options

Under the assumptions of the Black–Scholes options pricing model, index options should be valued in the same way as ordinary options on common stock. The assumption is that investors can costlessly purchase the underlying stocks in the exact amount necessary to replicate the index; that is...

Pricing options An option buyer has the right but not the obligation to exercise on the seller. The worst that can happen to a buyer is the loss of the premium paid by him. His downside is limited to this premium, but his upside is potentially unlimited. This optionality is precious and has a...

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...

In this section, we look at the next derivative product to be traded on the NSE, namely options. Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In...

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...

 Interest rate Options: A less conservative hedging device for interest rate exposure is interest rate options. A call option on interest rate gives the holder the right to borrow funds for a specified duration at a specified interest rate, without an obligation to do so. A put option on...

Hedging with Currency Options: Currency options provide a more flexible means to cover transactions exposure. A contracted foreign currency outflow can be hedged by purchasing a call option (or selling a put option) on the currency while an inflow can be hedged by buying a put option. (Or...

What are the different fund options. We understand the value of your hard earned money and in our Endeavour to help you grow your wealth, we offer you 4 different tailor-made investment funds. You have the option to allocate your premium in these funds as you wish. They are: 1. Capital Secure...

Introduction to Options Early exercise of options Early exercise of Call Options on non dividend paying stock is never optimal because: - Interest earnings - Stock price less than strike price on expiry (both applicable in case of delivery settlement) - Beneficial if sold in the...

Introduction to Options Corporate Announcements In case of a corporate announcement the exchange adjusts the option positions, so that the contract value of the positions on the cum benefit day and the ex benefit day is the same As per SEBI, if the value of dividend declared is more than...

Introduction to Options Options Greeks Delta Ceteris Paribus (stock price, risk free interest rate, strike price, time to expiry and volatility) - Delta of an option indicates how much the premium will change for a unit change in the price Delta For an option with a delta of 0.50...

Introduction to Options Options Pricing Primarily two methods used: Black Scholes method Cox – Ross method Find attached calculator Factors affecting options price: Stock price Call options more valuable with the rise in price and less valuable with the fall in price Put options...

Introduction to Options Options Terminology Exercise Invoke the rights approved to buyer of option Assignment When the buyer of an option exercises his right to buy / sell, a randomly selected option seller (at the client level) is assigned the obligation to honor the underlying...

:SugarwareZ-236::SugarwareZ-236::SugarwareZ-236: OPTION GREEKS Delta Hedging The delta measures how exposed the portfolio is to small movements in the underlying asset price. If the portfolio delta is zero, the portfolio is neither locally long nor short and is said to be delta-neutral...

BENEFITS OF OPTIONS Hedge instrument. Limited risk ( for the buyer) Cheaper alternative to buying the stock. Speculation & Arbitrage DRAWBACKS - OPTIONS Price: Price of the option has to move over the acquisition cost. In the previous example, to break even the share price must...

Option Terminology Option Premium Upfront Price paid by the buyer to acquire the right Strike Price OR Exercise Price Price at which the underlying may be purchased Expiration Date Last date for exercising the option Exercise Date Date on which the option is actually exercised

Call OPTION EXAMPLE On 22nd Aug Ajay buys a call option from Vijay to buy 1200 shares of SATYAM for Rs 200 each on 25th Sep . The spot price of TISCO is 195. The Price of each option is Rs 10. Ajay pays Vijay s Rs 12,000 (1200* Rs 10). On 25th Sep the spot price of SATYAM is Rs...

What are futures and options? A contract to make or take delivery of a product in the future, at a price set in the present In formalized futures and options trading on exchanges, standardized agreements specify price, quantity, and month of delivery Started in agriculture, but have expanded to...

OPTIONS GREEKS The option Greeks are the tools that measure the sensitivity of the option price They Estimate the change in the option premium under various circumstances Determine the number of option needed in the event of hedging They are often used by professional traders for trading...