Derivatives, Futures & Options
8 terms
Short Call
Derivatives, Futures & Options
₹
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
Short Put
Derivatives, Futures & Options
₹
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
SPAN Margin
Derivatives, Futures & Options
₹
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
Stock Futures
Derivatives, Futures & Options
₹
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
Straddle
Derivatives, Futures & Options
₹
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
Strangle
Derivatives, Futures & Options
₹
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
Strike Price
Derivatives, Futures & Options
₹
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
Synthetic Position
Derivatives, Futures & Options
qualitative
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