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Derivatives, Futures & Options

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Derivatives, Futures & Options

Short Call

A position created by writing a call option, receiving the premium and taking on an obligation to deliver if exercised.

Profit at expiry = Premium Received x Lot Size - max(Spot - Strike, 0) x Lot Size; loss is unbounded above the strike
Derivatives, Futures & Options

Short Put

A position created by writing a put option, receiving the premium and taking on an obligation to buy if exercised.

Profit at expiry = Premium Received x Lot Size - max(Strike - Spot, 0) x Lot Size; maximum loss when the underlying reaches zero
Derivatives, Futures & Options

SPAN Margin

The portion of initial margin computed by simulating a portfolio's worst-case loss across a grid of price and volatility scenarios.

SPAN Margin = the largest loss the portfolio would suffer across the scenario array tested by the clearing corporation
Derivatives, Futures & Options

Stock Futures

A futures contract whose underlying is a single listed company's shares.

Contract Value = Share Price x Lot Size; settlement in India is by physical delivery of the shares
Derivatives, Futures & Options

Straddle

Buying or writing both a call and a put at the same strike and expiry.

Long Straddle Cost = Call Premium + Put Premium; Break-evens = Strike +/- Total Premium
Derivatives, Futures & Options

Strangle

Buying or writing a call and a put at different out-of-the-money strikes with the same expiry.

Long Strangle Cost = Call Premium + Put Premium; Break-evens = Call Strike + Total Premium, and Put Strike - Total Premium
Derivatives, Futures & Options

Strike Price

The fixed price at which an option's holder may buy or sell the underlying if the option is exercised.

Test: the strike is set by the exchange in standard intervals and does not change over the contract's life
Derivatives, Futures & Options

Synthetic Position

A combination of options and the underlying that reproduces the payoff of a different single instrument.

Synthetic Long = Long Call + Short Put at the same strike and expiry; Synthetic Short = Short Call + Long Put qualitative