GROUP 1

FINANCIAL AND COMMODITY MARKETS

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PUT
CALL

Derivatives

Derivatives

GUESS THE TOPIC ?

 WHAT IS AN OPTION ?

Option is a type of Financial derivative.

Derivatives is a financial instrument which derives its value
from an underlying asset.
 TYPES OF DERIVATIVES

FORWARDS FUTURES OPTIONS SWAPS

Only futures and options can be traded in stock market.

Derivatives are used only to Hedge the risk and speculate.
 WHAT IS AN OPTION ?

 An Options contract is a type of agreement between two parties.

 That gives the buyers the right, but not the obligation.
 To Buy or sell an underlying asset at an agreed-upon price and date.
 Options trading can be used for both hedging and speculation.
 IMPORTANT TERMINOLOGIES
 Lot Size - This refers to the standard quantity or units of the underlying asset that is
included in the options contract
 Strike Prize: Also known as exercise price, this is the price of the asset at which the two
parties agree to buy or sell the underlying asset.
 Premium: This refers to the amount that the buyer pays to the seller of the options
contract. It is the market price of the options contract itself.
 Expiration Date: This refers to the future date until which an options contract can be
exercised by the investor. Beyond the expiration date, the options contract will expire
worthlessly.
WHAT IS AN OPTION PRICING ?

 Option price is also known as Option premium.

 It is the price that the buyer of the option contract pays for the right to buy or sell a
security at a specified price in the future.