ZAID
SABIH SHEIKH
MUHAMMAD MAAZ KHURSHEED

2.  INTRODUCTION
 FUTURE PAYOFFS
 OPTION PAYOFFS
 PROTECTIVE PUT
 COVERED CALL
 BEARISH STRATEGIES

3. WHAT ARE DERIVATIVES ?

4. TYPES OF DERIVATIVES
 FORWARD
 FUTURE
 OPTION
 SWAPS

5. FUTURE PAYOFF
 Futures – Buyer Payoff
 Payoff for Futures Buyer
 Futures – Seller Payoff
 Payoff for Futures Seller

6. Mr. X buys a Nifty futures at 1250
Nifty Payoff
1,000 -250
1,100 -150
1,200 -50
1,300 50
1,400 150
Futures – Buyer Payoff

7. -250
-150
-50
50
150
250
1,000 1,100 1,200 1,300 1,400 1,500
Payoff for Futures Buyer

8. Mr. X sells Nifty futures at 1250
Nifty Payoff
1.000 250
1,100 150
1,200 50
1,300 -50
1,400 -150
Futures – Seller Payoff

9. -250
-150
-50
50
150
250
1,000 1,100 1,200 1,300 1,400 1,500
Payoff for Futures Buyer

10. CALL OPTION
PUT OPTION

11. Buying of a Call Option
View: Bullish
• Buy a one month Nifty Call
• With the Strike of 1250
• Premium of Rs 100

12. Nifty
Spot
1000 1100 1200 1250 1350 1400 1500
Below
strike
Below
strike
Below
strike
At strike Break
even
Above
strike
Above
strike
Value of
1250 call
0 0 0 0 100 150 250
Premium
paid
-100 -100 -100 -100 -100 -100 -100
Net Profit
/ (Loss)
-100 -100 -100 -100 0 50 150
Payoffs

13. Payoff chart
-150
-100
-50
0
50
100
150
200
1,000 1,100 1,200 1,250 1,350 1,450 1,550

14. View: Bearish
• Sell / Write a one month Nifty Call
• With the Strike of 1250
• Premium of Rs 100
Selling of a Call Option

15. Nifty
Spot
1000 1100 1200 1250 1350 1450 1550
Below
strike
Below
strike
Below
strike
At strike Break
even
Above
strike
Above
strike
Value of
1250 call
0 0 0 0 -100 -200 -300
Premium
recd
100 100 100 100 100 100 100
Net Profit
/ (Loss)
100 100 100 100 0 -100 -200
Payoffs

16. Payoff Chart
-250
-200
-150
-100
-50
0
50
100
150
200
1,000 1,100 1,200 1,250 1,350 1,450 1,550

17. Buying of a Put Option
View: Bearish
• Buy a one month Nifty Put
• With the Strike of 1250
• Premium of Rs 100

18. Payoffs
Nifty
Spot
1000 1100 1150 1250 1350 1450 1550
Below
strike
Below
strike
Break
even
At strike Above
strike
Above
strike
Above
strike
Value of
1250 put
250 150 100 0 0 0 0
Premium
paid
-100 -100 -100 -100 -100 -100 -100
Net Profit
/ (Loss)
150 50 0 -100 -100 -100 -100

19. Payoff Chart
-150
-100
-50
0
50
100
150
200
950 1050 1150 1250 1350 1450 1550

20. PROTECTIVE PUT

21. COVERED CALL

23. Bearish strategies in options trading are employed when
the options trader expects the underlying stock price to
move downwards.
WHY USE BEARISH STRATEGIES?
•Limiting lose
• Negative effects of time decay.
• Generate profit.
 DISADVANTAGES:
• Limited profit potential
• Number of different strategies
• Takes extra time and effort to decide best one for any situation.