about derivatives

7/30/2019 About Derivatives

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DERIVATIVES


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ABOUT THE ORGANISATION

ITIFSL is emerging as one of the top most wealth management

companies in India with a daily turnover of over 200 crores and 116

branches spread all over the country. ITIFSL, originally promoted by theInvestment Trust of India, is now a part of the Sharyans and Inga Group.

The Sharyans Group has an impressive portfolio of businesses under its

fold which mainly fall under the real estate and financial services

categories. The prominent subsidiaries of this Group are Prebone Yamane

(Countrys largest debt broking company), Intime Spectrum (Indiaslargest Registry & Transfer Agents), and Collin Stewarts India Private

Limited


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ITI FSL has been set up to engage in

Stock Broking

Institutional Broking

DerivativesDepository Services

Distribution of Investment Products

Distribution of Insurance

Commodities Broking


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Mission:

ITI FSL's mission is to deliver value with commitment. Emerging as

one of the front-line Brokerage Houses and a dominant force in the

Distribution arena, we are continuously engaged in the assessment of market

conditions to balance risk and reward so as to optimize returns to our

investors.

Vision:

"To be the most Preferred Financial Advisor, Creator, Wealth Manager

and to deliver the Highest Standards of Service to customers and be

Prominent in the horde of Finance Companies offering similar services".


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DEFINATION:

The term "Derivative" indicates that it has no

independent value, i.e. its value is entirely "derived"from the value of the underlying asset. The

underlying asset can be securities, commodities,

bullion, currency, live stock or anything else.


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MAIN OBJECTIVE

The following three broad categories of participants in the derivatives market:HEDGERS:

Hedgers face risk associated with the price of an asset. They use futures or

options markets to reduce or eliminate this risk.

SPECULATORS:

Speculators wish to bet on future movements in the price of an asset. Futures

and options contracts can give them an extra leverage; that is, they can increase both the

potential gains and potential losses in a speculative venture.

ARBITRAGEURS:

Arbitrageurs are in business to take of a discrepancy between prices in two

different markets, if, for example, they see the futures price of an assets getting out of

line with the cash price, they will take offsetting position in the two markets to lock in a

profit.


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DERIVATIVES

OPTIONS FUTURES

OPTION INDEX OPTION STOCKS

PUT

OPTIONCALLOPTION

PUT

OPTION

CALL

OPTION

INDEX FUTURE STOCK FUTURE

TYPES OF DERIVATIVES :


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FORWARDS:

A forwards contract is a customized contract between two parties,

where settlement takes place on a specific date in the future todayspre-agreed price.

FUTURES:

A futures contract is an agreement between two parties to buy or

sell an asset at a certain time at a certain price.

OPTIONS:

Options are of two types-calls and puts. Calls give the buyer the

right but not the obligation to buy a given quantity of the underlying

asset, at a given price on or before a give future date. Puts give the

buyer the right, but not the obligation to sell a given quantity of theunderlying asset at a given price on or before a given date.


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FUTURES OPTIONS

Futures contract is an agreement to

buy or sell specified quantity of the

underlying assets at a price agreed

upon by the buyer and seller, on or

before a specified time. Both the buyer

and seller are obliged to buy/sell the

underlying asset.

In options the buyer enjoys the right

and not the obligation, to buy or sell

the underlying asset.

Unlimited upside & downside for both

buyer and seller.

Limited downside (to the extent of

premium paid) for buyer and unlimited

upside. For seller (writer) of the

option, profits are limited whereas

losses can be unlimited.

Futures contracts prices are affected

mainly by the prices of the underlying

asset

Prices of options are however, affected

by a)prices of the underlying asset,

b)time remaining for expiry of the

contract and c)volatility of theunderlying asset.

DIFFERENCE BETWEEN FUTURES & OPTIONS


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Risk Reward


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The eligibility criteria for stocks on which derivatives trading may be permitted

A stock on which stock option and single stock future contracts are proposedto be introduced is required to fulfill the following broad eligibility criteria:-

The stock shall be chosen from amongst the top 500 stock in terms of average daily

market capitalization and average daily traded value in the previous six month on a

rolling basis.

The stock's median quarter-sigma order size over the last six months shall be not less

than Rs.1 Lakh. A stock's quarter-sigma order size is the mean order size (in value

terms) required to cause a change in the stock price equal to one-quarter of a standard

deviation.

The market wide position limit in the stock shall not be less than Rs.50 crores.

A stock can be included for derivatives trading as soon as it becomes eligible. However,

if the stock does not fulfill the eligibility criteria for 3 consecutive months after beingadmitted to derivatives trading, then derivative contracts on such a stock would be

discontinued


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LIMITATIONS:

Lack of centralization of trading

Illiquidity, and

Counter-party risk


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THANK YOU

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