DERIVATIVES BASICS
A standout amongst the most critical occasions in the securities markets has been the
improvement and development of financial derivatives. The expression “derivatives”
is utilized to allude to budgetary instruments which get their esteem from some basic
resources. The basic resources could be values (offers), obligation (bonds, T-bills, and
notes), monetary standards, and even files of these different resources, for example,
the Nifty 50 Index. Derivatives get their names from their particular basic resource. In
this way if a subsidiary’s hidden resource is value, it is called value derivative.
Derivatives can be exchanged either on a managed trade, for example, the NSE or off
the trades, i.e., straightforwardly between the diverse gatherings, which is called
“over-the- counter” (OTC) exchanging. (In India just trade exchanged value
derivatives are allowed under the law.) The fundamental reason for subsidiaries is to
exchange the value hazard (innate in variances of the benefit costs) starting with one
gathering then onto the next; they encourage the distribution of hazard to the
individuals why should willing take it. In this manner, derivatives moderate the
hazard emerging from the future vulnerability of costs. For instance, on November 1,
2009 a rice agriculturist may wish to offer his collect at a future date (say January 1,
2010) at a pre-decided settled cost to dispense with the danger of progress in costs by
that date. Such an exchange is a case of a derivatives contract. The cost of this
derivatives is driven by the spot cost of rice which is the “basic”.
DERIVATIVES ORIGIN
While exchanging derivative items has become enormously as of late, the most
punctual proof of these sorts of instruments can be followed back to old Greece.
Despite the fact that derivatives have been in presence in some frame or the other
since antiquated times, the coming of current derivative contracts is credited to
ranchers’ have to secure themselves against a decrease in harvest costs because of
different financial and natural variables. Therefore, derivative contracts at first created
in wares. The primary “prospects” contracts can be followed to the Yodoya rice
showcase in Osaka, Japan around 1650. The agriculturists feared rice costs falling
later on at the season of reaping. To secure a value (that is, to offer the rice at a
foreordained altered cost later on), the ranchers went into contracts with the
purchasers. These were clearly institutionalized contracts, much like today’s prospects
contracts.
In 1848, the Chicago Board of Trade (CBOT) was built up to encourage exchanging
of forward contracts on different products. From that point on, prospects contracts on
items have stayed pretty much in similar frame, as we probably are aware of them
today.
Given below are the contents of DERIVATIVES BASICS module:
CHAPTER 1: INTRODUCTION OF DERIVATIVES BASICS:
DEFINITION OF DERIVATIVES
ORIGIN OF DERIVATIVES
DERIVATIVES IN INDIA.
CHAPTER 2: DEFINITIONS OF DERIVATIVES BASICS
FORWARDS.
SETTLEMENT OF FORWARD CONTRACTS
DEFAULT RISK IN FORWARD CONTRACTS
FUTURES
OPTIONS
CALL OPTION
PUT OPTION
TERMINOLOGY OF DERIVATIVES
SPOT PRICE (ST)
FORWARD PRICE OR FUTURES PRICE (F)
STRIKE PRICE (K).
EXPIRATION DATE (T).
TYPES OF OPTIONS.
CONTRACT SIZE.
CONTRACT VALUE
MARGINS
MONEYNESS OF AN OPTION
IN-THE- MONEY OPTION
AT-THE- MONEY OPTION
OUT-THE- MONEY OPTION
CHAPTER 3: APPLICATIONS OF DERIVATIVES
PARTICIPANTS IN THE DERIVATIVES MARKET
HEDGERS
SPECULATORS
ARBITRAGEURS
USES OF DERIVATIVES
RISK MANAGEMENT
MARKET EFFICIENCY
PRICE DISCOVERY
CHAPTER 4: TRADING FUTURES
PAY-OFF DIAGRAM FOR A LONG FUTURES POSITION
PAY-OFF DIAGRAM FOR A SHORT POSITION
CHAPTER 5: TRADING OPTIONS
OPTION PAYOUT
A LONG POSITION IN A CALL OPTION.
A LONG POSITION IN A PUT OPTION
A SHORT POSITION IN A CALL OPTION
A SHORT POSITION IN A PUT OPTION
OPT ION STRATEGIES
LONG OPTION STRATEGY.
SHORT OPTION STRATEGY
DETERMINATION OF OPTION PRICES
INTRINSIC VALUE AND TIME VALUE
FACTORS IMPACTING OPTION PRICES
CHAPTER 6: DERIVATIVES TRADING ON EXCHANGE
DERIVATIVES TRADING ON NSE
CONTRACT SPECIFICATIONS FOR INDEX BASED FUTURES
CONTRACT SPECIFICATIONS FOR INDEX BASED OPTIONS
CONTRACT SPECIFICATIONS FOR STOCK BASED FUTURES
CONTRACT SPECIFICATIONS FOR STOCK BASED OPTIONS
