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7/24/2019 Derivatives 130212005551 Phpapp02

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DERIVATIVES

PRESENTED BY

JEETENDRA SINGH

ROLL NO (56)


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Topics

Derivatives

Futures

Forwards

Mark to mark

Basis a! "o#$r%$"$

I!i#i!&a's i t$ &t&r$ i!&str*+ $!%$rs s,$"&'ators ar-itra%$&rs

Swaps

Options

Intrinsic value and Time value Mar%i

I!$. o,tios

Im,'i$! #o'ati'it*

B'a"k s"o'$s o,tio ,ri"i% mo!$'

P&t "a'' ,arit*


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What are Derivatives???

D$ri#ati#$sis one whose performance isbased on the behavior of the price of anunderlying asset.

The underlying asset can be equity, xedincome instruments, interest rates,

foreign exchange or commodities.


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Major events in derivative market

The rst exchange for trading inderivatives appeared to be in London.

The rst FT!"# $contracts are

generally traced to the yodoyo ricemar%et in &sa%a ,'apan around ()*+.

The rst commodity futures exchange

was set up in (-*,in umbai.


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Various types of Derivatives


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Advantages of using Derivatives

Leveraged /ositions

Lesser transaction costs

"ase of creating positions

0erivatives as !is% anagement/roducts

0erivatives as Trading /roducts


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Types of Derivatives


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Uses of Derivatives

1 derivative product can be used for ,

!is% management.

#peculation.

!is% mitigation.

!is% ta%ing.


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Users of Derivatives

2edgers.

Traders.

/rivate clients.

1rbitrageurs.


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American and EuropeanoptionsThe owner of an 1merican option can

excise it on or before the expirationdate.

The owner of a "uropean style canexcise it only on the expiration date.


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Forwards

The terms of the contract are agreedupon today ,and delivery and paymentta%e place in the future, at what is called

either the delivery date, the settlementor maturity date.

"xample3on a (45+656+(( 7eetendra Ltd.

enters into a forward contract with sushiLtd for buying #0 ( crore at !s.8* per#0 on *5+956+((.


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Futures

1 futures contractis astandardi;ed contract between two parties to buy

or sell a specied asset of standardi;ed quantityand quality for a price agreed todaypriceor stri%ewith delivery and payment occurring at aspecied future date, the delivery date.

Three series of future contract are alwaysavailable and have one3month, two month, and

three month expiry cycles.

"xample3on a 9rd 1ugust 6+((,'eetendra enters

into a 1ugust 6+(( Future contract for buying(+++ shares of godre' Ltd.


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Comparison between Forward andFuture

Forward Future

/rivate


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#waps

#waps are contractual agreements between twoparties to exchange cash ?ows


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Options

&ption is a derivatives instrument thatgives the holder a right, without anyobligation to perform.

&ption are basically contracts which giveto the buyer a facility which is similar tobuy or sell certain asset AunderlyingB butthe buyer of an option has limited ris% Dunlimited prot.

&ptions can be exchange tradedderivatives or even over the counter

derivatives.


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Types of Options


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Call Option

1 call option is a contract that gives itsowner the right but not the obligation, tobuy something at a specied price on or

before a specied date.


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Put Option


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Comparison between Call Option PutOption

Call Option Put Option

O,tio /i" %i#$s t$ o'!$r ri%t to

B0Y a ass$ts -&t ot a o-'i%atio to-&*1

O,tio /i" %i#$s t$ o'!$r ri%t

to SELL a ass$ts -&t ot ao-'i%atio to SELL1

2a'' o,tio /i'' -$ $.$r"is$ o'* /$t$ $.$r"is$ ,ri"$ is 'o/$r ta t$

mark$t ,ri"$1

P&t o,tio /i'' -$ $.$r"is$ o'* /$t$ $.$r"is$ ,ri"$ is Hi%$r ta

t$ mark$t ,ri"$1

S$''$r3/rit$r is &!$r o-'i%atio to s$'' t$&!$r'*i% ass$ts i t$ -&*$r $.$r"is$

is o,tio to -&* t$ sar$s 1

S$''$r3/rit$r is &!$r o-'i%atio tos$'' t$ &!$r'*i% ass$ts i t$

-&*$r $.$r"is$ is o,tio to s$''

t$ sar$s 1


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@T, 1T, &T &ptions

@n the money

1t the money

&ut of money


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@ntrinsic and Time value of the option

@ntrinsic value is equal to the amount bywhich option is in the money.

Time value is the diCerence betweenmar%et price of the option and intrinsicvalue.


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#ummary of basic optionstrategies


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