NCFM DERIVATIVES DEALERS MODULE

 

Derivatives are among the most capable money related instruments. The Indian derivatives have seen huge development since the year 2000 when derivatives were presented in India. This module gives bits of knowledge into various sorts of derivatives, their exchanging, clearing and settlement and the administrative system.

The derivatives exchanging on the NSE started on June 12, 2000 with prospects exchanging on CNX Nifty Index. Ensuing exchanging list alternatives and choices on individual securities initiated on June 4, 2001 and July 2, 2001. Single stock derivatives were propelled on November 9, 2001. As far back as the item base has expanded to incorporate exchanging prospects and choices on CNX IT Index, Bank Nifty Index, Nifty Midcap 50 Indices and so on.  Today, both as far as volume and turnover, NSE is the biggest in derivatives trade in India. The derivatives contracts have a most extreme of three-month close cycles with the exception of a quite a while ago dated Nifty Options contract which has a development of five years.  Three contracts are accessible for exchanging, with 1 month, 2 months and 3 months to expiry. Another agreement is presented on the following exchanging day taking after the expiry of the close month contract.

The primary trade exchanged derivatives rose in 1970’s because of the crumple of settled swapping scale framework and selection of drifting conversion scale frameworks.  As the framework separated money instability turned into an urgent issue for nations. To help members in outside trade markets fence their dangers under the new skimming conversion scale framework, remote coin prospects were presented in 1972 at the Chicago Mercantile Exchange. In 1973, the Chicago Board of Trade (CBOT) made the Chicago Board Options Exchange (CBOE) to encourage the exchange of choices on chose stocks. The first futures contract was exchanged at Kansas City Board of Trade. At present the most mainstream futures contract on the planet depends on S&P 500 record, exchanged on Chicago Mercantile Exchange. Amid the mid eighties, monetary futures contract turned into the most dynamic derivative instruments producing volumes commonly more than the commodity futures.  Index futures, futures on T-bills and Euro Dollar are the three most well known futures contracts exchanged today. Other well known worldwide trades that exchange subsidiaries are LIFFE in England, DTB in Germany, SGX in Singapore, TIFFE in Japan, MATIF in France, Eurex and so on.

Given below are the contents of NCFM DERIVATIVES DEALERS module:

CHAPTER 1: INTRODUCTION OF DERIVATIVES:

TYPES OF DERIVATIVE CONTRACTS

  • FORWARDS CONTRACTS
  • FUTURES CONTRACTS
  • OPTIONS CONTRACTS
  • SWAPS

HISTORY OF FINANCIAL DERIVATIVES MARKETS

PARTICIPANTS IN A DERIVATIVE MARKET

ECONOMIC FUNCTION OF THE DERIVATIVE MARKET

CHAPTER 2: UNDERSTANDING INTEREST RATES AND STOCK INDICES

UNDERSTANDING INTEREST RATES

UNDERSTANDING THE STOCK INDEX

ECONOMIC SIGNIFICANCE OF INDEX MOVEMENTS

INDEX CONSTRUCTION ISSUES

DESIRABLE ATTRIBUTES OF AN INDEX

  • IMPACT COST

APPLICATIONS OF INDEX

  • INDEX DERIVATIVES

CHAPTER 3: FUTURES CONTRACTS, MECHANISM AND PRICING

FORWARDS CONTRACTS

LIMITATIONS OF FORWARD MARKETS

INTRODUCTION TO FUTURES

DISTINCTION BETWEEN FUTURES AND FORWARDS CONTRACTS

FUTURES TERMINOLOGY

TRADING UNDERLYING VS. TRADING SINGLE STOCK FUTURES

FUTURES PAYOFFS

  • PAYOFF FOR BUYER OF FUTURES: LONG FUTURES
  • PAYOFF FOR SELLER OF FUTURES: SHORT FUTURES

PRICING FUTURES

  • PRICING EQUITY INDEX FUTURES
  • PRICING INDEX FUTURES GIVEN EXPECTED DIVIDEND AMOUNT
  • PRICING INDEX FUTURES GIVEN EXPECTED DIVIDEND YIELD

PRICING STOCK FUTURES

  • PRICING STOCK FUTURES WHEN NO DIVIDEND EXPECTED
  • PRICING STOCK FUTURES WHEN DIVIDENDS ARE EXPECTED

CHAPTER 4: APPLICATION OF FUTURES CONTRACTS

UNDERSTANDING BETA  (Β)

NUMERICAL ILLUSTRATION OF APPLICATIONS OF STOCK FUTURES

  • LONG SECURITY, SELL FUTURES
  • SPECULATION: BULLISH SECURITY, BUY FUTURES
  • SPECULATION: BEARISH SECURITY, SELL FUTURES
  • ARBITRAGE: OVERPRICED FUTURES: BUY SPOT, SELL FUTURES
  • ARBITRAGE: UNDERPRICED FUTURES: BUY FUTURES, SELL SPOT

Hedging using Stock Index futures

  • BY SELLING INDEX FUTURES
  • BY SELLING STOCK FUTURES AND BUYING IN SPOT MARKET

CHAPTER 5:  CHAPTER 5: OPTIONS CONTRACTS, MECHANISM AND APPLICATIONS

OPTION TERMINOLOGY

COMPARISON BETWEEN FUTURES AND OPTIONS

OPTIONS PAYOFFS

  • PAYOFF PROFILE OF BUYER OF ASSET: LONG ASSET
  • PAYOFF PROFILE FOR SELLER OF ASSET: SHORT ASSET
  • PAYOFF PROFILE FOR BUYER OF CALL OPTIONS: LONG CALL
  • PAYOFF PROFILE FOR WRITER OF CALL OPTIONS: SHORT CALL
  • PAYOFF PROFILE FOR BUYER OF PUT OPTIONS: LONG PUT
  • PAYOFF PROFILE FOR WRITER OF PUT OPTIONS: SHORT PUT

APPLICATION OF OPTIONS

  • HEDGING: HAVE UNDERLYING BUY PUTS
  • SPECULATION: BULLISH SECURITY, BUY CALLS OR SELL PUTS
  • SPECULATION: BEARISH SECURITY, SELL CALLS OR BUY PUTS
  • BULL SPREADS – BUY A CALL AND SELL ANOTHER
  • BEAR SPREADS – SELL A CALL AND BUY ANOTHER

CHAPTER 6: PRICING OF OPTIONS CONTRACTS AND GREEK LETTERS

VARIABLES AFFECTING OPTION PRICING

THE BLACK SCHOLES MERTON MODEL FOR OPTION PRICING (BSO)

THE GREEKS

  • DELTA
  • GAMMA
  • THETA
  • VEGA
  • RHO

CHAPTER 7: TRADING OF DERIVATIVES CONTRACTS

FUTURES AND OPTIONS TRADING SYSTEM

  • ENTITIES IN THE TRADING SYSTEM
  • BASIS OF TRADING
  • CORPORATE HIERARCHY
  • CLIENT BROKER RELATIONSHIP IN DERIVATIVE SEGMENT
  • ORDER TYPES AND CONDITIONS

CRITERIA FOR STOCKS AND INDEX ELIGIBILITY FOR TRADING

  • ELIGIBILITY CRITERIA OF STOCKS
  • ELIGIBILITY CRITERIA OF INDICES
  • ELIGIBILITY CRITERIA OF STOCKS FOR DERIVATIVES TRADING ON ACCOUNT OF  CORPORATE RESTRUCTURING
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