derivatives gp powerpoint presentation.ppt
TRANSCRIPT
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INDIAN STOCKMARKET DERIVATIVES
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INTRODUCTIONTODERIVATIVES
The main instruments under the derivatives are:
1. Forward contract
2. Future contract3. Options
4. Swaps
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DEVELOPMENT OF DERIVATIVES MARKET IN INDIA
Business growth of futures and options market: NSE Turnover (Rs.cr)
MonthIndexfutures
Stockfutures
Indexoptions
Stockoptions Total
Jun-00 35 - - - 35
Sep-00 119 - - - 119
Dec-00 237 - - - 237
01-Mar 381 - - - 381
01-Jun 590 - 196 - 785
01-Sep 2857 - 559 2012 5281
01-Dec 2339 7515 405 2660 12919
02-Mar 2185 13989 360 3957 20490
2001-02 21482 51516 3766 25163 101925
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Instruments available in India
Products Index Futures Index Options Futures onIndividualSecurities
Options onIndividualSecurities
UnderlyingInstrument
S&P CNX Nifty S&P CNX Nifty31 securities
stipulated by SEBI
31 securitiesstipulated by
SEBI
Type European American
Trading Cycle
maximum of 3-monthtrading cycle. At any
point in time, there willbe 3 contracts available :
1) near month,2) mid month &
3) far month duration
Same as indexfutures
Same as indexfutures
Same as indexfutures
Expiry DayLast Thursday of the
expiry monthSame as index
futuresSame as index
futuresSame as index
futures
Contract SizePermitted lot size is 200
& multiples thereofSame as index
futures
As stipulated byNSE (not less than
Rs.2 lacs)
As stipulatedby NSE (not
less than Rs.2lacs)
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OPTIONS
The Parties to an Option
The options are of two styles.
1) European option and2) American option
The options are of two types.
1) Call option and2) Put option.
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In-the-Money, At-the-Money, Out-the-
Money
CALL OPTION PUT OPTION
In-the-money Strike price < Spot price Strike price > Spot price
At-the-money Strike price = Spot price Strike price = Spot price
Out-the-money Strike price > Spot price Strike price < Spot price
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Option value
Intrinsic value and
Time value.
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Factors affecting the value of an option
Factor Option Type Impact on Option Value Component ofOption Value
Share price moves up Call Option Option Value will also move up Intrinsic Value
Share price moves down Call Option Option Value will move down Intrinsic Value
Share price moves up Put Option Option Value will move down Intrinsic Value
Share prices moves down Put Option Option Value will move up Intrinsic Value
Time to expire is high Call Option Option Value will be high Time Value
Time to expire is low Call Option Option Value will be low Time Value
Time to expire is high Put Option Option Value will be high Time Value
Time to expire is low Put Option Option Value will be low Time Value
Volatility is high Call Option Option Value will be high Time Value
Volatility is low Call Option Option Value will be low Time Value
Volatility is high Put Option Option Value will be high Time Value
Volatility is low Put Option Option Value will be low Time Value
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OPTIONS ON NIFTY & INDIVIDUAL
SECURITIES Trading cycle
Expiry day
Strike Price Intervals
Contract size
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DERIVATIVES TRADING STRATEGIES
USING OPTIONS
Classification Of Strategies According To Market View
When market to be bullish: Buy index/ stock futures
Buy call option
Sell put option
Bull call spread
Bull put spread
Bullish calendar spread
When market to be bearish: Sell index/ stock futures
Sell call option
Buy put option
Bear call spread
Bear put spread
Bearish calendar spread
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When market to be uncertain but expects to move in either
direction sharply: Long straddle
Long strangle
Covered call
Strips
Straps
When market to remain stable: Short straddle
Short strangle
Butterfly spreads
Neutral calendar spread
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BULL CALL SPREAD:buy a call and sell a call with different strike price and same expiry date with sell call strikeprice higher than the buy call strike price.
140
BEP= 142
P
r
of
i
t
L
o
ss
8
4
-2
-6
Profit/loss of
Long call
Profit/loss ofShort call
150
146
Example:
Assumptions: Spot price of ACC - Rs 142, Mutiplier : 1500
Buy ACC April 140 call @ Rs 6 & Sell ACC April 150 call @ Rs 4Break-even point: Rs 142There are four scenarios at the expiry date:ACC 140 and 142 and 150. Profit = (150 142) * 1500Limited risk: since the loss can be maximum to the extent of net premium paid. Limited Profit: maximum being the difference between higher strike price option and lower strike price
option after deducting the net premium paid.
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P
r
o
f
i
t
L
o
s
s
2
-4
-8
6 Profit/loss of
Long call
150
142140
Profit/loss of
short call
BEAR CALL SPREAD:Buy a call and sell a call with different strike price and same expiry date with sell call strikeprice lower than the buy call strike price.
Example:
Assumptions: Spot price of ACC - Rs 142
Sell ACC April 140 call @ Rs 6 & Buy ACC April 150 call @ Rs 4
Mutiplier : 1500Break-even point: Rs 142There are four scenarios at the expiry date:ACC 140 and 142 and 150. Loss = (150
142) * 1500Limited risk: since the loss can be maximum of Rs 12000.Limited Profit: maximum being the difference between premium received and premium paid.
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P
r
o
f
i
t
Lo
s
s
-3
-5
-2
135
138 140 150 153
155
Long CallLong Put
LONG STRANGLE:Buy a call and buy a put with same expiry date but different strike price, with the put strikeprice lower than the call strike price and when one is uncertain about the market but expectsit to move in either direction sharply.
Example:
Assumptions : Spot price of the ACC Rs 145 , Multiplier : 1500Buy ACC Sep. 140 put @ 2 & Buy ACC Sep. 150 call @ 3
Break-even point : Rs 155 for call option/ Rs 135 for put option There are five scenarios at the expiry date.ACC 135 & 140 & 150 & = 155. Profit = (closing price at expiry 155)*1500
Limited risk: since loss can be limited to the extent of premium paid.Returns : unlimited as the maximum gain could be greater if sharp movement occur.
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SHORT STRADDLE:Sell a call and sell a put with the same strike price and same expiry date whenprices are expected to be stable.
P
r
o
f
i
t
L
o
s
s
9
17
8
132
140
149
123 157
Sell CallSell Put
Example
Assumptions:
Multiplier: 1600Sell Tata Sept. 140 call @ 9 & Sell Tata Sept. 140 put @ 8Break-even point : 157 for call option/ 123 for put optionTata 123 & 140 & 157. Loss = (closing spot price at expiry - 157)*1600Risk: the maximum risk could be greater if sharp movements occur.
Limited profit: since profit can be limited to the extent of premium received.Max. profit is Rs. 27200(17*1600) at a price of 140
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Put/Call Ratio
UncertainGreater than 0.35 andless than 0.75
Extremely bearishGreater than 0.75
Extremely bullishLess than 0.35
IndicationP/C ratio
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OPEN INTEREST (An indicator)
Some interpretations using Open Interest:
Rising open interest in an uptrend is bullish
Declining open interest in an uptrend is bearish.
Rising open interest in a downtrend is bearish.
Declining open interest in a downtrend is bullish.
Within an uptrend, a sudden leveling off or declinein open interest often warns a change in trend.
Very high open interest at market tops is dangerous
and can intensify downside pressure.
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FUTURES
Only the sellers have to put
in margins.
Both the parties have to put
in margins.
Impose obligations on the
sellers only.
Impose obligations on both
the parties
The buyers have to pay a
premium to the sellers.
There is no premium
Risk exposure and profit
potential are limited for theseller.
Risk exposure and profit
potential are unlimited forboth the parties.
OptionsFutures
DIFFERENCE BETWEEN FUTURES AND OPTIONS
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Types of Futures
Agricultural
Metallurgical
Interest Bearing Assets
Indexes
Foreign Currencies
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Margin Money
Different Types of Margins: Initial Margin
Mark-to-Market Margin Maintenance Margin
Additional Margin
Cross Margining
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THE BLACK -SCHOLES
MODEL
(An option pricing model)
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FINDINGS
Growth:
Cash market- turnover-3692 cr. (BSE & NSE)
Derivatives market- traded value - 2417 cr.
Factors that hinder the growth of Derivatives
Market in India:
Market is dominated by few large players.
Very high minimum contract size.
Initial investment. Number of scrips available for trading is 31.
Cash settlement only.
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Thank you