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Sarim Nanjee-30
Prathamesh Pathare-35
Aditi Shah-48
Khushal Tambe-59
Special appearance - Chirag Sir
HEDGER
A hedger is someone who faces risk associated with price
movement of an asset and who uses derivatives as means of
reducing risk.
SPECULATOR
A trader who enters the futures market for pursuit of profits,
accepting risk in the endeavor.
ARBITRAGEUR
1. OTC
2. Exchange-traded Derivatives
Exchange traded derivatives contract (ETD) are those
derivatives instruments that are traded via specialized
Derivatives exchange or other exchanges. A derivatives
exchange is a market where individuals trade standardized
contracts that have been defined by the exchange.
Various types of
Derivatives
What is a Forward?
Farmer
I agree to sell
500kgs wheat
at Rs.40/kg
after 3
months.
Bread
Maker
3 months
Later
Farmer
500kgs
wheat
Rs.20,00
0
Bread
Maker
Terminology
Terminology
Contract size The amount of the asset that has to be
delivered under one contract. All futures are sold in
multiples of lots which is decided by the exchange
board.
Eg. If the lot size of Tata steel is 500 shares, then one
futures contract is necessarily 500 shares.
Terminology
Margins
OPTIONS
They give the buyer the right, but not the obligation to
exercise the contract.
Call options
A call option gives the owner the right to buy an asset
at a fixed price during a particular time period.
Example:
On October 1st,2010,nifty is at 6143.40.
(long call)
Strike price:6200
Premium:118.35 (expiry date: october 28,2010)
long call
short call
Put options
A put gives the holder the right to sell the stock for a
fixed exercise price.
Example:
On October 1st,2010,nifty is at 6143.40.
Strike price:6200
Premium:141.5
long put
Maximum profit?(6058.5)
short put
Types of Swaps
There are 2 main types of swaps:
Plain vanilla fixed for floating swaps
or simply interest rate swaps.
Fixed for fixed currency swaps
or simply currency swaps.
Continued
International style
Just as there are two different types of options (puts and calls),
so there are two main styles of options: American and
European. These options have many similar characteristics,
but it's the differences that are important.
Option style
European option an option that may only be
exercised on expiration.
American option an option that may be exercised on
any trading day on or before expiry.
Bermudan option an option that may be exercised
only on specified dates on or before expiration.
Continued
Barrier option - can be a knock-out, meaning it can
expire worthless if the underlying exceeds a certain
price, limiting profits for the holder but limiting losses
for the writer. It can also be a knock-in, meaning it has
no value until the underlying reaches a certain price.
Binary option is a type of option in which the payoff
can take only two possible outcomes, either some fixed
monetary amount of some asset or nothing at all.
Thank You