INTRODUCTION TO OPTIONS In this section, we look at the next derivative product to be traded on the -NSE, namely Options. Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, in a forward or futures contract, the two parties have
FUTURES TERMINOLOGY SPOT PRICE: The price at which an asset trades in the spot market. FUTURES PRICE: The price at which the futures contract trades in the futures market. CONTRACT CYCLE: The period over which a contract trades. The index futures contracts on the NSE have one month, two months and three months expiry cycles which expire on the last Thursday of the month.
DISTINCTION BETWEEN FUTURES AND FORWARDS CONTRACT. Forward contracts are often confused with futures contracts. The confusion is primarily because both serve essentially the same economic functions of allocating risk in the presence of future price uncertainty. However futures are a significant improvement over the forward contracts as they eliminate counter party risk and offer more liquidity. THE FIRST FINANCIAL FUTURES MARKET Merton Miller, the
LIMITATIONS OF FORWARD MARKETS Forward Markets world-wide are afflicted by several problems like LACK OF CENTRALIZATION OF TRADING, LIQUIDITY and COUNTER PARTY RISK. In the first two of these, the basic probk much flexibility and generality. The forwc. estate market in that any two consenting aa contracts against each other. This often 1. design terms of the deal which are very conven specific
INTRODUCTION TO FUTURES AND OPTIONS In recent years, derivatives market have become increasingly important in the field of finance. While futures and options are now actively traded on many exchanges, forward contract s are popular on the OTC market. In this chapter we shall study in detail these three derivative contracts. . FORWARD CONTRACTS A forward contract is an agreement to buy or sell
INDEX DERIVATIVES Index derivatives are derivative contracts which have the index as the underlying. The most popular index derivatives contracts the world over are index futures and index options. NSE’s market index, the S&P CNX NIFTY was scientifically designed to enable the launch of index based products like index derivatives and index funds. The first derivative contract to be traded on NSE’s market was