Derivatives are financial contracts whose value is based on an underlying asset or condition. The two main types are futures and options. Futures obligate the buyer and seller to exchange a standardized asset at a predetermined price and date. Options provide the right, but not obligation, to buy or sell the underlying asset at a strike price by expiration. Derivatives are used for speculation and hedging risk. Major derivatives exchanges include the Chicago Board of Trade and Chicago Board Options Exchange. The Commodity Futures Trading Commission regulates futures and some options while the Securities and Exchange Commission regulates stock options.
There are many of similarities between forex trading and Futures. First, they both use the same platforms, charts and pricing methods, authorize traders to guess the price movements of commodities, indices and currencies all from one account.
There are many of similarities between forex trading and Futures. First, they both use the same platforms, charts and pricing methods, authorize traders to guess the price movements of commodities, indices and currencies all from one account.
What is Research? What are the basic steps in Research? Who are Internal and External Research Consultants? Types of Research with business examples.Advantages and Disadvantages of Internal and External Researchers
Attending a job Interview for B1 and B2 Englsih learnersErika906060
It is a sample of an interview for a business english class for pre-intermediate and intermediate english students with emphasis on the speking ability.
Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
Buy Verified PayPal Account | Buy Google 5 Star Reviewsusawebmarket
Buy Verified PayPal Account
Looking to buy verified PayPal accounts? Discover 7 expert tips for safely purchasing a verified PayPal account in 2024. Ensure security and reliability for your transactions.
PayPal Services Features-
🟢 Email Access
🟢 Bank Added
🟢 Card Verified
🟢 Full SSN Provided
🟢 Phone Number Access
🟢 Driving License Copy
🟢 Fasted Delivery
Client Satisfaction is Our First priority. Our services is very appropriate to buy. We assume that the first-rate way to purchase our offerings is to order on the website. If you have any worry in our cooperation usually You can order us on Skype or Telegram.
24/7 Hours Reply/Please Contact
usawebmarketEmail: support@usawebmarket.com
Skype: usawebmarket
Telegram: @usawebmarket
WhatsApp: +1(218) 203-5951
USA WEB MARKET is the Best Verified PayPal, Payoneer, Cash App, Skrill, Neteller, Stripe Account and SEO, SMM Service provider.100%Satisfection granted.100% replacement Granted.
2. 10-2
Derivatives
A derivative is a contract between two parties whose value is
based on some underlying asset price or condition
In a derivative, two parties agree to exchange a standard
quantity of an asset at a predetermined price at a specific
date in the future
3. 10-3
Derivatives’ Uses
Derivatives are leveraged instruments where participants
put up a small amount of money and obtain the gain or loss
on a much larger position
Derivatives are used for speculation and for hedging
Speculation
Buying or selling a derivative contract in order to earn a
leveraged rate of return
Hedging
Entering into a derivatives contract to reduce the risk
associated with positions or commitments in their line of
business
4. 10-4
Derivatives Markets
The first wave of modern derivatives were foreign currency
futures introduced by the International Monetary Market
(IMM) following the Smithsonian Agreements of 1971 and
1973
The second wave of modern derivatives were interest rate
futures introduced by the Chicago Board of Trade (CBT)
with the increase in interest rate volatility in the late 1970s
5. 10-5
Derivatives Markets
The third wave of modern derivatives occurred in the 1980s
with the advent of stock derivatives
The fourth wave occurred in the 1990s with credit
derivatives
6. 10-6
Forwards and Futures
A spot contract is an agreement to transact involving the
immediate exchange of assets and funds
A forward contract is a nonstandardized agreement to buy
or sell an asset in the future, with the terms of the deal set
when the contract is created
Forwards are:
custom contracts; lack standard terms
not traded, so participants must perform
risky; have potential counterparty credit risk
7. 10-7
Forwards and Futures
A futures contract is a standardized, exchange-traded
version of a forward contract
Futures contracts differ from forwards in that futures are:
marketable
have no default risk
employ margin requirements and daily marking to market
margin requirement is a performance bond posted by a buyer
and a seller of a futures contract
8. 10-8
Futures Markets
Futures contract trading occurs in trading “pits” using an
open-outcry auction among exchange members
floor brokers place trades for the public
professional traders trade for their own accounts
position traders take a position in the futures market
based on their expectations about the future direction of
the prices of the underlying assets
day traders take a position within a day and liquidate it
before day’s end
scalpers take positions for very short periods of time,
sometimes only minutes, in an attempt to profit from active
trading
9. 10-9
Futures Markets
Price volatility and trading interest determines which
contracts are offered
Profit pressures for derivatives exchanges to merge
• CME Group contains CME, CBOT, NYMEX, and COMEX
Electronic trading is increasingly dominating ‘pit’ trading
• Intercontinental Exchange only has electronic trading
10. 10-10
Futures Contract Terms
Trading unit
Deliverable grades
Tick size
Price quote
Contract months
Last trading day
Last delivery day
Delivery method
Trading hours
Ticker symbols
Daily price limit
11. 10-11
Futures Contracts
A long position is the purchase of a futures
contract
A short position is the sale of a futures contract
A clearinghouse is the unit that oversees trading
on the exchange and guarantees all trades made
by the exchange
Open interest is the total number of the futures, put
options, or call options outstanding at the beginning
of the day
12. 10-12
Futures Contracts
An initial margin is a deposit required on futures trades to
ensure that the terms of the contracts will be met
The maintenance margin is the margin a futures trader must
maintain once a futures position is taken
if losses occur such that margin account funds fall below the
maintenance margin, the customer is required to deposit
additional funds in the margin account to keep the position open
13. 10-13
Example -- Futures Contract
Terms
Contract: 30 year Treasury Bond contract
Exchange: Chicago Board of Trade
Delivery Months:Contract maturity months are March, June,
September, December
Contract Size: Contract calls for delivery of $100,000 face value
Deliverable Instrument: Treasury bonds that do mature for at least 15
years from the date of delivery and mature in no more than 25
years
IMR: Exchange mandated initial margin requirement of $3,713
(brokers may require a higher margin)
MMR: Exchange mandated maintenance margin required to keep the
account open
Contract Exchange
Delivery
Months
Contract
Size
Deliverable
Instrument
IMR MMR
T-Bond CBOT M,J,S,D $ 100,000 See below* $3,713 $2,750
14. 10-14
Long and Short Positions
If an investor buys or goes “long” one June contract, they are agreeing to
buy $100,000 par or face value of T-Bonds at the original futures contract
price when the contract expires in June.
If an investor sells or goes “short” one June contract, they are agreeing
to deliver $100,000 par or face value of T-Bonds and receive the original
futures contract price when the contract expires in June.
Each investor must put up the IMR of $3,713 when they open the
contract.
Each investor must maintain the MMR of $2,750 in their margin account
while the position is open.
Contract Exchange
Delivery
Months
Contract
Size
Deliverable
Instrument
IMR MMR
T-Bond CBOT M,J,S,D $ 100,000 See below* $3,713 $2,750
15. 10-15
T-Bond Futures Quote Sheet
Price quotes are in dollars and 32nds as a percent of face value
‘Open’ price for the June contract of 124’28 is $124 28/32 percent
of $100,000 = $124,875
If you buy the contract at the open, what are you agreeing to do?
If you sell the contract at the open, what are you agreeing to do?
Last Change
Prev
Settle Open High Low Close
Jun 124’26 -0’01 124’27 124’28 124’28 124’16 124’26
Sep 123’20 +0’02 123’18 123’20 123’20 123’20 123’20
Source:
CBOT
16. 10-16
Marking to Market
Gains and losses are recognized daily
IMR = $3,713, MMR = $2,750
Suppose you buy one June contract at the open of $124,875,
Monday’s close is 124’26, and Tuesday’s close is 122’29. What is
in your margin account after Tuesday’s settle?
Who receives the money taken out of your margin account?
Settle
Underlying
Value
Price
Change
Margin
Acct
OPEN 124’28 $124,875.00 $3,713.00
Mon. 124’26 $124,812.50 -$ 62.50 $3,650.50
Tues. 122’29 $122,906.25 -$1,906.25 $1,744.25
MARGIN CALL (beneath $2,750) add cash = $1,968.75
$3,713.00
17. 10-17
Options
An option is a contract that gives the holder the right, but not
the obligation, to buy or sell the underlying asset at a
specified price within a specified period of time
A call option is an option that gives the purchaser the right,
but not the obligation, to buy the underlying security from the
writer of the option at a specified exercise price on (or up to)
a specified date
A put option is an option that gives the purchaser the right,
but not the obligation, to sell the underlying security to the
writer of the option at a specified exercise price on (or up to)
a specified date
18. 10-18
Payoff Payoff for
profit call buyer
C
0 Stock Price
X at expiration
-C
Payoff
loss
Profit Diagrams for Call Options
Payoff for call
writer
20. 10-20
Options
The Black-Scholes option pricing model (the model most
commonly used to price and value options) is a function of:
the spot price of the underlying asset
the exercise price on the option
the option’s exercise date
the price volatility of the underlying asset
the risk-free rate of interest
The intrinsic value of an option is the difference between an
option’s exercise price and the underlying asset price
the intrinsic value of a call option = max{S – X, 0}
the intrinsic value of a put option = max{X – S, 0}
22. 10-22
• The May call is in the money (positive intrinsic value) and the call
premium is $3.30 * 100 = $330 (contracts are for 100 shares)
• The intrinsic value of the call (S-X) is ($8.79 - $6.00) * 100 = $279
• The time value of the call is $330 - $279 = $51
• The May put is out of the money and the put’s intrinsic value (X-S) is
0
• The put still has time value, however, equal to $0.45 * 100 = $45
Option Price Quotes
AMR Underlying stock price $8.79
Expiration
Call Put
STRIKE LAST VOLUME
OPEN
INTEREST LAST VOLUME
OPEN
INTEREST
May 6.00 3.30 12 578 0.45 20 4175
Jan 7.50 1.30 60 17062 0.15 138 58909
23. 10-23
Option Markets
The Chicago Board of Options Exchange (CBOE) opened
in 1973 as the first exchange devoted solely to the trading of
stock options
Options on futures contracts began trading in 1982
An American option can be exercised at any time before
(and on) the expiration date
A European option can be exercised only on the expiration
date
The trading process for options is similar to that for futures
contracts
24. 10-24
More on Options
The underlying asset on a stock option is the stock of a publicly
traded company
The underlying asset on a stock index option is the value of a
major stock market index (e.g., DJIA or S&P 500)
The underlying asset on a futures option is a futures contract
Credit spread call options
the value of a credit spread call option increases as the
default (risk) premium or yield spread on a specified benchmark
bond of the borrower increases above some exercise spread
A digital default option pays a stated amount in the event of
a loan default
25. 10-25
Swaps
A swap is an agreement between two parties to exchange
assets or a series of cash flows for a specific period of time at a
specified interval
A plain vanilla interest rate swap is an exchange of fixed-
interest payments for floating-interest payments by two
counterparties
the swap buyer makes a periodic fixed interest rate payment on a
stated notional principal amount
the swap seller makes a periodic floating-rate interest payments on
the same stated notional principal amount
no principal is exchanged
26. 10-26
Swaps
A currency swap is a periodic exchange of one currency for
another between the parties
Usually associated with borrowing money
The exchanges can be at a fixed or a variable rate of interest as
negotiated in the contract, but the exchanges occur at a known
currency exchange rate
Used to hedge exchange rate risk from mismatched currencies
of assets and liabilities
27. 10-27
Swaps
Credit default swaps (CDS) allow financial institutions to
hedge credit risk
A CDS buyer is buying insurance on a loan or bond
CDS seller receives periodic payments from the CDS
buyer
If the insured loan or bond defaults, the CDS seller pays
the par value of the loan or bond to the CDS buyer
CDS played a major role in the financial crisis, AIG and
others were major sellers of CDS that insured mortgage-
backed securities, but lacked capital and could not pay
when the mortgage securities failed
28. 10-28
Swap Markets
Swaps are not standardized contracts
Swap dealers (usually financial institutions) keep markets
liquid by matching counterparties or by taking positions
themselves
The International Swaps and Derivatives Association
(ISDA) is an association among 56 countries that sets codes
of standards for swap documentation
29. 10-29
Caps, Floors, and Collars
Financial institutions use options on interest rates to
hedge interest rate risk
a cap is a call option on interest rates, often with multiple
exercise dates
a floor is a put option on interest rates, often with multiple
exercise dates
a collar is a position taken simultaneously in a cap and a
floor (usually buying a cap and selling a floor)
30. 10-30
Regulators of Derivatives
The primary regulator of futures markets is the
Commodity Futures Trading Commission
(CFTC)
The Securities Exchange Commission (SEC) is
the primary regulator of stock options and stock
index options
The CFTC is the regulator of options on futures
contracts
31. 10-31
Regulators of Derivatives
Until the Dodd-Frank Act neither the SEC nor the
CFTC directly regulated OTC derivatives such as
swaps
Under the new law OTC derivatives may be
required to be traded on an exchange and as such
would come under the purview of the SEC and
CFTC
Bank regulators will presumably more tightly
regulate bank usage of derivatives
32. 10-32
International Derivative Markets
Securities in the U.S. markets and the euro and U.S. dollar
are the most common bases for derivatives
Summary of Text Table 10-
11 & 10-12
Amounts of OTC Global Derivative Securities
Outstanding (Bill $)
Contract 2007 2009 % Growth
Total OTC $339,651 $614,674 81%
Currency Contracts $ 40,179 $ 49,196 22%
Interest Rate Contracts $291,987 $449,793 54%
Equity Linked Contracts $ 7,485 $ 6,591 -12%
Amounts of Exchange Traded Global Derivative
Securities Outstanding (Bill $)
Futures Contracts $31,682.3 $21,757.2 -31%
Option Contracts $64,983.9 $51,382.8 -21%
33. 10-33
Black-Sholes Call Option Model
T
d
d
T
T
r
E
S
d
d
N
e
E
S
d
N
C rT
1
2
2
1
2
1
)
2
/
(
)
/
ln(
)
(
)
(
)
(