Stock index futures and options ppt

Stock index futures and options ppt

Author: podkashey On: 15.06.2017

The basis reflects the relationship between cash price and futures price.

What is the difference between options and futures?

In futures trading, the term "cash" refers to the underlying product. The basis is obtained by subtracting the futures price from the cash price. The basis can be a positive or negative number.

A positive basis is said to be "over" as the cash price is higher than the futures price.

stock index futures and options ppt

A negative basis is said to be "under" as the cash price is lower than the futures price. The basis changes from time to time. If the basis gains in value say from -4 to -1we say the basis has strengthened.

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On the other hand, if basis drops in value say from 8 to 2we say the basis has weakened. Short term demand and supply situations are generally the main factors responsible for the change in the basis.

If demand is strong and the available supply small, cash prices could rise relative to futures price, causing the basis to strengthen. On the other hand, if the demand is weak and a large supply is available, cash prices could fall relative to the futures price, causing the basis to weaken. However, although the basis can and does fluctuate, it is still generally less volatile than either the cash or futures price.

Basis risk is the chance that the basis will have strengthened or weakened from the time the hedge is implemented to the time when the hedge is removed.

Hedgers are exposed to basis risk and are said to have a position in the basis. A long basis position stand to gain from a strengthening basis. Short hedges have a long basis position. A short basis position stand to gain from a weakening basis.

Long hedges have a short basis position. Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results If you are very bullish on a particular stock for swap forex meaning long cara bermain forex halal and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then stock index futures and options ppt may want to consider writing put options on the stock as a means to acquire it at a discount Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time Cash dividends issued by stocks have big impact on their option prices.

This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly ceramic stock market bullish or bearish capital requirement.

In place of holding the underlying stock in the covered call strategy, the alternative Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date To achieve higher returns in the stock market, besides doing more homework on the seasonal stock market trends you wish to buy, it is often necessary to take on higher risk.

A most common way to do that is to buy stocks on margin Day trading options can be a successful, profitable strategy but there are a couple of things stock index futures and options ppt need to know before you use start using options for day trading Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions.

stock index futures and options ppt

They are known as "the greeks" Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow Stocks, futures and binary options trading discussed on this website can be considered High-Risk Trading Operations and their execution can be very risky and may result in significant losses or even in a total loss of all funds on your account.

You should not risk more than you afford to lose. Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Information on this website is provided strictly for informational and educational purposes only and is not intended as a trading recommendation service.

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stock index futures and options ppt

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