Derivative Analysis

Stock Market Trainings & Services.

Derivative Analysis

DERIVATIVES  Types of Derivative Contracts . Forwards Contracts . Futures Contracts . Options Contracts . Swaps  History of Financial Derivatives Markets  Participants in a Derivative Market  Economic Function of the Derivative Market

UNDERSTANDING INTEREST RATES AND STOCK INDICES  Understanding Interest rates  Understanding the Stock Index  Economic Significance of Index Movements  Index Construction Issues  Desirable Attributes of an Index . Impact cost  Applications of Index . Index derivatives

FUTURES CONTRACTS, MECHANISM AND PRICING  Forward Contracts  Limitations of forward markets  Introduction to Futures  Distinction between Futures and Forwards Contracts  Futures Terminology  Trading Underlying Vs Trading Single Stock Futures  Futures Payoffs . Payoff for buyer of futures: Long futures . Payoff for seller of futures: Short futures  Pricing Futures . Pricing equity index futures . Pricing index futures given expected dividend amount . Pricing index futures given expected dividend yield  Pricing Stock Futures

Stock Market Trainings & Services. . Pricing stock futures when no dividend expected . Pricing stock futures when dividends are expected

APPLICATION OF FUTURES CONTRACTS  Understanding Beta (β)  Numerical illustration of Applications of Stock Futures . Long security, sell futures . Speculation: Bullish security, buy futures . Speculation: Bearish security, sell futures . Arbitrage: Overpriced futures: buy spot, sell futures . Arbitrage: Underpriced futures: buy futures, sell spot  Hedging using Stock Index futures . By Selling Index Futures . By Selling Stock Futures and Buying in Spot market

OPTIONS CONTRACTS, MECHANISM AND APPLICATIONS

 Option Terminology  Comparison between Futures and Options  Options Payoffs . Payoff profile of buyer of asset: Long asset . Payoff profile for seller of asset: Short asset . Payoff profile for buyer of call options: Long call . Payoff profile for writer of call options: Short call . Payoff profile for buyer of put options: Long put . Payoff profile for writer of put options: Short put  Application of Options . Hedging: Have underlying buy puts . Speculation: Bullish security, buy calls or sell puts . Speculation: Bearish security, sell calls or buy puts . Bull spreads - Buy a call and sell another . Bear spreads - sell a call and buy another

PRICING OF OPTIONS CONTRACTS AND GREEK LETTERS

 Variables affecting Option Pricing  The Black Scholes Merton Model for Option Pricing (BSO)  The Greeks

Stock Market Trainings & Services. . Delta () . Gamma (Γ) . Theta (Θ) . Vega (ν) . Rho (ρ) TRADING OF DERIVATIVES CONTRACTS

 Futures and Options Trading System . Entities in the trading system . Basis of trading . Corporate hierarchy . Client Broker Relationship in Derivative Segment . Order types and conditions  The Trader Workstation . The Market Watch Window . Inquiry window . Placing orders on the trading system . Market spread/combination order entry  Futures and Options Market Instruments . Contract specifications for index futures . Contract specification for index options . Contract specifications for stock futures . Contract specifications for stock options  Criteria for Stocks and Index Eligibility for Trading . Eligibility criteria of stocks . Eligibility criteria of indices . Eligibility criteria of stocks for derivatives trading on account of corporate restructuring  Charges

CLEARING AND SETTLEMENT

 Clearing Entities . Clearing Members . Clearing Banks  Clearing Mechanism  Settlement Procedure . Settlement of Futures Contracts . Settlement of options contracts  Risk Management

Stock Market Trainings & Services. . NSCCL-SPAN . Types of margins  Margining System . SPAN approach of computing initial margins . Mechanics of SPAN . Overall portfolio margin requirement . Cross Margining REGULATORY FRAMEWORK

 Securities Contracts (Regulation) Act,  Securities and Exchange Board of India Act,  Regulation for Derivatives Trading . Forms of collateral's acceptable at NSCCL . Requirements to become F&O segment member . Requirements to become authorized / approved user . Position limits . Reporting of client margin  Adjustments for Corporate Actions ACCOUNTING FOR DERIVATIVES

 Accounting for futures  Accounting for options  Taxation of Derivative Transaction in Securities . Taxation of Profit/Loss on derivative transaction in securities . Securities transaction tax on derivatives transactions

Excel Analysis Multi-leg strategies

S.No Strategy 1 Long Future 2 Short Future 3 Long Call 4 Short Call 5 Long Put 6 Short Put

Stock Market Trainings & Services. 7 Synthetic Long Future 8 Synthetic Short Future 9 Synthetic Long Call 10 Synthetic Short Call 11 Synthetic Long Put 12 Synthetic Short Put 13 Covered Call 14 Covered Put 15 Protective Call 16 Protective Put 17 Long Combo 18 Short Combo 19 Long Straddle 20 Short Straddle 21 Long Strangle 22 Short Strangle 23 Long Collar 24 Short Collar 25 Bull Call Spread 26 Bull Put Spread 27 Bear Call Spread 28 Bear Put Spread 29 Long Call Butterfly 30 Short Call Butterfly 31 Long Put Butterfly 32 Short Put Butterfly 33 Long Iron Butterfly 34 Short Iron Butterfly

Stock Market Trainings & Services. 35 Long Call Condor 36 Short Call Condor 37 Long Put Condor 38 Short Put Condor 39 Long Iron Condor 40 Short Iron Condor 41 Call Ratio Front Spread 42 Call Ratio Back Spread 43 Put Ratio Front Spread 44 Put Ratio Back Spread Call Ratio Front Spread 45 Ladder 46 Call Ratio Back Spread Ladder 47 Put Ratio Front Spread Ladder 48 Put Ratio Back Spread Ladder 49 Long Calendar Calls 50 Short Calendar calls 51 Long calendar puts 52 Short calendar Puts 53 Long Guts 54 Short Guts 55 Strap 56 Strip 57 Long calendar Fut 58 Short calendar Fut 59 Conversion 60 Reversal 61 Box Spread

Stock Market Trainings & Services.