Derivatives & Risk Management

Presented By:

M - 3209 Shashank Chaubal

M - 3216 Sandeep Gupta

M - 3242 Gaurav Rane

BUY-PUT

SELL-PUT

SELL

PUT

BUY-CALL

BUY

CALL SELL-CALL

Concepts :

i. Buyer of Option

ii. Seller of Option

iii. Call Option

iv. Put Option

Basic Terminology

CONTENTS BUY CALL

BUY PUT

SELL CALL

SELL PUT

• What are the meaning of these Options?

• What are the rights of Buyer/Seller for Options ?

• What are the obligations of Buyer/Seller for Options?

• Payoff for options.

• Payoff Matrix

• Payoff Matrix for Strategies

• Short Condor

• Long Straddle

• Short Straddle

RIGHTS & OBLIGATIONS

CALL

BUY

SELL

Rights To Buy Obligation To Sell

Premium

Underlying BUYER

SELLER

PUT

SELL

BUY

Rights To Sell Obligation To Buy

Premium

Underlying

SELLER BUYER

BUY CALL

BUY NIFTY CALL 5800 @100 Rs.

MARKET PRICE GOES HIGH MARKET PRICE GOES LOW

LOW 5400 5500 5600 5700 5800 5900 6000 6100 HIGH

SPOT STRIKE

PROFIT

LOSS

Limited Loss

LOW 5400 5500 5600 5700 5800 5900 6000 6100 HIGH

SPOT STRIKE

PROFIT

LOSS

BUY-CALL PAYOFF

BUY NIFTY CALL 5800 @100 Rs.

MARKET PRICE GOES HIGH MARKET PRICE GOES LOW

LOW 5400 5500 5600 5700 5800 5900 6000 6100 HIGH

SPOT STRIKE

PROFIT

LOSS

LOW 5400 5500 5600 5700 5800 5900 6000 6100 HIGH

SPOT STRIKE

PROFIT

LOSS

Limited Loss

BUY PUT

BUY NIFTY PUT 5600 @100 Rs.

MARKET PRICE GOES LOW MARKET PRICE GOES HIGH

LOW 5400 5500 5600 5700 5800 5900 6000 6100 HIGH

STRIKE SPOT

PROFIT

LOSS

LOW 5400 5500 5600 5700 5800 5900 6000 6100 HIGH

STRIKE SPOT

PROFIT

LOSS

Limited Loss

BUY-PUT PAYOFF

BUY NIFTY PUT 5600 @100 Rs.

MARKET PRICE GOES LOW MARKET PRICE GOES HIGH

LOW 5400 5500 5600 5700 5800 5900 6000 6100 HIGH

STRIKE SPOT

PROFIT

LOSS

LOW 5400 5500 5600 5700 5800 5900 6000 6100 HIGH

STRIKE SPOT

PROFIT

LOSS

Limited Loss

SELL CALL

SELL NIFTY CALL 5700 @100 Rs.

MARKET PRICE GOES LOW

PROFIT

LOW 5400 5500 5600 5700 5800 5900 6000 6100 6200 HIGH

STRIKE SPOT

LOSS

MARKET PRICE GOES HIGH

PROFIT

LOW 5400 5500 5600 5700 5800 5900 6000 6100 6200 HIGH

STRIKE SPOT

LOSS

Limited Profit

SELL-CALL PAYOFF

SELL NIFTY CALL 5700 @100 Rs.

MARKET PRICE GOES LOW

PROFIT

LOW 5400 5500 5600 5700 5800 5900 6000 6100 6200 HIGH

STRIKE SPOT

LOSS

PROFIT

LOW 5400 5500 5600 5700 5800 5900 6000 6100 6200 HIGH

STRIKE SPOT

LOSS

MARKET PRICE GOES HIGH

Limited Profit

SELL PUT

SELL NIFTY CALL 5700 @100 Rs.

MARKET PRICE GOES HIGH MARKET PRICE GOES LOW

PROFIT

LOSS

LOW 5400 5500 5600 5700 5800 5900 6000 6100 6200 HIGH SPOT STRIKE

PROFIT

LOSS

LOW 5400 5500 5600 5700 5800 5900 6000 6100 6200 HIGH SPOT STRIKE

Limited Profit

SELL-PUT PAYOFF

SELL NIFTY CALL 5700 @100 Rs.

MARKET PRICE GOES HIGH MARKET PRICE GOES LOW

PROFIT

LOSS

LOW 5400 5500 5600 5700 5800 5900 6000 6100 6200 HIGH SPOT STRIKE

PROFIT

LOSS

LOW 5400 5500 5600 5700 5800 5900 6000 6100 6200 HIGH SPOT STRIKE

Limited Profit

PAYOFF MATRIX

A payoff matrix is a decision analysis tool that summarizes profit and loss of a decision in a tabular

or graphical form. Payoffs are either negative or positive returns associated with all possible

combinations of alternative actions (under the decision maker's control) and external conditions (not under decision maker's control). Also called

payoff table.

1. SHORT CONDOR

OPTION 1 : BUY Nifty CALL 5700 @ Rs. 120

OPTION 2 : BUY Nifty PUT 5700 @ Rs. 120

OPTION 3 : SELL Nifty CALL 5800 @ Rs. 80

OPTION 4 : SELL Nifty PUT 5600 @ Rs. 80

2. LONG STRADDLE

OPTION 1 : BUY Nifty CALL 5700 @ Rs. 120

OPTION 2 : BUY Nifty PUT 5700 @ Rs. 120

3. SHORT STRADDLE

OPTION 3 : SELL Nifty CALL 5800 @ Rs. 80

OPTION 4 : SELL Nifty PUT 5600 @ Rs. 80