Bearish Security
SPECULATION, BEARISH SECURITY, SELL FUTURES Stock futures can be used by a speculator who believes that a particular security is over valued and is likely to see a fall in price. How can he trade based on his opinion ?…
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Bullish Security
SPECULATION. BULLISH SECURITY. BUY FUTURES Take the case of a speculator who has a view on the direction of the market. He would like to trade based on this view. He believes that a particular security that trades at Rs.…
Effective Risk Management
PRICING FUTURES Pricing of futures contract is very simple. Using the cost of carry logic, we calculate fhe fair value of a futures contract. Every time the the observed price deviates from the fair value, arbitragers would enter into trades…
Nifty Future
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…
Single Stock Futures
APPLICATIONS OF FUTURES AND OPTIONS The phenomenal growth of financial derivatives across the world is attributed the fulfilment of needs of hedgers, speculators and arbitraguers by these products. In this chapter we first look at how trading futures differs from trading the…
Stock market Questions And Answers
QUESTIONS AND ANSWERS ON CHAPTER Q. Which of the following cannot be an underlying asset for financial derivative contract ? Equity Index Commodities 3.Interestrat£ 4.. Foreign Exchange A. The correct answer is NO.2. • Q. In an option contract, the…
Index Derivatives
INDEX DERIVATIVES Index derivatives are derivative contracts which derive their value from an underlying index. The two most popular index derivatives are index futures and index options. Index derivatives have become very popular worldwide. Index derivatives offer various advantages and…
Options In 17th Century
USE OF OPTIONS IN 17th CENTURY Options made their first major mark in financial history during the tulip bulb mania in 17th. century Holland. It was one of the most spectacular get rich quick binges in history. The first tulip…
Futures And Options
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.…
Option Terminology
OPTION TERMINOLOGY INDEX OPTIONS: These options have the index as the underlying. Some options are European while others are American. Like index futures contracts, index options contracts are also cash settled. STOCK OPTIONS:Stock options are options on individual stocks. Options currently…