Derivatives, Futures & Options
4 terms
Physical Settlement
Derivatives, Futures & Options
qualitative
Settlement of a derivative by actual delivery of the underlying security against payment, rather than by cash difference.
Test: at expiry, an in-the-money contract obliges delivery of Lot Size units against payment of Strike x Lot Size
Protective Put
Derivatives, Futures & Options
₹
Buying a put against shares already owned, to place a floor under the holding's value.
Maximum Loss = (Purchase Price - Strike + Premium) x Lot Size; Break-even = Purchase Price + Premium
Put Option
Derivatives, Futures & Options
₹
An option giving its buyer the right to sell the underlying at the strike price on or before expiry.
Payoff at expiry for the buyer = max(Strike - Spot, 0) - Premium Paid
Put-Call Parity
Derivatives, Futures & Options
₹
The relationship fixing the price of a European call and put with the same strike and expiry relative to the underlying.
Call Price - Put Price = Spot Price - Present Value of Strike