The two sets of nominally equal cash flows are exchanged as per the terms of the swap, which may involve an equity-based cash flow such as from a stock asset that is traded for a fixed-income cash flow such as a benchmark rate , but this is not necessarily the case.
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Besides diversification and tax benefits, equity swaps also allow large institutions to hedge specific assets or positions in their portfolios. Other examples of equity derivative securities include exchange-traded funds and Intellidexes. From Wikipedia, the free encyclopedia. Main article: Option finance.
Main article: Warrant finance. Main article: Convertible bond. Main article: Stock market index future. Main article: Equity swap. Derivatives market.
Derivative finance. Forwards Futures. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. Categories : Derivatives finance Options finance.
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Hidden categories: All Wikipedia articles needing clarification Wikipedia articles needing clarification from March All accuracy disputes Articles with disputed statements from November This is because contracts with longer expiration periods give the holder more flexibility on when to exercise their option. This longer time window lowers the risk for the contract holder and prevents them from landing in a tight spot.
At the beginning of a contract period, the time value of the contract is high. If the option remains in-the-money, the option price for it will be high.
If the option goes out-of-money or stays at-the-money this affects its intrinsic value, which becomes zero. In such a case, only the time value of the contract is considered and the option price goes down. As the expiration date of the contract approaches, the time value of the contract falls, negatively affecting the option price. In this section, we understood the basics of Options contracts.
In the next part, we go into details about Call options and Put options. Click here.
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Options trading
Benefits: i. Effective Communication ii. Speedy redressal of the grievances. Telephone No. No 21, Opp. Telephone No: Account Login Not Logged In. What is Options Trading? They can be used as: Leverage: Options trading help you profit from changes in share prices without putting down the full price of the share. You get control over the shares without buying them outright. Hedging : They can also be used to protect yourself from fluctuations in the price of a share and letting you buy or sell the shares at a pre-determined price for a specified period of time. One of the integral parts of hedging yourself against market fluctuations is to do financial planning.
About Options Just as futures contracts minimize risks for buyers by setting a pre-determined future price for an underlying asset, options contracts do the same however, without the obligation to buy that exists in a futures contract. Option Related Terms When you are trading in the derivatives segment, you will come across many terms that may seem alien. Premium: The upfront payment made by the buyer to the seller to enjoy the privileges of an option contract. Strike Price Intervals: These are the different strike prices at which an options contract can be traded.
These are determined by the exchange on which the assets are traded. There are typically at least 11 strike prices declared for every type of option in a given month - 5 prices above the spot price, 5prices below the spot price and one price equivalent to the spot price. Expiration Date: A future date on or before which the options contract can be executed. Please note that in Indian market only European type of options are available for trading.
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The standard lot size is different for each stock and is decided by the exchange on which the stock is traded. Open Interest: Open Interest refers to the total number of outstanding positions on a particular options contract across all participants in the market at any given point of time. Open Interest becomes nil past the expiration date for a particular contract. Let us understand with an example: If trader A buys Nifty options from trader B where, both traders A and B are entering the market for the first time, the open interest would be futures or two contract.
The loss of capital can be more than the initial investment. Generally, investors who invest in these products have a relatively short investment horizon less than five years. Some equity options are considered riskier than others.
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You can find the risk indicator of a specific product in the Key Investor Document KID , a three-page document that describes the characteristics and risks associated with the product. If you buy an equity call option, you have the right to buy the underlying shares at the strike price. To exercise your option, you will need to send an e-mail to the Order Desk.