This document provides an introduction and overview of derivatives, including their history, types, and uses. It discusses futures, forwards, and options contracts. Futures are exchange-traded standardized contracts that require daily margin payments and settlement. Forwards are over-the-counter customized contracts that involve credit risk. Options provide the right but not obligation to buy or sell an underlying asset at a specified price on or before expiration. The document defines call and put options and explores factors that influence option pricing.

1. By: Amit Mittal Nitin Mittal

3. Various types of Derivatives

10. Difference between forwards and futures Forwards Futures Forwards Futures Nature of the contract Customized Standardized Counterparty Any entity Clearing house of exchange Credit Risk Exists Assumed by the exchange Liquidity Poor Very High Margins Not Required Received / Paid on daily basis Valuation Not Done Done on daily basis

18. Differences in equity shares and equity options

29. Exercise of calls

30. Exercise of Puts

31. Pay off from a Long Call

32. Payoff from Short Call

34. Summary of basic option strategies