Derivatives, Futures & Options
6 terms
Backwardation
Derivatives, Futures & Options
qualitative
A condition in which futures prices are below the spot price, and later expiries are priced below nearer ones.
Test: Futures Price < Spot Price, with successively distant contracts priced progressively lower
Basis
Derivatives, Futures & Options
index points
The difference between a futures price and the spot price of its underlying.
Basis = Futures Price - Spot Price
Bear Put Spread
Derivatives, Futures & Options
₹
Buying a put at one strike and writing a put at a lower strike with the same expiry, capping both cost and gain.
Net Debit = Higher Strike Premium - Lower Strike Premium; Maximum Gain = (Strike Difference - Net Debit) x Lot Size
Black-Scholes Model
Derivatives, Futures & Options
₹
A mathematical model that prices European options from the spot price, strike, time to expiry, interest rate and volatility.
Inputs: Spot, Strike, Time to Expiry, Risk-Free Rate, Volatility; output: the theoretical option price
Bull Call Spread
Derivatives, Futures & Options
₹
Buying a call at one strike and writing a call at a higher strike with the same expiry, capping both cost and gain.
Net Debit = Lower Strike Premium - Higher Strike Premium; Maximum Gain = (Strike Difference - Net Debit) x Lot Size
Butterfly Spread
Derivatives, Futures & Options
₹
A three-strike position buying one option at each outer strike and writing two at the middle strike.
Net Debit = Lower Premium + Upper Premium - 2 x Middle Premium; Maximum Gain = (Strike Interval - Net Debit) x Lot Size