Derivatives are financial contracts whose value is derived from an underlying asset such as a stock, bond, commodity, currency, or market index. The three main types of derivatives are futures, forwards, and options. Futures and forwards are contracts to buy or sell an asset at a future date, while options provide the right but not obligation to buy or sell an asset. Derivatives allow investors to hedge risk or speculate on changes in the price of the underlying asset. Major derivatives exchanges include the Chicago Board of Trade, Chicago Mercantile Exchange, and the National Stock Exchange of India.
Derivatives can be used to manage financial risk. Common derivatives include options, forward contracts, futures contracts, and swaps. Derivatives allow firms to hedge risks like foreign exchange risk, interest rate risk, and commodity price risk. For example, an oil company can use put options to hedge against falling oil prices. Forward contracts lock in future exchange rates. Futures contracts are similar to forwards but are traded on exchanges. Swaps allow exchange of cash flows to modify risk exposure. Derivatives are widely used by large companies to reduce cash flow volatility and financial distress costs through hedging.
A financial futures contract is an agreement to buy or sell a financial asset like a stock, bond, currency, or index at a predetermined price and date. These contracts are standardized and traded on an exchange. There are several types of financial futures including interest rate futures, foreign currency futures, stock index futures, and bond index futures. Participants in the futures market include hedgers who aim to reduce risk, speculators who try to earn profits from price movements, arbitrageurs who seek riskless profits from pricing discrepancies, and spreaders who take positions to lower risk. The key functions of futures markets are hedging risk, price discovery, financing, providing liquidity, and stabilizing prices.
This document provides an introduction to derivatives. It defines derivatives as financial instruments whose value is derived from an underlying asset. The three main types of derivatives discussed are forwards, futures, and options. Forwards are customized bilateral contracts to buy or sell an asset in the future at a predetermined price. Futures are standardized exchange-traded versions of forwards that have no counterparty risk. Daily mark-to-market settlements determine profits and losses on futures positions. Options provide the right but not the obligation to buy or sell an asset at a future date.
Futures and options are the most common types of derivatives used in financial markets. Futures involve a contract where the buyer and seller agree to a deal at a future date at a pre-decided price, obligating both parties. Options give the buyer the right, but not the obligation, to buy or sell the underlying asset at a future date at a pre-decided price, in exchange for paying a premium to the seller who is obligated. Derivatives allow investors to profit from rising or falling prices, and options allow investors to limit their losses to the premium amount.
This document summarizes a study of the derivative market in India conducted by Sudarsan Prasad for Prof. S. K. Sarangi. It provides an overview of LKP Securities Ltd and describes the objectives of the study, research methodology, analysis of derivative products like futures and options, and key findings. The study aimed to analyze trends in the derivative market and the role of derivatives in the Indian market. It found that derivatives help transfer risk and that futures and options can benefit a wide range of participants when used appropriately.
The document provides a history of the development of the Indian equity derivatives market from 2000 to 2007. It discusses key milestones such as the launch of index futures, index options, and stock futures/options on the National Stock Exchange and Bombay Stock Exchange. The document also outlines the main features of derivatives trading in India such as the exchanges involved, trading systems, margin requirements, and typical volumes. Examples of records achieved in futures and options segments are also presented.
- Futures contracts call for delivery of an asset at a specified future date at an agreed price. The buyer takes a long position and commits to purchase the asset, while the seller takes a short position and commits to deliver the asset.
- Most futures contracts are settled financially rather than through physical delivery of the asset. They allow participants to hedge risk or speculate on price movements of underlying assets like commodities, financial instruments, and indexes.
- Basis risk arises from the uncertainty of the difference between the spot and futures price when closing out a hedge position. This can impact the effectiveness of hedges.
The document discusses various types of derivatives instruments used to manage financial risk, including forwards, futures, options, and swaps. It provides examples of how these derivatives are used to hedge risks related to commodities, interest rates, currencies, equities, indexes, and other underlying assets. The key types of derivatives discussed are over-the-counter contracts and exchange-traded contracts, along with examples of each like forwards, futures, and options.
Derivatives can be used to manage financial risk. Common derivatives include options, forward contracts, futures contracts, and swaps. Derivatives allow firms to hedge risks like foreign exchange risk, interest rate risk, and commodity price risk. For example, an oil company can use put options to hedge against falling oil prices. Forward contracts lock in future exchange rates. Futures contracts are similar to forwards but are traded on exchanges. Swaps allow exchange of cash flows to modify risk exposure. Derivatives are widely used by large companies to reduce cash flow volatility and financial distress costs through hedging.
A financial futures contract is an agreement to buy or sell a financial asset like a stock, bond, currency, or index at a predetermined price and date. These contracts are standardized and traded on an exchange. There are several types of financial futures including interest rate futures, foreign currency futures, stock index futures, and bond index futures. Participants in the futures market include hedgers who aim to reduce risk, speculators who try to earn profits from price movements, arbitrageurs who seek riskless profits from pricing discrepancies, and spreaders who take positions to lower risk. The key functions of futures markets are hedging risk, price discovery, financing, providing liquidity, and stabilizing prices.
This document provides an introduction to derivatives. It defines derivatives as financial instruments whose value is derived from an underlying asset. The three main types of derivatives discussed are forwards, futures, and options. Forwards are customized bilateral contracts to buy or sell an asset in the future at a predetermined price. Futures are standardized exchange-traded versions of forwards that have no counterparty risk. Daily mark-to-market settlements determine profits and losses on futures positions. Options provide the right but not the obligation to buy or sell an asset at a future date.
Futures and options are the most common types of derivatives used in financial markets. Futures involve a contract where the buyer and seller agree to a deal at a future date at a pre-decided price, obligating both parties. Options give the buyer the right, but not the obligation, to buy or sell the underlying asset at a future date at a pre-decided price, in exchange for paying a premium to the seller who is obligated. Derivatives allow investors to profit from rising or falling prices, and options allow investors to limit their losses to the premium amount.
This document summarizes a study of the derivative market in India conducted by Sudarsan Prasad for Prof. S. K. Sarangi. It provides an overview of LKP Securities Ltd and describes the objectives of the study, research methodology, analysis of derivative products like futures and options, and key findings. The study aimed to analyze trends in the derivative market and the role of derivatives in the Indian market. It found that derivatives help transfer risk and that futures and options can benefit a wide range of participants when used appropriately.
The document provides a history of the development of the Indian equity derivatives market from 2000 to 2007. It discusses key milestones such as the launch of index futures, index options, and stock futures/options on the National Stock Exchange and Bombay Stock Exchange. The document also outlines the main features of derivatives trading in India such as the exchanges involved, trading systems, margin requirements, and typical volumes. Examples of records achieved in futures and options segments are also presented.
- Futures contracts call for delivery of an asset at a specified future date at an agreed price. The buyer takes a long position and commits to purchase the asset, while the seller takes a short position and commits to deliver the asset.
- Most futures contracts are settled financially rather than through physical delivery of the asset. They allow participants to hedge risk or speculate on price movements of underlying assets like commodities, financial instruments, and indexes.
- Basis risk arises from the uncertainty of the difference between the spot and futures price when closing out a hedge position. This can impact the effectiveness of hedges.
The document discusses various types of derivatives instruments used to manage financial risk, including forwards, futures, options, and swaps. It provides examples of how these derivatives are used to hedge risks related to commodities, interest rates, currencies, equities, indexes, and other underlying assets. The key types of derivatives discussed are over-the-counter contracts and exchange-traded contracts, along with examples of each like forwards, futures, and options.
Derivatives are financial instruments that derive their value from an underlying asset such as currencies, commodities, stocks or bonds. Common types of derivatives include forwards, futures, options, and swaps. Forwards and futures are agreements to buy or sell an asset at a future date for a predetermined price, while options provide the right but not obligation to buy or sell an asset. Swaps involve exchanging cash flows of financial instruments. Derivatives allow investors to hedge risk or speculate on changes in prices. They are traded on exchanges or over-the-counter.
This document provides an overview of derivatives markets, including forwards, futures, and options contracts. It defines each contract type and explains how they work. Forwards involve a private agreement between two parties to buy or sell an asset at a future date at an agreed upon price. Futures are standardized forward contracts that are traded on an exchange. Options provide the right, but not obligation, to buy or sell the underlying asset. The document discusses participants in these markets including hedgers who aim to reduce risk, speculators who take bets on price movements, and arbitrageurs who exploit temporary price differences. It also provides illustrations of how these contracts can be used for hedging or trading purposes.
Derivatives are financial instruments whose value is based on an underlying asset. The three main types of participants in derivatives markets are hedgers who use derivatives to reduce risk, speculators who try to profit from price movements, and arbitrageurs who take advantage of temporary price differences. Common derivatives include forward contracts which require delivery of the asset, and futures contracts which are exchange-traded and involve daily settlement. Options provide the right but not obligation to buy or sell the underlying asset and have non-linear payoffs. Key models for pricing derivatives include the cost-of-carry model and Black-Scholes options pricing formula.
The document is a project report submitted by Deepali Dalvi on futures and options contracts. It includes an introduction to derivatives, the history of derivatives and futures markets, an overview of futures and options terminology, and descriptions of different types of derivative contracts such as forwards, futures, calls, puts and options trading strategies. The report also discusses the purpose of futures markets, arbitrage opportunities, clearing mechanisms, differences between futures and forwards, stock index futures, and the NSE's derivatives market. It aims to provide a comprehensive overview of the key concepts relating to futures and options.
This document provides an overview of futures markets and contracts. Key points include:
- Futures contracts are standardized agreements to buy or sell an asset at a predetermined price on a future date. This allows hedging of price risk.
- Margin deposits are required as security and daily gains/losses are settled, allowing high leverage from low margins.
- Speculators take on risk from hedgers for potential profit from price movements. Hedgers use futures to lock in prices and eliminate risk.
- Examples demonstrate how farmers can hedge crop prices and processors can lock in input costs using long and short futures positions.
Futures and swaps allow parties to manage risks associated with price fluctuations in underlying assets. A futures contract is a standardized agreement to buy or sell an asset at a predetermined price at a specified future date. Key elements of futures contracts include the underlying asset, settlement/delivery date, and futures price. Futures are traded on organized exchanges and involve clearinghouses that guarantee contracts. Futures can be used for hedging, speculation, or arbitrage. Swaps allow parties to exchange cash flows of one party's financial instrument for those of the other party.
Derivatives are financial instruments whose value is derived from an underlying asset. The three main types of traders in derivatives markets are hedgers who use derivatives to reduce risk, speculators who trade for profits, and arbitrageurs who exploit price discrepancies across markets. Derivatives can be traded over-the-counter (OTC) through privately negotiated contracts or on exchanges through standardized contracts. Common types of derivatives include forwards, futures, options, and swaps. Forwards and futures are binding agreements to buy or sell an asset in the future at an agreed upon price, while options provide the right but not obligation to buy or sell. Swaps involve exchanging cash flows of one asset for another.
The document provides an overview of derivatives, including:
- Derivatives derive their value from an underlying asset such as stocks, bonds, commodities, currencies, or interest rates.
- The main types of derivatives are forwards, futures, options, and swaps. Forwards and futures are traded on exchanges while swaps and most options are over-the-counter.
- Derivatives can be used for hedging risk or speculation. They allow investors to gain exposure to assets with greater leverage compared to investing directly in the underlying assets.
Derivatives are financial instruments whose value is dependent on an underlying asset. The three main types of derivatives are forwards, futures, and options. Forwards and futures are contracts to buy or sell an asset at a future date at a predetermined price, while options provide the right but not obligation to buy or sell an asset at a strike price. Derivatives allow traders to hedge risk, reduce transaction costs, manage portfolios, and enhance liquidity in markets.
Foreign exchange forward contracts allow companies to hedge currency risk by locking in an exchange rate for a future date. The key terms are the forward rate set today and the settlement date when currencies are exchanged. A forward contract can be honored, rolled over to a new date, or cancelled by taking an opposite position. According to accounting standards, any premium/discount from the forward rate is amortized over the contract period, while exchange differences are recorded in profit and loss on the settlement date.
This document defines various derivatives instruments and concepts. It begins by explaining that derivatives derive their value from an underlying asset and include futures, forwards, and options. It then discusses the different types of traders in derivatives markets including hedgers, speculators, and arbitrageurs. The document also compares over-the-counter (OTC) derivatives to exchange-traded derivatives and outlines some of the economic benefits of using derivatives. It provides examples and definitions for specific derivative types like forwards, futures, and options.
Presentation on Derivatives by Mr. Nayan Parikh to L&t barodaNayan Parikh
No
-
24
24
Rs. 216
Yes
(24)
24
-
Rs. 0
Yes
(240)
24
(216)
The document provides an introduction to derivatives presented by Nayan Parikh. It discusses the origin of derivatives dating back over 2000 years, the emergence of modern financial derivatives post-1970, and defines derivatives as contracts that derive their value from an underlying asset. It also outlines the key characteristics of over-the-counter derivatives markets and types of derivatives including futures, options, and their mechanisms.
This document discusses financial derivatives such as futures and forwards. It defines a derivative as a financial instrument whose value is based on an underlying asset. Futures are standardized forward contracts that are traded on an organized exchange. Forwards are customized contracts where two parties agree to buy or sell an asset at a set price on a future date. The document provides examples of gold futures and wheat forwards to illustrate how these derivatives derive their value from changes in the price of the underlying asset.
Derivatives derive their value from underlying assets. There are various types including forwards, futures, options, and swaps. Forward contracts are bilateral agreements to buy or sell an asset in the future at predetermined terms. Futures are standardized forward contracts that are traded on an exchange. Options provide the right but not obligation to buy or sell an asset by a specified date. Swaps involve exchanging cash flows of underlying assets like interest rates or currencies. Derivatives allow participants to hedge or speculate on price movements of the underlying assets.
Derivatives are financial instruments whose value is derived from an underlying asset such as stocks, bonds, commodities, currencies, or market indexes. There are several types of derivatives including forwards, futures, options, and swaps. Derivatives allow investors to hedge risk or speculate on the future price of the underlying asset. While derivatives can be used to manage various risks, they also pose risks such as increased speculation, greater financial instability, and price instability if not properly regulated. Effective risk management including policies, oversight, and competency is needed to use derivatives safely.
This document provides an introduction to option contracts, including definitions, key features, advantages and disadvantages, and types of options. It discusses call and put options, as well as European and American options. Key terminology for options like long, short, strike price, in-the-money, out-of-the-money, and at-the-money are also explained. The document is intended to provide a basic understanding of stock options and how they can be used.
1. Derivatives are financial instruments whose value is derived from an underlying asset such as a stock, commodity, currency, or index. Common derivative products include forwards, futures, and options.
2. Futures contracts are standardized exchange-traded derivatives that allow investors to lock in a price for the underlying asset at expiration. They eliminate counterparty risk and provide daily mark-to-market settlements.
3. Options provide the buyer the right, but not the obligation, to buy or sell the underlying at a predetermined strike price. Options have asymmetric payoffs and their values consist of intrinsic value and time value.
The document discusses various types of derivatives including forwards, futures, and options. It provides examples of how farmers, manufacturers, importers and exporters can use these derivatives to hedge against risk. Forwards involve a contractual obligation to buy or sell an asset at a future date at a pre-determined price. Futures are similar but are exchange-traded with standardized contracts and daily mark-to-market settlements. Options provide the right but not obligation to buy or sell an asset and offer more flexibility than forwards and futures.
This document summarizes key concepts related to derivatives and risk management. It discusses forwards, futures, swaps, and options contracts. It explains how forwards, futures, and swaps work to transfer risk, while options provide choice. The cost-of-carry model for pricing forwards is described. Forward rate agreements are introduced as interest rate derivatives. Forward exchange rates are projected using interest rate parity.
Futures contracts obligate the buyer and seller to exchange an asset at a predetermined price on a future date. Options provide the buyer the right, but not obligation, to buy or sell the underlying asset at a predetermined strike price by a predetermined expiration date. The buyer pays a premium for this right. There are call and put options, where calls provide the right to buy and puts provide the right to sell. Options have limited downside risk for the buyer compared to futures contracts, but also have time decay as they approach expiration.
Chapter 02 the derivatives market in indiadeepmehta11
The document discusses the derivatives market in India. It describes how derivatives were originally traded over-the-counter but exchanges were later created to provide transparency, reduce counterparty risk, and increase regulation. It then outlines the major derivatives exchanges in India and the types of derivatives contracts available, including those for commodities, equities, interest rates, and currencies. Finally, it explains the key components of how derivatives are traded on exchanges, including the order matching process, clearing, margins, and daily and final settlement.
This document defines and explains various types of derivatives such as forwards, futures, options, and swaps. It discusses how derivatives derive their value from underlying assets like stocks, bonds, currencies, and commodities. Key points covered include how derivatives work, common uses of derivatives for hedging, speculation, and arbitrage, and examples of different derivative products and markets. News snippets at the end summarize the introduction of new derivative indexes in India relating to public sector companies and infrastructure stocks, as well as a new cash-futures spread product.
Derivatives are financial instruments that derive their value from an underlying asset such as currencies, commodities, stocks or bonds. Common types of derivatives include forwards, futures, options, and swaps. Forwards and futures are agreements to buy or sell an asset at a future date for a predetermined price, while options provide the right but not obligation to buy or sell an asset. Swaps involve exchanging cash flows of financial instruments. Derivatives allow investors to hedge risk or speculate on changes in prices. They are traded on exchanges or over-the-counter.
This document provides an overview of derivatives markets, including forwards, futures, and options contracts. It defines each contract type and explains how they work. Forwards involve a private agreement between two parties to buy or sell an asset at a future date at an agreed upon price. Futures are standardized forward contracts that are traded on an exchange. Options provide the right, but not obligation, to buy or sell the underlying asset. The document discusses participants in these markets including hedgers who aim to reduce risk, speculators who take bets on price movements, and arbitrageurs who exploit temporary price differences. It also provides illustrations of how these contracts can be used for hedging or trading purposes.
Derivatives are financial instruments whose value is based on an underlying asset. The three main types of participants in derivatives markets are hedgers who use derivatives to reduce risk, speculators who try to profit from price movements, and arbitrageurs who take advantage of temporary price differences. Common derivatives include forward contracts which require delivery of the asset, and futures contracts which are exchange-traded and involve daily settlement. Options provide the right but not obligation to buy or sell the underlying asset and have non-linear payoffs. Key models for pricing derivatives include the cost-of-carry model and Black-Scholes options pricing formula.
The document is a project report submitted by Deepali Dalvi on futures and options contracts. It includes an introduction to derivatives, the history of derivatives and futures markets, an overview of futures and options terminology, and descriptions of different types of derivative contracts such as forwards, futures, calls, puts and options trading strategies. The report also discusses the purpose of futures markets, arbitrage opportunities, clearing mechanisms, differences between futures and forwards, stock index futures, and the NSE's derivatives market. It aims to provide a comprehensive overview of the key concepts relating to futures and options.
This document provides an overview of futures markets and contracts. Key points include:
- Futures contracts are standardized agreements to buy or sell an asset at a predetermined price on a future date. This allows hedging of price risk.
- Margin deposits are required as security and daily gains/losses are settled, allowing high leverage from low margins.
- Speculators take on risk from hedgers for potential profit from price movements. Hedgers use futures to lock in prices and eliminate risk.
- Examples demonstrate how farmers can hedge crop prices and processors can lock in input costs using long and short futures positions.
Futures and swaps allow parties to manage risks associated with price fluctuations in underlying assets. A futures contract is a standardized agreement to buy or sell an asset at a predetermined price at a specified future date. Key elements of futures contracts include the underlying asset, settlement/delivery date, and futures price. Futures are traded on organized exchanges and involve clearinghouses that guarantee contracts. Futures can be used for hedging, speculation, or arbitrage. Swaps allow parties to exchange cash flows of one party's financial instrument for those of the other party.
Derivatives are financial instruments whose value is derived from an underlying asset. The three main types of traders in derivatives markets are hedgers who use derivatives to reduce risk, speculators who trade for profits, and arbitrageurs who exploit price discrepancies across markets. Derivatives can be traded over-the-counter (OTC) through privately negotiated contracts or on exchanges through standardized contracts. Common types of derivatives include forwards, futures, options, and swaps. Forwards and futures are binding agreements to buy or sell an asset in the future at an agreed upon price, while options provide the right but not obligation to buy or sell. Swaps involve exchanging cash flows of one asset for another.
The document provides an overview of derivatives, including:
- Derivatives derive their value from an underlying asset such as stocks, bonds, commodities, currencies, or interest rates.
- The main types of derivatives are forwards, futures, options, and swaps. Forwards and futures are traded on exchanges while swaps and most options are over-the-counter.
- Derivatives can be used for hedging risk or speculation. They allow investors to gain exposure to assets with greater leverage compared to investing directly in the underlying assets.
Derivatives are financial instruments whose value is dependent on an underlying asset. The three main types of derivatives are forwards, futures, and options. Forwards and futures are contracts to buy or sell an asset at a future date at a predetermined price, while options provide the right but not obligation to buy or sell an asset at a strike price. Derivatives allow traders to hedge risk, reduce transaction costs, manage portfolios, and enhance liquidity in markets.
Foreign exchange forward contracts allow companies to hedge currency risk by locking in an exchange rate for a future date. The key terms are the forward rate set today and the settlement date when currencies are exchanged. A forward contract can be honored, rolled over to a new date, or cancelled by taking an opposite position. According to accounting standards, any premium/discount from the forward rate is amortized over the contract period, while exchange differences are recorded in profit and loss on the settlement date.
This document defines various derivatives instruments and concepts. It begins by explaining that derivatives derive their value from an underlying asset and include futures, forwards, and options. It then discusses the different types of traders in derivatives markets including hedgers, speculators, and arbitrageurs. The document also compares over-the-counter (OTC) derivatives to exchange-traded derivatives and outlines some of the economic benefits of using derivatives. It provides examples and definitions for specific derivative types like forwards, futures, and options.
Presentation on Derivatives by Mr. Nayan Parikh to L&t barodaNayan Parikh
No
-
24
24
Rs. 216
Yes
(24)
24
-
Rs. 0
Yes
(240)
24
(216)
The document provides an introduction to derivatives presented by Nayan Parikh. It discusses the origin of derivatives dating back over 2000 years, the emergence of modern financial derivatives post-1970, and defines derivatives as contracts that derive their value from an underlying asset. It also outlines the key characteristics of over-the-counter derivatives markets and types of derivatives including futures, options, and their mechanisms.
This document discusses financial derivatives such as futures and forwards. It defines a derivative as a financial instrument whose value is based on an underlying asset. Futures are standardized forward contracts that are traded on an organized exchange. Forwards are customized contracts where two parties agree to buy or sell an asset at a set price on a future date. The document provides examples of gold futures and wheat forwards to illustrate how these derivatives derive their value from changes in the price of the underlying asset.
Derivatives derive their value from underlying assets. There are various types including forwards, futures, options, and swaps. Forward contracts are bilateral agreements to buy or sell an asset in the future at predetermined terms. Futures are standardized forward contracts that are traded on an exchange. Options provide the right but not obligation to buy or sell an asset by a specified date. Swaps involve exchanging cash flows of underlying assets like interest rates or currencies. Derivatives allow participants to hedge or speculate on price movements of the underlying assets.
Derivatives are financial instruments whose value is derived from an underlying asset such as stocks, bonds, commodities, currencies, or market indexes. There are several types of derivatives including forwards, futures, options, and swaps. Derivatives allow investors to hedge risk or speculate on the future price of the underlying asset. While derivatives can be used to manage various risks, they also pose risks such as increased speculation, greater financial instability, and price instability if not properly regulated. Effective risk management including policies, oversight, and competency is needed to use derivatives safely.
This document provides an introduction to option contracts, including definitions, key features, advantages and disadvantages, and types of options. It discusses call and put options, as well as European and American options. Key terminology for options like long, short, strike price, in-the-money, out-of-the-money, and at-the-money are also explained. The document is intended to provide a basic understanding of stock options and how they can be used.
1. Derivatives are financial instruments whose value is derived from an underlying asset such as a stock, commodity, currency, or index. Common derivative products include forwards, futures, and options.
2. Futures contracts are standardized exchange-traded derivatives that allow investors to lock in a price for the underlying asset at expiration. They eliminate counterparty risk and provide daily mark-to-market settlements.
3. Options provide the buyer the right, but not the obligation, to buy or sell the underlying at a predetermined strike price. Options have asymmetric payoffs and their values consist of intrinsic value and time value.
The document discusses various types of derivatives including forwards, futures, and options. It provides examples of how farmers, manufacturers, importers and exporters can use these derivatives to hedge against risk. Forwards involve a contractual obligation to buy or sell an asset at a future date at a pre-determined price. Futures are similar but are exchange-traded with standardized contracts and daily mark-to-market settlements. Options provide the right but not obligation to buy or sell an asset and offer more flexibility than forwards and futures.
This document summarizes key concepts related to derivatives and risk management. It discusses forwards, futures, swaps, and options contracts. It explains how forwards, futures, and swaps work to transfer risk, while options provide choice. The cost-of-carry model for pricing forwards is described. Forward rate agreements are introduced as interest rate derivatives. Forward exchange rates are projected using interest rate parity.
Futures contracts obligate the buyer and seller to exchange an asset at a predetermined price on a future date. Options provide the buyer the right, but not obligation, to buy or sell the underlying asset at a predetermined strike price by a predetermined expiration date. The buyer pays a premium for this right. There are call and put options, where calls provide the right to buy and puts provide the right to sell. Options have limited downside risk for the buyer compared to futures contracts, but also have time decay as they approach expiration.
Chapter 02 the derivatives market in indiadeepmehta11
The document discusses the derivatives market in India. It describes how derivatives were originally traded over-the-counter but exchanges were later created to provide transparency, reduce counterparty risk, and increase regulation. It then outlines the major derivatives exchanges in India and the types of derivatives contracts available, including those for commodities, equities, interest rates, and currencies. Finally, it explains the key components of how derivatives are traded on exchanges, including the order matching process, clearing, margins, and daily and final settlement.
This document defines and explains various types of derivatives such as forwards, futures, options, and swaps. It discusses how derivatives derive their value from underlying assets like stocks, bonds, currencies, and commodities. Key points covered include how derivatives work, common uses of derivatives for hedging, speculation, and arbitrage, and examples of different derivative products and markets. News snippets at the end summarize the introduction of new derivative indexes in India relating to public sector companies and infrastructure stocks, as well as a new cash-futures spread product.
The document discusses various types of financial institutions and derivative instruments. It provides examples of how companies can use derivatives like forwards to hedge foreign exchange risk when importing or exporting. It also discusses the roles of commercial banks, investment banks, and mixed banks in international markets. Derivatives allow firms to manage various risks related to commodity prices, interest rates, bonds, and other factors.
This document is a dissertation report submitted to Uttarakhand Technical University by Gaurav Pandey on the topic of "Study of Derivatives Market in India". The report includes an introduction to the financial services industry and derivatives markets. It discusses the objectives of studying derivatives to analyze futures and options operations and understand how derivatives can help manage risks. The report will analyze profits and losses in cash and derivatives markets and the role of derivatives in the Indian financial market.
The document discusses the historical development, concepts, types, and regulation of derivatives markets in India. It provides an overview of key derivatives instruments like futures contracts, options, and swaps. The regulatory framework in India is outlined, covering regulations by SEBI and RBI. The future of derivatives markets in India is poised for growth, though trading risks like market, credit, liquidity, and operational risks must be managed.
Derivatives emerged to help farmers and traders manage risks and have since become important risk management tools. The derivatives market in India has grown significantly since liberalization in the 1990s. Derivatives allow participants to hedge risks, speculate, and engage in arbitrage. Common derivatives contracts include forwards, futures, options, and swaps. Traders use various strategies like spreads and straddles to limit risks and maximize returns based on their market outlook. While still growing, India's derivatives market is becoming a major global exchange.
1. The document discusses the growth and development of derivatives markets in India, including key milestones like SEBI permitting derivatives trading on Indian stock exchanges in 2000 and the introduction of various derivatives products over subsequent years.
2. It provides background on regulations governing derivatives trading in India and the objectives of regulation, including protecting investors and market integrity.
3. The document outlines the objectives of the study, which include understanding the Indian derivatives market scenario, analyzing whether derivatives have achieved their purpose, and suggesting methods based on observations. It discusses the scope and limitations of the study.
The document provides an overview of derivatives concepts, including the different types of derivatives contracts such as forwards, futures, swaps, and options. It discusses key terms like underlying assets, features of derivatives, and important concepts in options. The history of derivatives trading in India is covered, along with the regulatory framework and guidelines put forth by committees like the L.C. Gupta Committee and J.R. Verma Committee.
The document provides an overview of Bloom's Revised Taxonomy including the changes made to the original taxonomy. It discusses the six levels of thinking skills - Remembering, Understanding, Applying, Analyzing, Evaluating, and Creating - and provides examples of activities and student roles for each level. The purpose of Bloom's Taxonomy is to provide a framework for developing higher-order thinking skills in students.
1. The document discusses audio visual equipment and information communication technology used for education. It describes various types of visual projectors, audio equipment, and television systems.
2. Details are provided on computer image projectors, screens, remote controls, and audio components like speakers, microphones, and record players.
3. The role of information communication technology in education is explained, along with examples of ICT tools for teachers and students like the internet, learning management systems, and computer-assisted instruction software.
Social entrepreneurs are individuals who tackle major social issues and offer innovative solutions to society's most pressing problems. They see what is not working in social systems and solve problems by changing the system and spreading their solutions. Social entrepreneurs are visionaries who are committed to practically implementing their visions to maximize support and recruitment of local changemakers. The terms "social entrepreneur" and "social entrepreneurship" came into widespread use in the 1980s and 1990s to describe those driving social change and promoting social enterprise to address societal needs.
Surveying the Education Social Media Scene, NWAIS Seattle, 6/17/2014burma999
Learn why social media in education communication is so essential, explore integrated marketing, survey the major social platforms, and which schools are doing it well.
The document discusses research on infant and toddler exposure to electronic media. It notes that 68% of children under 2 use screen media daily, with some having TVs in their bedrooms, watching an average of 1-2 hours per day. The AAP recommends no screen time for children under 2 since it takes away from more interactive learning activities. However, 30% of parents say media helps with learning. The document reviews various theories around child development and the role of media and parent interaction. It concludes that parent involvement is important for cognitive development and some research shows background TV can negatively impact parent-child interaction.
Results from the first round of HHS Ignite, the U.S. Department of Health and Human Services' internal incubator. Learn about the results from the 1st class of 13 projects.
Derivatives are financial instruments whose value is derived from an underlying asset such as a commodity, currency, bond, or stock. There are several types of derivatives including forwards, futures, and options. A forward is a customized contract where the buyer agrees to purchase an asset at a set price on a future date. Futures are standardized forward contracts that are exchange-traded. Options provide the right but not the obligation to buy or sell the underlying asset at a predetermined price on or before the expiration date.
1. The document discusses various types of derivatives including equity derivatives, forwards, futures, options, swaps, and warrants.
2. It explains the key features and differences between these derivatives, such as how forwards are customized contracts while futures are exchange-traded standardized contracts.
3. The roles of various participants in the derivatives markets are discussed, including hedgers who use derivatives to mitigate risk, speculators who take on risk to profit from price movements, and arbitrageurs who seek to profit from temporary price discrepancies.
This document provides an overview of derivatives and the capital markets in India. It defines key terms like the primary and secondary markets, stock exchanges, indices, and types of derivatives like forwards, futures, options, and swaps. It describes the functions and objectives of derivatives for hedging risk and speculation. The history of derivatives trading in India is summarized, along with the major participants like hedgers, speculators, and arbitrageurs.
Derivatives are financial instruments whose value is derived from an underlying asset. The three main types of derivatives are forwards, futures, and options. Forwards are customized contracts traded over-the-counter, while futures are standardized contracts traded on an exchange. Options give the holder the right but not obligation to buy or sell the underlying asset. Swaps involve exchanging cash flows of one party's financial instrument for those of another party. Derivatives allow parties to manage financial risks and speculate in the market.
A futures contract is an agreement to buy or sell an asset at a predetermined price and date in the future. Futures contracts are standardized and traded on an exchange. One party agrees to buy the asset while the other agrees to sell. Key terms include the underlying asset, settlement type, lot size, margins, and mark to market accounting of open positions. Arbitrage involves taking advantage of price differences in related markets to generate riskless profits.
PPT Financial Derivatives, Scope and ImportanceMalkeetSingh85
Derivatives are financial instruments whose value is derived from an underlying asset such as a stock, commodity, currency, or index. There are two main types of derivatives - over-the-counter (OTC) derivatives which are privately negotiated contracts between two parties, and exchange-traded derivatives which are standardized contracts traded on a public exchange. Derivatives allow parties to transfer risk from one to another and are used for hedging, speculation, and arbitrage. Common derivatives include forwards, futures, and options.
Financial derivatives are financial instruments linked to an underlying asset or indicator. Derivatives allow parties to trade financial risks independently from owning the underlying asset. There are several types of derivatives, including futures, forwards, options, and swaps. Futures are standardized forward contracts traded on an exchange. Options give the holder the right but not obligation to buy or sell the underlying asset. Swaps involve exchanging cash flows between two parties over time based on a notional principal amount. Derivatives are used by hedgers, speculators, and arbitrageurs to manage risk, seek profit, and exploit pricing discrepancies.
The document provides an overview of futures contracts and derivatives. It defines key terms related to futures like underlying asset, futures price, basis, initial margin, marking to market, etc. It explains the payoffs for long and short futures positions and how futures can be used for hedging, speculation and arbitrage. For hedging, it provides an example of an investor hedging a long stock position using short futures. For speculation, it illustrates how futures provide leverage opportunities. For arbitrage, it describes cash and carry arbitrage to exploit mispricing between spot and futures.
A derivative is a financial instrument whose value is derived from the value of an underlying asset. Derivatives include forwards, futures, options, and swaps. Forwards and swaps are traded over-the-counter (OTC), while futures and options are traded on exchanges. Options give the holder the right but not obligation to buy or sell the underlying asset. Swaps involve exchanging cash flows of one asset for another at periodic intervals. Derivatives allow investors to hedge risk or speculate on price movements of the underlying asset.
A derivative is a financial instrument whose value is derived from the value of an underlying asset. Derivatives include forwards, futures, options, and swaps. Forwards and futures are contracts to buy or sell an asset at a future date, while options provide the right but not obligation to buy or sell. Swaps involve exchanging cash flows of one asset for another. Derivatives can be traded over-the-counter or on an exchange, with exchange-traded derivatives using standardized contracts.
The document provides an overview of the derivatives market in India. It discusses key concepts like forwards, futures, options, and swaps. It outlines the evolution of the derivatives market in India, from the first steps taken in 1995 to remove prohibitions on options trading, to the establishment of a regulatory framework by SEBI and the launch of index futures and options trading on exchanges like NSE and BSE in 2000. The needs served by derivatives markets are also summarized, such as risk transfer, price discovery, and increasing market volumes. Common participants like hedgers, speculators, arbitrageurs and spreaders are defined. Examples of popular derivatives products available on Indian exchanges are also provided.
Derivatives futures,options-presentation-hareeshHareesh M
This document defines and explains various types of derivatives contracts including futures, options, forwards, and swaps. It describes how futures and options are traded on exchanges versus over-the-counter markets. Key terms like underlying assets, strike price, and expiration date are defined for different derivative products. Economic benefits of using derivatives for hedging and speculation are also summarized.
This document defines derivatives and describes their key features and types. It explains that a derivative is a financial instrument whose value is based on an underlying asset. The main types of derivatives discussed are forwards, futures, swaps, and options. It provides examples of each type and outlines their key characteristics. It also discusses derivative markets in Pakistan and how derivatives can help reduce risk but also enable speculation.
A derivative is a financial instrument whose value is derived from the value of another asset, known as the underlying. There are three main types of traders in the derivatives market: hedgers who use derivatives to reduce risk, speculators who trade for profits, and arbitrageurs who take advantage of price discrepancies across markets. Derivatives can be traded over-the-counter (OTC) or on an exchange, and provide various economic benefits such as risk reduction and enhanced market liquidity.
A derivative is a financial instrument whose value is derived from an underlying asset such as a stock, bond, commodity, or currency. Derivatives include futures, options, and swaps. There are three main types of traders in derivatives markets - hedgers who use derivatives to reduce risk, speculators who trade for profit, and arbitrageurs who take advantage of temporary price differences. Derivatives can be traded over-the-counter between two parties or on an exchange where they are standardized and require margin payments.
The document provides an introduction to derivatives, including defining key terms like underlying assets, exchange-traded vs over-the-counter derivatives, and players in the derivatives market like hedgers, speculators, and arbitrageurs. It also explains different types of derivatives like standardized derivatives (futures, options, swaps) and exotic derivatives (forward contracts). Specific products are defined, like calls and puts for options, and interest rate swaps and currency swaps.
PROFIT YOUR TRADE EDUCATION Series - By Kutumba Rao - Feb 7th 2021.pptxSAROORNAGARCMCORE
Futures contracts obligate buyers and sellers to transact an underlying asset at a predetermined price and date. Weekly options contracts on stock indices like Nifty and Bank Nifty have grown in popularity as they allow traders to better participate in short-term price movements with lower premiums and gamma risk than monthly contracts. Top holdings in the Nifty 50 index are HDFC Bank at 11.21%, Reliance Industries at 11.17%, and HDFC at 7.23%, demonstrating their heavy weighting.
The document discusses various financial instruments in India including the capital market, money market, stock exchanges, commodity exchanges, derivatives such as futures, forwards and options. It provides details on the key features and differences between these instruments such as forwards being a private agreement while futures are exchange-traded and standardized. It also discusses concepts like margin requirements, order types and players in the financial markets like hedgers, speculators and arbitrageurs.
Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
How MJ Global Leads the Packaging Industry.pdfMJ Global
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IMPACT Silver is a pure silver zinc producer with over $260 million in revenue since 2008 and a large 100% owned 210km Mexico land package - 2024 catalysts includes new 14% grade zinc Plomosas mine and 20,000m of fully funded exploration drilling.
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Recruiting in the Digital Age: A Social Media MasterclassLuanWise
In this masterclass, presented at the Global HR Summit on 5th June 2024, Luan Wise explored the essential features of social media platforms that support talent acquisition, including LinkedIn, Facebook, Instagram, X (formerly Twitter) and TikTok.
The Evolution and Impact of OTT Platforms: A Deep Dive into the Future of Ent...ABHILASH DUTTA
This presentation provides a thorough examination of Over-the-Top (OTT) platforms, focusing on their development and substantial influence on the entertainment industry, with a particular emphasis on the Indian market.We begin with an introduction to OTT platforms, defining them as streaming services that deliver content directly over the internet, bypassing traditional broadcast channels. These platforms offer a variety of content, including movies, TV shows, and original productions, allowing users to access content on-demand across multiple devices.The historical context covers the early days of streaming, starting with Netflix's inception in 1997 as a DVD rental service and its transition to streaming in 2007. The presentation also highlights India's television journey, from the launch of Doordarshan in 1959 to the introduction of Direct-to-Home (DTH) satellite television in 2000, which expanded viewing choices and set the stage for the rise of OTT platforms like Big Flix, Ditto TV, Sony LIV, Hotstar, and Netflix. The business models of OTT platforms are explored in detail. Subscription Video on Demand (SVOD) models, exemplified by Netflix and Amazon Prime Video, offer unlimited content access for a monthly fee. Transactional Video on Demand (TVOD) models, like iTunes and Sky Box Office, allow users to pay for individual pieces of content. Advertising-Based Video on Demand (AVOD) models, such as YouTube and Facebook Watch, provide free content supported by advertisements. Hybrid models combine elements of SVOD and AVOD, offering flexibility to cater to diverse audience preferences.
Content acquisition strategies are also discussed, highlighting the dual approach of purchasing broadcasting rights for existing films and TV shows and investing in original content production. This section underscores the importance of a robust content library in attracting and retaining subscribers.The presentation addresses the challenges faced by OTT platforms, including the unpredictability of content acquisition and audience preferences. It emphasizes the difficulty of balancing content investment with returns in a competitive market, the high costs associated with marketing, and the need for continuous innovation and adaptation to stay relevant.
The impact of OTT platforms on the Bollywood film industry is significant. The competition for viewers has led to a decrease in cinema ticket sales, affecting the revenue of Bollywood films that traditionally rely on theatrical releases. Additionally, OTT platforms now pay less for film rights due to the uncertain success of films in cinemas.
Looking ahead, the future of OTT in India appears promising. The market is expected to grow by 20% annually, reaching a value of ₹1200 billion by the end of the decade. The increasing availability of affordable smartphones and internet access will drive this growth, making OTT platforms a primary source of entertainment for many viewers.
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Understanding User Needs and Satisfying ThemAggregage
https://www.productmanagementtoday.com/frs/26903918/understanding-user-needs-and-satisfying-them
We know we want to create products which our customers find to be valuable. Whether we label it as customer-centric or product-led depends on how long we've been doing product management. There are three challenges we face when doing this. The obvious challenge is figuring out what our users need; the non-obvious challenges are in creating a shared understanding of those needs and in sensing if what we're doing is meeting those needs.
In this webinar, we won't focus on the research methods for discovering user-needs. We will focus on synthesis of the needs we discover, communication and alignment tools, and how we operationalize addressing those needs.
Industry expert Scott Sehlhorst will:
• Introduce a taxonomy for user goals with real world examples
• Present the Onion Diagram, a tool for contextualizing task-level goals
• Illustrate how customer journey maps capture activity-level and task-level goals
• Demonstrate the best approach to selection and prioritization of user-goals to address
• Highlight the crucial benchmarks, observable changes, in ensuring fulfillment of customer needs
2. • Derivative comes from the word “ to derive”
• A derivative is a contract whose value is
derived from the value of another asset called
underlying asset
• If the price of underlying asset/security
changes the price of derivative security also
changes.
3. Commodity derivative –
Underlying is wheat, cotton, pepper, corn, oats,
soyabean, crude oil, natural gas, gold, silver, turmeric
etc.
Financial derivatives –
Underlying is stocks, bonds, indexes, foreign
exchange, Eurodollar etc.
• Derivative minimises the risk of owning things
that are subject to unexpected price fluctuations
like foreign currencies, bulk of wheat, stocks &
bonds.
4. Under lying Derivative
Price Change Price Change
Change in Spot Change in
or Cash Market Prices in
Price of Derivatives
Underlying market
8. FORWARDS
• It is a contract between two parties to buy or sell an
underlying asset at today’s pre-agreed price (known as
Forward Price) on a specified date in the future.
• This forward price is set at the inception of contract
• It is the most basic form of derivative contract.
• These contracts are not standardized, the end users can
tailor make the contracts to fit their very specific needs.
• Traded at Over The Counter exchange.
9. An Indian Company has ordered machinery from
USA. The price of $ 5,00,000 is payable after six
months. The current exchange rate is 49.08 as on
28th Feb 2012. At the current rate the company
needs 49.03*5,00,000 = 2,45,40,000
If the company anticipates depreciation of Indian
rupee over time. The company can enter into a
forward contract & forget about any exchange rate
fluctuations. Suppose the exchange rate becomes
50, then also the company has to pay Rs.
2,45,40,000 for buying $ 5,00,000 though the value
is 2,50,00,000.
10. FUTURES
Futures are financial contracts to eliminate the
risk of change in price in the future date. Futures
are highly standardized exchange traded
contracts to buy or sell specified quantity of
financial instruments/commodity in a designated
future month at a future price.
Futures Price: The price agreed by the two
traders on the floor of exchange.
11. In India, two exchanges offer derivatives trading: the Bombay
Stock Exchange (BSE) and the National Stock Exchange
(NSE).
OTC derivative trading are considered as illegal in Indian Law.
OTC Contract Exchange Traded Contract
Customised Terms Standardized Terms
Substantial Credit Risk No risk
Unregulated Regulated
Transparency Information Asymmetry
Overleveraged positions Less leveraged
12. A farmer supplies Barley to a Breakfast cereal
manufacturer, he fears fall in future prices of
Barley, so he can enter into a futures contract
for selling 20 metric ton of barley.
If he wants to sell less than 20 metric ton he
has to enter into a forward agreement & not
futures.
This is b’coz standard contract size for barley
in barley international exchange is 20 metric
ton or its multiples.
15. • It is the initial deposit required to open a
trading account in a futures trading
exchange.
• The initial margin is fixed by the broker,
but has to satisfy an exchange minimum.
The variation margin i.e. the change in the
amount of an account on a given day in
response to a market –to-market process,
is settled on daily basis.
16. The exchange requires both parties to put up an
initial amount of cash, the margin. Additionally, since
the futures price will generally change daily, the
difference in the prior agreed-upon price and the
daily futures price is settled daily
The exchange will draw money out of one party's
margin account and put it into the other's so that
each party has the appropriate daily loss or profit.
If the margin account goes below a certain value,
then a margin call is made and the account owner
must replenish the margin account. This process is
known as marking to market.
17. • Initial Margin – The amount that must be
deposited in the margin account when
establishing a position. The margin requirement
is about 12% futures & 8% for options.
• Marking to Market – In the futures market at the
end of each trading day, the margin account is
adjusted to reflect the investor’s gain or loss
depending upon the futures closing account.
• Maintenance Margin – This is set to ensure that
the balance in the margin account never
becomes negative. If the balance in the margin
account falls below the maintenance margin, the
investor is expected to top up the initial level
before trading commences on the next day.
18. For example say you have bought 100 shares of XYZ at Rs.100 and
Threshold MTM Loss is 20% and the applicable margin % is 35%. You
would be having a margin of Rs.3500 blocked on this position. The
current market price is now say Rs.75. This means the MTM loss is 25%
which is more than the threshold MTM loss % of 20% and hence
additional margin to be called in for. Additional margin to be calculated as
follows:
(a) Margin available 100*100*35% Rs.3500
(b) Less : MTM Loss (100-75)*100 Rs.2500
(c) Effective available (a-b) Rs.1000
margin
(d) Required Margin 75*100*35% Rs.2625
(e) Additional Margin (d-c) Rs.1625
required
19. NEAT F & O system is used.
The minimum contract size in derivative
market is 2 lakhs & it changes based upon the
prices of stock.
In 2005 the lot size in infosys shares was
pruned from 200 to 100.
Now lot size is 50 for most of the shares.
20. NSCCL settles all deals on NSE’s derivative
segment.
It acts as a legal counter party to all deals on
derivative segment & guarantees settlement.
Members are required to settle the mark to
market losses by T + 1 day.
21. Major Derivatives Exchanges in the
World
• Chicago Board of Trade
• Chicago Mercantile Exchange
• Australian Options Market
• Commodity Exchange, New York
• London Commodity Exchange
• London Securities and Derivatives Exchange
• London Metal Exchange
• Singapore International Financial Futures Exchange
• Sydney Futures Exchange
• Tokyo International Financial Futures Exchange
• National Stock Exchange, India
22. On December 1999, the Securities Contract Regulation Act
was amended to include derivatives within the sphere of
securities.
Derivatives trading commenced in India in June 2000 after
SEBI granted the final approval to this effect in May 2000 on
the recommendation of L. C Gupta committee.
Securities and Exchange Board of India (SEBI) permitted the
derivative segments of two stock exchanges, NSE and BSE,
and their clearing house/corporation to commence trading
and settlement in approved derivatives contracts.
• Trading in index options commenced in June 2001, options on
individual securities in July 2001 and Futures on individual
stocks in November 2001.
23. Types of Futures
• Commodity futures (Wheat, corn, etc.) and
• Financial futures
Financial futures include:
– Foreign currencies
– Interest rate
– Market index futures (Market index futures are
directly related with the stock market)
– Individual stock.
24. Open Interest
It is the number of outstanding futures
contracts. In other words, the number of
futures contracts that have to be settled on
or before maturity date.
25. OPTIONS
• An option is a contract between two parties in
which one party has the right but not the
obligation to buy or sell some underlying asset
on a specified date at a specified price.
• The option buyer has the right not an obligation
to buy or sell.
• If the buyer decides to exercise his right the
seller of the option has an obligation to deliver or
take delivery of the underlying asset at the price
agreed upon.
26. Types of Options
On the basis of the nature of the rights
and obligations in the option contract,
options are classified in to two categories.
They are:
• Call Options and
• Put Options.
27. CALL OPTIONS
A call option is a contract that gives the option
holder the right to buy some underlying asset from
the option seller at a specified price on or before a
specified date.
Eg. The current market price Ashok Leyland is
Rs.69. An option contract is created and traded on
this share. A call option on the share would give
the right to buy the share at a specified price
(Rs.70) during September 2010. This call option
would be traded between two parties P (the
purchaser and S ( the seller). The purchaser P
would be prepared to pay a small price known as
option premium (Rs.2) to S, the seller of the
option.
28. PUT OPTIONS
A put option is a contract which gives
its owner the right to sell some underlying
asset at a specified price on or before a
specified date.
The seller of the put option has the
obligation to take delivery of the
underlying asset, if the owner of the option
decides to exercise the option.
29. • Option Writer or Option Grantor: The
seller of option.
• Strike price or Exercise price : The price
at which the option holder may purchase
the underlying asset from the option seller.
• Time to Expiration or Time to Expiry :
The period of time specified for exercising
the option.
• Expiration Date : The precise date on
which the option right expires.
30. Types of Options
On the basis of maturity pattern of
options, option contracts are categorized
in to two. They are:
• European Style Options
• American Style Options
31. • European Style Options
Options which can be exercised only
on the maturity date of the option or on the
expiry date.
• American Style Options
Options which can be exercised at any
time up to and including the expiry date.
Most of the exchange traded options
are American style. In India stock options
are American style while index options are
European style.
32. Types of Options
Based on the mode of trading options
are classified in to two:
• Over-the-counter Options
• Exchange Traded Options
33. Moneyness of Options
Moneyness of an option describes the
relationship between the strike price of the
option and the current stock price. This
takes three forms:
1. In the Money
2. At the Money
3. Out of the Money
34. 1. In the Money Options
When the strike price of a call option is
lower than the current stock price, the option is
said to be in the money. This is because the
owner of the option has the right to buy the
stock at a price which is lower than the price
which he has to pay if he had to buy it from the
open market.
Similarly in the case of put option, when the
strike price is greater than the stock price, the
option is said to be in the money.
If an in the money option is exercised, there
will be an immediate cash inflow.
35. When the strike price of a call option
is equal to the current stock price, the
option is said to be at the money option.
In the case of a put option if the strike
price of the option is equal to the stock
price, the put option is said to be at the
money.
36. When the strike price of a call option is
more than the stock price, the option is
termed as out of the money option.
In the case of put option, if the strike
price is less than the stock price, the
option is said to be out of the money
option.
37. When the Shares of A Ltd. is
Trading at Rs.450
Strike Price (Rs.) Call Option Put Option
420
430 In the Money Out of the Money
440
450 At the Money At the Money
460
470 Out of the Money In the Money
480
38. 1991 Liberalization process initiated
14-Dec-95 NSE asked SEBI for permission to trade index futures.
SEBI setup L.C.Gupta Committee to draft a policy framework for index
18-Nov-96
futures.
11-May-98 L.C.Gupta Committee submitted report.
RBI gave permission for OTC forward rate agreements (FRAs) and interest
07-Jul-99
rate swaps.
24-May-00 SIMEX chose Nifty for trading futures and options on an Indian index.
25-May-00 SEBI gave permission to NSE and BSE to do index futures trading.
09-Jun-00 Trading of BSE Sensex futures commenced at BSE.
12-Jun-00 Trading of Nifty futures commenced at NSE.
25-Sep-00 Nifty futures trading commenced at SGX.
02-Jun-01 Individual Stock Options & Derivatives