WRITING COVERED CALLS Writing (Selling) Call Options when you already own the underlying is called writing covered call options. It is against writing Naked options which can have unlimited risk. HOW WRITING COVERED CALL OPTION WORKS As discussed earlier a…
TAXATION OF DERIVATIVES TRANSACTIONS IN SECURITIES SECURITIES TRANSACTIONS TAX ON DERIVATIVES TRANSACTIONS Finance Act (N0.2) of 2004 has introduced Securities Transactions Tax on all derivatives transactions entered into a recognized stock exchange. This tax is payable by the seller of…
ACCOUNTING AT THETIMi OF PAYMENT/RECEIPT OF MARGIN Payments made or received by the seller/writer for the margin should be credited/debited to the bank account and the corresponding debit/credit for the same should also be made to “Equity Index option Margin…
ACCOUNTING IN CASE OF DEFAULT When a client defaults in making payment in respect of a daily settlement, the contract is closed out. The amount not paid by the client is adjusted against the initial margin. In the books of…
ACCOUNTING AT THE INCEPTION 0f THE CONTRACT Every client is required to pay to the trading member/ clearing member, the initial margin determined by the clearing corporation as per the bye-laws/regulations of the exchange for entering into an equity index futures…
CLIENT LEVEL POSITION LIMITS The gross open position for each client, across all the derivative contracts on an underlying, should not exceed 1 % of the free float market capitalization (in terms of number of shares) or 5% of the open interest in all derivative contracts in the same underlying stock (in terms…
FORMS OF COLLATERALS ACCEPTARLE AT NSCCL Members and dealers, authorised dealer have to fulfill certain requirements and provide colleteral deposits to become members of the Future and Options segment. All colleteral deposits are segregated into cash component and non-cash component.…
REGULATORY FRAME WORK The trading of derivatives is governed by the provisions contained in the SC(R)A, the SEBI Act, the regulations framed the reunder and the rules and bye-laws of stock exchanges. In this chapter we look at the broad…
QUESTIONS AND ANSWERS ON CHAPTER Q. In Futures Trading, the profits are received or losses or paid 1. In the delivery month 2. On daily settlement 3. On the day of expiry of the contract 4. On a weekly settlement basis. A. The correct…
TYPES OF MARGINS The Margin system for Futures and Options segment of NSE is explained below: INITIALMARGIN: Initial margin in Futures and Options segment is computed by NSCCL upto client level for open positions of CMs/Tms. These are required to be…