QUICK REFERENCE GLOSSARY ON FUTURES AND OPTIONS 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. Thus a January expiration
FUTURES AND OPTIONS MARKET INSTRUMENTS The Futures and Options segment of NSE provides trading facilities for the following derivative instruments. INDEX BASED FUTURES INDEX BASED OPTIONS INDIVIDUAL STOCK OPTIONS INDIVIDUAL STOCK FUTURES CONTRACT SPECIFICATIONS FOR INDEX FUTURES NSE trades Nifty, CNX IT, and Bank Nifty futures contracts having one month, two month and three month expiry cycles. All contracts expire on the last Thursday
BASIS OF TRADINGThe NEAT F&O system supports an order driven market, wherein orders match automatically. Order matching is essentially on the basis of security, its price, time and quantity. All quantity fields are in units and price in rupees. The lot size on the futures market is for 100 nifty future. The exchange notifies the regular lot size and tick size for each of the
OPTIONS PAYOFFS The optionality characteristic of options results in a nonlinear payoff for options. In simple words, it means that the losses for the buyer of an option are limited, however the profits are potentially unlimited. For a writer, the payoff is exactly the opposite. His profits are limited to the option premium, however his losses are potentially unlimited. These non-linear payoffs are fascinating
FUTURE PAYOFFS Futures contracts have linear payoffs. In simple words, it means that the losses as well as profits for the buyer and the seller of futures contract are unlimited. These linear payoffs are fascinating as they can be combined with options and the underlying to generate various complex payoffs share tips. PAYOFF FOR BUYER OF FUTURES: LONG FUTURES The payoff for a person who buys
FUTURES AND OPTIONS An interesting question to ask at this stage is, when would one use options instead of futures? Options are different from futures in several interesting senses. At a practical level, the option buyer faces an interesting situation. He pays for the option in full at the time it is purchased. After this, he only has an upside. There is no possibility
The S&P CNX Nifty is an market capitalisation index based upon solid economic research. It was designed not only as a barometer of market movement but also to be a foundation of the new world of financial products based on the index like index futures, index options and index funds. A Trillion calculations were expended to evolve the rules inside the S&P CNX Nifty.
CHAPTER TWO MARKET INDEX To understand the use and Function of the Index derivatives Markets, it is necessary to understand the underlying index. In the following Section, we take a look at index related issues. Traditionally, indexes have been used as information sources. By looking at an index, we know how the market is faring. In recent years, indexes have come to the forefront