futures

Have you ever felt that a stock was intrinsically over-valued? That the profits and the quality of the company made it worth a lot less as compared to what the market thinks? Have you ever been a “stockpicker” and carefully sold a stock based on a sense that it was worth less than the market...

Have you ever felt that a stock was intrinsically undervalued? That the profits and the quality of the company made it worth a lot more as compared with what the market thinks? Have you ever been a “stockpicker” and carefully purchased a stock based on a sense that it was worth more than the...

There are eight basic modes of trading on the index futures market: Hedging H1 Long stock, short Nifty futures H2 Short stock, long Nifty futures H3 Have portfolio, short Nifty futures H4 Have funds, long Nifty futures Speculation S1 Bullish index, long Nifty futures S2 Bearish index, short...

If the dividend flow throughout the year is generally uniform, i.e. if there are few historical cases of clustering of dividends in any particular month, it is useful to calculate the annual dividend yield. F = s (1+r-q) T Where: F: futures price S: spot index value r: cost of financing q...

The pricing of index futures is also based on the cost-of-carry model, where the carrying cost is the cost of financing the purchase of the portfolio underlying the index, minus the present value of dividends obtained from the stocks in the index portfolio. Example Nifty futures trade on NSE...

A futures contract on the stock market index gives its owner the right and obligation to buy or sell the portfolio of stocks characterized by the index. Stock index futures are cash settled; there is no delivery of the underlying stocks. In their short history of trading, index futures have had...

Let us take an example of a futures contract on a commodity and work out the price of the contract. The spot price of silver is Rs.7000/kg. If the cost of financing is 15% annually, what should be the futures price of 100 gms of silver one month down the line ? Let us assume that we’re on 1st...

A payoff is the likely profit/loss that would accrue to a market participant with change in the price of the underlying asset. This is generally depicted in the form of payoff diagrams which show the price of the underlying asset on the X–axis and the profits/losses on the Y–axis. In this...

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...

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...

A forward contract is an agreement to buy or sell an asset on a specified date for a specified price. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for a certain specified price. The other party assumes a...

View : Stock Price is Undervalued. Strategy: Long Stock & Short S&P CNX Nifty Futures. Scenario : Long ITC : Rs.10,00,000. Beta Value : 1.2 Short Index Futures. : Rs.12,00,000 (ie,CNX Nifty...

A spread is a position at one maturity, which is hedged, by an offsetting position at a different maturity. Only opposite positions can offset each other. E.g. A short position can be offset only by a corresponding long position in the series & not by another short position.

Contract Size - The value of the contract at a specific level of Index. It is Index level * Multiplier. Multiplier - It is a pre-determined value, used to arrive at the contract size. It is the price per index point. Tick Size - It is the minimum price difference between two quotes of...

DEFINITION: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are exchange based instruments, which are traded on a regulated exchange. In general, futures contracts are related to various...

Futures contracts on commodities have been traded for a long time. In USA, such contracts began trading on Chicago Board of Trading (CBOT) in 1860's. In the past three decades, financial futures contracts have been evolved. They encompass a variety of underlying assets -- securities...

Legal framework for regulating commodity futures in India The commodity futures traded in commodity exchanges are regulated by the Government under the Forward Contracts Regulations Act, 1952 and the Rules framed there under. The regulator for the commodities trading is the Forward Markets...

Benefits of Commodity Futures Markets The primary objectives of any futures exchange are authentic price discovery and an efficient price risk management. The beneficiaries include those who trade in the commodities being offered in the exchange as well as those who have nothing to do with...

Objectives of Commodity futures:- • Hedging with the objective of transferring risk related to the possession of physical assets through any adverse moments in price. Liquidity and Price discovery to ensure base minimum volume in trading of a commodity through market information and demand...

An Overview Agriculture is a key sector in the Indian economy. A key aspect of the process of strengthening agricultural markets is the question of obtaining efficient derivatives markets for commodities. History The first derivative market was set up in Mumbai in 1975, where cotton...