1. Arbitrage is taking advantage of price differences between markets to make riskless profits.
2. For example, an arbitrageur could buy a stock trading at $10 on one exchange and immediately sell it at $10.20 on another, pocketing the $0.20 difference.
3. The document describes examples of arbitrage strategies using stocks, futures, and options to exploit temporary discrepancies in prices.
Implementing a covered straddle or a covered stranglepkkothari
The document discusses covered straddle and covered strangle options strategies. A covered straddle involves selling call and put options at the same strike price while holding the underlying stock. This generates premium income while allowing the investor to double their stock position if it falls to the strike price. A covered strangle is similar but uses different strike prices, providing more flexibility if the stock moves above or below the strikes. Both strategies let investors profit from time decay in a stable bull market and buy more stock during inevitable corrections. The maximum profit is the premium collected if the stock ends between the strikes at expiration.
This document provides an overview of various types of financial derivatives, including their uses and examples. It defines derivatives as financial products whose value is based on an underlying asset. Common types discussed include options, which give the right but not obligation to buy/sell an asset; quanto options which insulate from currency risk; swaps which exchange cash flows; and weather derivatives which bet on weather patterns. Uses include hedging risk or speculating to potentially profit from price movements.
Binary options are based on a simple 'yes' or 'no' proposition: Will an underlying asset be above a certain price at a certain time? Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal amongst traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.
1) Buying call options allows investors to speculate on a rise in the price of the underlying stock or manage risk. The buyer pays a premium for the right to purchase the stock at a set strike price.
2) Strategy #1 involves buying calls to speculate, paying $1,000 in premiums for calls with a $55 strike price hoping to sell them at a profit if the stock rises above $55 before expiration.
3) Strategy #2 involves buying calls to manage risk, protecting a fund manager's planned stock purchase from increases above the $55 strike price before receiving funds in December.
1) Buying call options provides the right to purchase the underlying asset at a specified strike price within a specified time period. Call buyers pay a premium to the option writer for this right.
2) Strategy #1 involves buying calls to speculate on a rise in the underlying asset's price, allowing the option to be sold at a profit. Strategy #2 involves buying calls to manage risk by establishing a maximum purchase price when buying the underlying asset.
3) Both strategies rely on the underlying asset rising above the strike price for the call to have value. If it remains below the strike price, the calls can expire worthless.
This document defines and provides examples for various derivatives strategies and instruments, including straddles, butterflies, haircuts, credit default swaps, interest rate swaps, options, and futures. A straddle involves holding both a call and put on the same stock, while a butterfly uses three different strike prices. A haircut refers to a reduction in an asset's value for capital requirements. Credit default swaps and interest rate swaps allow parties to exchange credit and interest rate risks. Options and futures contracts give buyers rights to buy or sell an underlying asset at a future date.
Implementing a covered straddle or a covered stranglepkkothari
The document discusses covered straddle and covered strangle options strategies. A covered straddle involves selling call and put options at the same strike price while holding the underlying stock. This generates premium income while allowing the investor to double their stock position if it falls to the strike price. A covered strangle is similar but uses different strike prices, providing more flexibility if the stock moves above or below the strikes. Both strategies let investors profit from time decay in a stable bull market and buy more stock during inevitable corrections. The maximum profit is the premium collected if the stock ends between the strikes at expiration.
This document provides an overview of various types of financial derivatives, including their uses and examples. It defines derivatives as financial products whose value is based on an underlying asset. Common types discussed include options, which give the right but not obligation to buy/sell an asset; quanto options which insulate from currency risk; swaps which exchange cash flows; and weather derivatives which bet on weather patterns. Uses include hedging risk or speculating to potentially profit from price movements.
Binary options are based on a simple 'yes' or 'no' proposition: Will an underlying asset be above a certain price at a certain time? Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal amongst traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.
1) Buying call options allows investors to speculate on a rise in the price of the underlying stock or manage risk. The buyer pays a premium for the right to purchase the stock at a set strike price.
2) Strategy #1 involves buying calls to speculate, paying $1,000 in premiums for calls with a $55 strike price hoping to sell them at a profit if the stock rises above $55 before expiration.
3) Strategy #2 involves buying calls to manage risk, protecting a fund manager's planned stock purchase from increases above the $55 strike price before receiving funds in December.
1) Buying call options provides the right to purchase the underlying asset at a specified strike price within a specified time period. Call buyers pay a premium to the option writer for this right.
2) Strategy #1 involves buying calls to speculate on a rise in the underlying asset's price, allowing the option to be sold at a profit. Strategy #2 involves buying calls to manage risk by establishing a maximum purchase price when buying the underlying asset.
3) Both strategies rely on the underlying asset rising above the strike price for the call to have value. If it remains below the strike price, the calls can expire worthless.
This document defines and provides examples for various derivatives strategies and instruments, including straddles, butterflies, haircuts, credit default swaps, interest rate swaps, options, and futures. A straddle involves holding both a call and put on the same stock, while a butterfly uses three different strike prices. A haircut refers to a reduction in an asset's value for capital requirements. Credit default swaps and interest rate swaps allow parties to exchange credit and interest rate risks. Options and futures contracts give buyers rights to buy or sell an underlying asset at a future date.
The document provides an overview of options spread strategies, including bull call spreads, bear call spreads, bull put spreads, and bear put spreads. It defines each strategy, provides an example, and outlines the potential profit/loss outcomes at expiration. The strategies are simulated using an online tool called The Options Investigator to demonstrate how the positions would perform at different stock prices. Spreads are explained to have similar pricing behavior and risk/reward profiles regardless of whether calls or puts are used.
This document provides an overview of derivatives, including options, futures, forwards, and swaps. It discusses the key characteristics of each type of derivative:
- Options provide the right but not obligation to buy or sell an underlying asset at a specified price. Option buyers pay a premium to the option writer.
- Futures are exchange-traded contracts that commit both buyer and seller to exchange an asset for a price agreed upon today, to be delivered on a future date. Margin requirements and daily marking to market help manage counterparty risk.
- Forwards are similar to futures but are private contracts between two parties that also commit both to the exchange. They do not trade on an exchange.
The document provides an overview of various financial markets including stock markets, bond markets, forex markets, commodities markets, cryptocurrency markets, derivatives markets, call options, and futures contracts. Stock markets allow companies to raise capital and investors to profit from price changes. Bond markets involve lending money to entities in exchange for regular interest payments. Futures and options contracts derive their value from an underlying asset and allow for speculation and hedging.
The document provides an overview of options trading, including:
- Options allow investors to define the risk and reward profile of their investments. They create opportunities in changing market environments.
- The document defines option terminology like calls, puts, strike price, premium, expiration dates, and open interest.
- The four basic option positions are introduced: buying calls, selling calls, buying puts, and selling puts. Strategies, risks, rewards, and break-even points are discussed for each position.
- Exchanges where listed options trade and how to route orders are briefly mentioned.
1. The document discusses various derivatives concepts including forwards, futures, options, and hedging strategies.
2. It provides examples of how to calculate forward prices based on the interest rate differential between the underlying asset and borrowing rates.
3. It also discusses option concepts such as call and put options, strike prices, and factors that influence option prices.
Options provide traders tools to manage risk, increase leverage, and customize their positions:
1) Options define maximum risk as the premium paid, unlike stocks where losses can exceed investment.
2) Leverage allows traders to control large stock positions with smaller capital outlay, magnifying both gains and losses.
3) Traders can hedge positions, speculate on price moves, or build trades tailored to their market view using various option strategies beyond simply buying and selling calls and puts.
OB and Functioning organization behavior.pptzulqarnain7711
This document discusses key concepts related to securities markets, including:
1. Characteristics of a good market include timely and accurate information, low transaction costs, informational efficiency, and liquidity.
2. Securities markets are organized into primary markets, where new securities are sold, and secondary markets, where existing securities are traded. Secondary markets provide liquidity and help determine pricing for new issues.
3. There are different types of orders that can be placed in securities markets, including market orders, limit orders, stop orders, and short sales. Margin transactions allow investors to leverage their investment by borrowing against the value of their securities.
4. Maintenance margin requirements protect brokers if security prices decline by
Covered calls are suitable for investors who are:
1) Neutral to moderately bullish on stocks in their portfolio
2) Willing to limit upside potential in exchange for downside protection
3) Interested in being paid to agree to sell stocks at a specified price
Covered calls involve the sale of call options against stocks currently held, generating premium income while capping upside if the stock rises above the strike price. This strategy can provide income and reduce cost basis for stocks expected to trade sideways.
The document provides an overview of diagonal spreads, an options trading strategy. It begins by explaining why the author's company changed from single-leg options to diagonal spreads. It then discusses the concept of income trading using covered calls as an example. A diagonal spread uses a deep in-the-money long call option instead of stock to construct a covered call-like position. The document analyzes an example diagonal spread trade, noting its limited risk profile and potential for higher returns than covered calls. It addresses brokerage requirements and concludes diagonal spreads can be good for retirement accounts due to their defined risk nature.
logan piercy mission is to provide unmatched solutions across the real estate verticals through a blend of best practices, latest management techniques and innovations to create a unique and delightful experience for customers.
This document discusses currency derivatives, including forward contracts, futures contracts, and options contracts. It provides examples of how multinational corporations and speculators use each type of derivative to hedge currency risk or profit from anticipated exchange rate movements. Forward contracts allow firms to lock in future exchange rates. Futures contracts are standardized exchange-traded derivatives. Options provide the right but not obligation to buy or sell a currency at a preset price.
The document discusses covered call strategies using ETF options. It begins by outlining the benefits of covered calls, such as generating income from call premiums while remaining long the underlying asset. However, it also notes the tradeoff is giving up upside potential if the call is exercised. The document then provides an example of using a covered call strategy on an ETF.
The document provides an overview of forex trading, including:
- Defining forex as the foreign exchange market where currencies are traded.
- Explaining why people trade forex, including for business transactions, speculation, and potential profits.
- Describing currency pairs, pips, spreads, leverage, margin, and lot sizes as key concepts and tools.
- Discussing different types of charts used including line, bar, and candlestick charts.
- Outlining common trading strategies like using limit orders, stop losses, and hedging.
- Recommending factors to consider when selecting a forex broker like available features, reliability, and execution speed.
Squaring off is a day trading strategy where a trader buys and then sells an asset, or vice versa, within the same day in an attempt to profit from price differences. For example, a trader may buy 100 shares of a company at Rs. 10 per share, and then sell those same 100 shares later in the day at Rs. 12 per share, pocketing the Rs. 200 - Rs. 10 = Rs. 190 profit. The key aspects are buying and selling the same quantity of the same asset within one day in an attempt to profit from intraday price movements.
This document discusses various types of investments including stocks, bonds, mutual funds, real estate, savings/certificates of deposit, and collectibles. It also outlines strategies for both short-term investments like buying on margin and short selling, and long-term strategies such as diversification, dollar cost averaging, and buying and holding. Sources of investment information and how to purchase investments through brokers or advisors is also covered at a high level.
This document discusses different types of investments including stocks, bonds, mutual funds, real estate, savings accounts, and collectibles. It also outlines strategies for purchasing stocks such as using brokers, investing on major exchanges like the NYSE or NASDAQ, and techniques like dollar cost averaging. Regulations and sources of investment information are also summarized to help protect investors and evaluate opportunities.
How to Protect and Enhance Your Investment Portfolioboblawson
The document provides an overview of options strategies for stock investors, including essential concepts, terminology, and mechanics of buying calls and puts. It discusses strategies such as buying calls to gain upside potential with limited downside risk, buying puts to protect an existing stock position or profit from a falling market, and selling covered calls to generate income from owned stocks. Option prices are determined by factors like the underlying stock price, strike price, time to expiration, interest rates, and volatility.
The document discusses using technical analysis to develop price forecasts for options trading. It emphasizes that round number price levels often act as areas of support or resistance. It then provides examples of two market indices, the KOSPI Composite Index and S&P BSE SENSEX, and notes that both have seen significance at round number levels in 2013, with resistance near 10% gains for the year. It also provides an example of a long put spread options strategy, where selling an out of the money put reduces the cost of a long put position but also limits upside potential.
Cover Story - China's Investment Leader - Dr. Alyce SUmsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
The document provides an overview of options spread strategies, including bull call spreads, bear call spreads, bull put spreads, and bear put spreads. It defines each strategy, provides an example, and outlines the potential profit/loss outcomes at expiration. The strategies are simulated using an online tool called The Options Investigator to demonstrate how the positions would perform at different stock prices. Spreads are explained to have similar pricing behavior and risk/reward profiles regardless of whether calls or puts are used.
This document provides an overview of derivatives, including options, futures, forwards, and swaps. It discusses the key characteristics of each type of derivative:
- Options provide the right but not obligation to buy or sell an underlying asset at a specified price. Option buyers pay a premium to the option writer.
- Futures are exchange-traded contracts that commit both buyer and seller to exchange an asset for a price agreed upon today, to be delivered on a future date. Margin requirements and daily marking to market help manage counterparty risk.
- Forwards are similar to futures but are private contracts between two parties that also commit both to the exchange. They do not trade on an exchange.
The document provides an overview of various financial markets including stock markets, bond markets, forex markets, commodities markets, cryptocurrency markets, derivatives markets, call options, and futures contracts. Stock markets allow companies to raise capital and investors to profit from price changes. Bond markets involve lending money to entities in exchange for regular interest payments. Futures and options contracts derive their value from an underlying asset and allow for speculation and hedging.
The document provides an overview of options trading, including:
- Options allow investors to define the risk and reward profile of their investments. They create opportunities in changing market environments.
- The document defines option terminology like calls, puts, strike price, premium, expiration dates, and open interest.
- The four basic option positions are introduced: buying calls, selling calls, buying puts, and selling puts. Strategies, risks, rewards, and break-even points are discussed for each position.
- Exchanges where listed options trade and how to route orders are briefly mentioned.
1. The document discusses various derivatives concepts including forwards, futures, options, and hedging strategies.
2. It provides examples of how to calculate forward prices based on the interest rate differential between the underlying asset and borrowing rates.
3. It also discusses option concepts such as call and put options, strike prices, and factors that influence option prices.
Options provide traders tools to manage risk, increase leverage, and customize their positions:
1) Options define maximum risk as the premium paid, unlike stocks where losses can exceed investment.
2) Leverage allows traders to control large stock positions with smaller capital outlay, magnifying both gains and losses.
3) Traders can hedge positions, speculate on price moves, or build trades tailored to their market view using various option strategies beyond simply buying and selling calls and puts.
OB and Functioning organization behavior.pptzulqarnain7711
This document discusses key concepts related to securities markets, including:
1. Characteristics of a good market include timely and accurate information, low transaction costs, informational efficiency, and liquidity.
2. Securities markets are organized into primary markets, where new securities are sold, and secondary markets, where existing securities are traded. Secondary markets provide liquidity and help determine pricing for new issues.
3. There are different types of orders that can be placed in securities markets, including market orders, limit orders, stop orders, and short sales. Margin transactions allow investors to leverage their investment by borrowing against the value of their securities.
4. Maintenance margin requirements protect brokers if security prices decline by
Covered calls are suitable for investors who are:
1) Neutral to moderately bullish on stocks in their portfolio
2) Willing to limit upside potential in exchange for downside protection
3) Interested in being paid to agree to sell stocks at a specified price
Covered calls involve the sale of call options against stocks currently held, generating premium income while capping upside if the stock rises above the strike price. This strategy can provide income and reduce cost basis for stocks expected to trade sideways.
The document provides an overview of diagonal spreads, an options trading strategy. It begins by explaining why the author's company changed from single-leg options to diagonal spreads. It then discusses the concept of income trading using covered calls as an example. A diagonal spread uses a deep in-the-money long call option instead of stock to construct a covered call-like position. The document analyzes an example diagonal spread trade, noting its limited risk profile and potential for higher returns than covered calls. It addresses brokerage requirements and concludes diagonal spreads can be good for retirement accounts due to their defined risk nature.
logan piercy mission is to provide unmatched solutions across the real estate verticals through a blend of best practices, latest management techniques and innovations to create a unique and delightful experience for customers.
This document discusses currency derivatives, including forward contracts, futures contracts, and options contracts. It provides examples of how multinational corporations and speculators use each type of derivative to hedge currency risk or profit from anticipated exchange rate movements. Forward contracts allow firms to lock in future exchange rates. Futures contracts are standardized exchange-traded derivatives. Options provide the right but not obligation to buy or sell a currency at a preset price.
The document discusses covered call strategies using ETF options. It begins by outlining the benefits of covered calls, such as generating income from call premiums while remaining long the underlying asset. However, it also notes the tradeoff is giving up upside potential if the call is exercised. The document then provides an example of using a covered call strategy on an ETF.
The document provides an overview of forex trading, including:
- Defining forex as the foreign exchange market where currencies are traded.
- Explaining why people trade forex, including for business transactions, speculation, and potential profits.
- Describing currency pairs, pips, spreads, leverage, margin, and lot sizes as key concepts and tools.
- Discussing different types of charts used including line, bar, and candlestick charts.
- Outlining common trading strategies like using limit orders, stop losses, and hedging.
- Recommending factors to consider when selecting a forex broker like available features, reliability, and execution speed.
Squaring off is a day trading strategy where a trader buys and then sells an asset, or vice versa, within the same day in an attempt to profit from price differences. For example, a trader may buy 100 shares of a company at Rs. 10 per share, and then sell those same 100 shares later in the day at Rs. 12 per share, pocketing the Rs. 200 - Rs. 10 = Rs. 190 profit. The key aspects are buying and selling the same quantity of the same asset within one day in an attempt to profit from intraday price movements.
This document discusses various types of investments including stocks, bonds, mutual funds, real estate, savings/certificates of deposit, and collectibles. It also outlines strategies for both short-term investments like buying on margin and short selling, and long-term strategies such as diversification, dollar cost averaging, and buying and holding. Sources of investment information and how to purchase investments through brokers or advisors is also covered at a high level.
This document discusses different types of investments including stocks, bonds, mutual funds, real estate, savings accounts, and collectibles. It also outlines strategies for purchasing stocks such as using brokers, investing on major exchanges like the NYSE or NASDAQ, and techniques like dollar cost averaging. Regulations and sources of investment information are also summarized to help protect investors and evaluate opportunities.
How to Protect and Enhance Your Investment Portfolioboblawson
The document provides an overview of options strategies for stock investors, including essential concepts, terminology, and mechanics of buying calls and puts. It discusses strategies such as buying calls to gain upside potential with limited downside risk, buying puts to protect an existing stock position or profit from a falling market, and selling covered calls to generate income from owned stocks. Option prices are determined by factors like the underlying stock price, strike price, time to expiration, interest rates, and volatility.
The document discusses using technical analysis to develop price forecasts for options trading. It emphasizes that round number price levels often act as areas of support or resistance. It then provides examples of two market indices, the KOSPI Composite Index and S&P BSE SENSEX, and notes that both have seen significance at round number levels in 2013, with resistance near 10% gains for the year. It also provides an example of a long put spread options strategy, where selling an out of the money put reduces the cost of a long put position but also limits upside potential.
Cover Story - China's Investment Leader - Dr. Alyce SUmsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
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The Steadfast and Reliable Bull: Taurus Zodiac Signmy Pandit
Explore the steadfast and reliable nature of the Taurus Zodiac Sign. Discover the personality traits, key dates, and horoscope insights that define the determined and practical Taurus, and learn how their grounded nature makes them the anchor of the zodiac.
NIMA2024 | De toegevoegde waarde van DEI en ESG in campagnes | Nathalie Lam |...BBPMedia1
Nathalie zal delen hoe DEI en ESG een fundamentele rol kunnen spelen in je merkstrategie en je de juiste aansluiting kan creëren met je doelgroep. Door middel van voorbeelden en simpele handvatten toont ze hoe dit in jouw organisatie toegepast kan worden.
Discover timeless style with the 2022 Vintage Roman Numerals Men's Ring. Crafted from premium stainless steel, this 6mm wide ring embodies elegance and durability. Perfect as a gift, it seamlessly blends classic Roman numeral detailing with modern sophistication, making it an ideal accessory for any occasion.
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Explore the details in our newly released product manual, which showcases NEWNTIDE's advanced heat pump technologies. Delve into our energy-efficient and eco-friendly solutions tailored for diverse global markets.
[To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
This presentation is a curated compilation of PowerPoint diagrams and templates designed to illustrate 20 different digital transformation frameworks and models. These frameworks are based on recent industry trends and best practices, ensuring that the content remains relevant and up-to-date.
Key highlights include Microsoft's Digital Transformation Framework, which focuses on driving innovation and efficiency, and McKinsey's Ten Guiding Principles, which provide strategic insights for successful digital transformation. Additionally, Forrester's framework emphasizes enhancing customer experiences and modernizing IT infrastructure, while IDC's MaturityScape helps assess and develop organizational digital maturity. MIT's framework explores cutting-edge strategies for achieving digital success.
These materials are perfect for enhancing your business or classroom presentations, offering visual aids to supplement your insights. Please note that while comprehensive, these slides are intended as supplementary resources and may not be complete for standalone instructional purposes.
Frameworks/Models included:
Microsoft’s Digital Transformation Framework
McKinsey’s Ten Guiding Principles of Digital Transformation
Forrester’s Digital Transformation Framework
IDC’s Digital Transformation MaturityScape
MIT’s Digital Transformation Framework
Gartner’s Digital Transformation Framework
Accenture’s Digital Strategy & Enterprise Frameworks
Deloitte’s Digital Industrial Transformation Framework
Capgemini’s Digital Transformation Framework
PwC’s Digital Transformation Framework
Cisco’s Digital Transformation Framework
Cognizant’s Digital Transformation Framework
DXC Technology’s Digital Transformation Framework
The BCG Strategy Palette
McKinsey’s Digital Transformation Framework
Digital Transformation Compass
Four Levels of Digital Maturity
Design Thinking Framework
Business Model Canvas
Customer Journey Map
The APCO Geopolitical Radar - Q3 2024 The Global Operating Environment for Bu...APCO
The Radar reflects input from APCO’s teams located around the world. It distils a host of interconnected events and trends into insights to inform operational and strategic decisions. Issues covered in this edition include:
Storytelling is an incredibly valuable tool to share data and information. To get the most impact from stories there are a number of key ingredients. These are based on science and human nature. Using these elements in a story you can deliver information impactfully, ensure action and drive change.
AI Transformation Playbook: Thinking AI-First for Your BusinessArijit Dutta
I dive into how businesses can stay competitive by integrating AI into their core processes. From identifying the right approach to building collaborative teams and recognizing common pitfalls, this guide has got you covered. AI transformation is a journey, and this playbook is here to help you navigate it successfully.
Industrial Tech SW: Category Renewal and CreationChristian Dahlen
Every industrial revolution has created a new set of categories and a new set of players.
Multiple new technologies have emerged, but Samsara and C3.ai are only two companies which have gone public so far.
Manufacturing startups constitute the largest pipeline share of unicorns and IPO candidates in the SF Bay Area, and software startups dominate in Germany.
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1. • Let's say you own 100 shares of XYZ stock, which is currently
trading at $50 per share. You are worried that the stock price
might fall in the future, but you don't want to sell your shares
and miss out on potential gains if the stock price rises.
• Hedge your position using option
• If the stock price falls below the strike price of $45
• On the other hand, if the stock price stays above the strike price
of $45 – i.e 55
• Call/Put option premium of $2 per share at the strike price of 45
2. • Suppose you buy one XYZ put option with a strike price of $45 and an
expiration date of one month from now. You pay a premium of $2 per
share, which means you spend a total of $200 (since each option
contract represents 100 shares of the underlying stock).
• If the stock price falls below the strike price of $45, the put option will
be "in the money" and you can exercise your right to sell the stock at
that price. This means you can limit your losses to $5+$2 per share,
even if the stock price drops further.
• On the other hand, if the stock price stays above the strike price of
$45, the put option will expire worthless, but you still own the
underlying stock. In this case, you have only lost the premium you paid
for the option.
3. • Let's say you have sold short 100 shares of XYZ stock futures,
which is currently trading at $50 per share. You expect the stock
price to fall, but you are worried that it might rise instead, leading to
potential losses.
• option with a strike price of $55 @ premium of $2 per share
• Hedge the position
• If the stock price rises above the strike price of $55- 60,65,70
• If the stock price falls bellow the strike price of $55- 50,45,40
4. • Suppose you buy one XYZ call option with a strike price of $55
and an expiration date of one month from now. You pay a
premium of $2 per share, which means you spend a total of
$200 (since each option contract represents 100 shares of the
underlying stock).
• If the stock price rises above the strike price of $55, the call
option will be "in the money" and you can exercise your right to
buy the stock at that price. This means you can limit your losses
to $55 per share, even if the stock price continues to rise.
5. • Arbitrage is a trading strategy that involves taking advantage of
price discrepancies between two or more markets to make a
profit. One common way to engage in arbitrage with stock
futures is by using a cash and carry arbitrage strategy. Here's
an example:
6. • Suppose that the current spot price of XYZ stock is $50, and the
futures contract for XYZ stock with a delivery date of one month
from now is trading at $55. This suggests that the market
expects the stock price to rise in the future.
• You have $50,000 in cash and you want to engage in arbitrage
with stock futures.
• The spot price of XYZ stock remains at $50 per share
• The spot price of XYZ stock rises to $55 per share
• The spot price of XYZ stock falls to $45 per share,
7. • You have $50,000 in cash and you want to engage in arbitrage
with stock futures. You decide to use a cash and carry arbitrage
strategy, which involves buying the underlying asset (in this
case, the XYZ stock) in the spot market and simultaneously
selling a futures contract on the same underlying asset.
8. • To engage in cash and carry arbitrage, you would do the
following:
1.Buy 1000 shares of XYZ stock at the spot price of $50 per
share, spending $50,000 in cash.
2.Sell one futures contract on XYZ stock with a delivery date of
one month from now at the futures price of $55 per share,
receiving $55,000 in cash
9. At the delivery date, one of three scenarios can
occur:
1.The spot price of XYZ stock remains at $50 per share, and the futures
contract expires worthless. In this case, you have made a profit of
$5,000 ($55,000 received from the futures contract sale minus $50,000
spent on buying the stock in the spot market).
2.The spot price of XYZ stock rises to $55 per share, and the futures
contract settles at the same price. In this case, you have made a profit
of $5,000 ($55,000 received from the futures contract sale minus
$50,000 spent on buying the stock in the spot market).
3.The spot price of XYZ stock falls to $45 per share, and the futures
contract settles at the same price. In this case, you have made a loss of
$5,000 ($50,000 spent on buying the stock in the spot market minus
$45,000 received from the futures contract sale).
10. Arbitrage
Arbitrage is the practice of taking advantage of differences in price or
value between two or more markets, with the goal of making a profit. In
finance, this often involves buying an asset in one market where it is
undervalued and simultaneously selling it in another market where it is
overvalued, thus profiting from the price difference.
For example, suppose that a stock is trading for $10 on the New York
Stock Exchange (NYSE) and simultaneously trading for $10.20 on the
Tokyo Stock Exchange (TSE). An arbitrageur might buy the stock on the
NYSE and sell it on the TSE, earning a profit of $0.20 per share.
Arbitrage opportunities can arise in various markets, including financial
markets, commodity markets, and currency markets. However, arbitrage
opportunities tend to be short-lived, as market forces tend to quickly
eliminate price differences as traders try to take advantage of them.
11. Short Position
• Suppose that the current spot price of XYZ stock is $50, and the
futures contract for XYZ stock with a delivery date of one month
from now is trading at $45. This suggests that the market
expects the stock price to fall in the future.
• You have $50,000 in cash and you want to engage in arbitrage
with a short position in stock futures.
• The spot price of XYZ stock remains at $50 per share
• The spot price of XYZ stock falls to $45 per share
• The spot price of XYZ stock rises to $55 per share
12. • To engage in reverse cash and carry arbitrage, you would do
the following:
1.Short sell 1000 shares of XYZ stock at the spot price of $50 per
share, receiving $50,000 in cash.
2.Buy one futures contract on XYZ stock with a delivery date of
one month from now at the futures price of $45 per share,
spending $45,000 in cash.
13. 1.The spot price of XYZ stock remains at $50 per share, and the
futures contract expires worthless. In this case, you have made a
profit of $5,000 ($50,000 received from the short sale of the stock in
the spot market minus $45,000 spent on buying the futures contract).
2.The spot price of XYZ stock falls to $45 per share, and the futures
contract settles at the same price. In this case, you have made a
profit of $5,000 ($50,000 received from the short sale of the stock in
the spot market minus $45,000 spent on buying the futures contract).
3.The spot price of XYZ stock rises to $55 per share, and the futures
contract settles at the same price. In this case, you have made a
loss of $5,000 ($45,000 spent on buying the futures contract minus
$50,000 received from the short sale of the stock in the spot market).
14. • Suppose that a call option on XYZ stock with a strike price of
$50 and an expiration date of one month from now is trading at
$6. At the same time, a put option on XYZ stock with the same
strike price and expiration date is trading at $5.50. The current
spot price of XYZ stock is $50.
• You have $5,000 in cash and you want to engage in arbitrage
with stock options.
• The spot price of XYZ stock remains at $50 per share
• The spot price of XYZ stock rises to $55 per share.
• The spot price of XYZ stock falls to $45 per share.
15. • You have $5,000 in cash
• A conversion arbitrage strategy: Buying the stock
• Selling the call option
• and buying the put option.
16. 1.Buy 100 shares of XYZ stock at the spot price of $50 per share,
spending $5,000 in cash.
2.Sell one call option on XYZ stock with a strike price of $50 and
an expiration date of one month from now at the options price of
$6, receiving $600 in cash.
3.Buy one put option on XYZ stock with a strike price of $50 and
an expiration date of one month from now at the options price of
$5.50, spending $550 in cash
17. At the expiration date, one of three scenarios can
occur:
1.The spot price of XYZ stock remains at $50 per share. In this case, the call
option expires worthless, and the put option is exercised, allowing you to sell
the stock at the strike price of $50 per share. Your profit in this scenario is
$50 ($5,000 received from the sale of the stock minus $4,950 spent on
buying the put option).
2.The spot price of XYZ stock rises to $55 per share. In this case, the call
option is exercised, allowing you to sell the stock at the strike price of $50
per share, and you buy back the put option. Your profit in this scenario is $50
($5,000 received from the sale of the stock minus $4,950 spent on buying
the put option).
3.The spot price of XYZ stock falls to $45 per share. In this case, the put
option is exercised, allowing you to sell the stock at the strike price of $50
per share, and you buy back the call option. Your profit in this scenario is $50