Questions tagged [derivatives]
This tag is to be used for any question on derivatives. It should typically be used in conjuction with the actual instrument being used like futures, options, swaps, etc.
151
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Explaining equity being analogous to a call option and bonds being equivalent to a short put
I read this:
Equity in a corporation is essentially a call option on the enterprise
value (the sum of all the firm’s assets) with a strike price equal to
the firm’s debt. The firm’s bonds are a risk-...
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2
votes
1
answer
93
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Is Having a Superior Spot Predictor Sufficient for Making Money in Futures?
My friend is encouraging me to get into futures trading, but before I do I want to understand something.
Is having a better spot predictor than everybody else sufficient to make money in futures?
For ...
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0
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1
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55
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Market Structure for Futures
I'm confused about how payment for futures contracts works if one sells before expiry. Consider the following scenario with a contract for delivery of good X:
A sells a futures contract to B for $50
...
0
votes
2
answers
105
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On the meaning of Delta hedging
Basically, I'd really like to give a natural interpretation of
as prescribed by the Black-Scholes model for European derivatives, where O(t) is the option price and S(t) is the price of the ...
- 101
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95
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How do the practicalities of futures contracts for commodities work?
I know in principle how future contracts work (and correct me if I'm wrong):
Essentially, provides a contract holder with the right to buy a commodity in the future at a given price.
This part, and ...
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1
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243
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What is the effective price of the asset in hedging?
Reading a book where author uses "Effective price" term. After googling it found this:
The effective price is the price at which a commodity is sold or bought after the hedge has been lifted ...
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1
answer
58
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What if I buy on spot and sell on futures?
I am completely new to finance so I don't understand basic principles of derivatives market.
If I buy 100 shares of stock for 1.22 and then immediately enter the future contract to sell it for 1.25 in ...
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0
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26
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When LIC will be made available on NSE Future & Options segment?
Lic was listed on BSE/NSE in 2022.
Considering its market capitalization when could we expect it to become available on NSE F&O derivatives segment?
- 137
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2
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181
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is future contract price fixed or not?
I thought that Future contract is an agreement to buy or sell an asset at a certain future time and a predetermined fixed price. So if, for example, I need to get 1000 GBP next June, but I am afraid ...
- 131
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2
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118
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Looking for a simple and concrete example of how a CCP default auction works
I am currently studying for the FRM exam, and I come from a mathematics background rather than a finance background. I am learning about CCPs and find them to be an interesting topic, but I find ...
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130
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Best approach to select strike prices for an Iron Condor?
Options beginner here.
I'm aware of three popular ways to select strike prices for Iron Condor.
Select strikes such that they are equidistant from the CMP.
Select strikes such that the they form a ...
- 23
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2
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72
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How futures contracts are managed by the exchange
Please, confirm my current understanding of how futures work. Let’s consider cash-settled futures for simplicity.
The number of futures contracts (with identical parameters) is unlimited. New futures ...
- 103
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1
answer
86
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What is Derivative trading and why stock buying selling is not derivative
In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate.
By this definition stocks ...
- 55
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1
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104
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What happened if I don't buy back the profitable put option I sold two weeks ago?
Let's say I sold a TSLA put for 2$. If the underlying price moves up, I can buy it back when reaching 50% percent and collect 100$.
What happened if the price moves up and I don't buy it back, do I ...
- 115
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2
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97
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Is It easy to buy back a put-option on its expiry date?
Say I sold a BABA put expiring 5/24 .
The usual advise is to close at 50% profit.
What If I leave my position open until the expiry date. The put option will be expiring with no value for the other ...
- 115
1
vote
3
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86
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Do options contracts give you cash or the underlying?
Whenever I read about options valuation, it's phrased in terms of payoff diagrams. For European options, the value at expiry is the difference between the strike and the market price of the underlying ...
2
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3
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141
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Size of market for physically delivered futures
I understand the difference between cash settled and physically setted futures contracts. I also know that most physically settled contracts end up not being exercised and are closed before expiration....
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2
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223
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Can selling naked calls create counterfeit shares?
I understand that illegal naked shorting can lead to FTDs since same share can be loaned out and shorted multiple times. This can lead to a situation where >100% of a stock's float is shorted (Ref: ...
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1
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129
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Why are Short Put option strategy losses said to be unlimited when they are limited by fact that stocks don't fall below zero?
This is really more a question about terminology. In many articles describing synthetic long stock options strategy, losses (on the Short Put leg of the trade) are noted as being "unlimited"....
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3
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129
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Does exercising an option move the price?
This is a follow up question to this one.
Summary: There are deep in-the-money puts at strikes of $800 being traded for an instrument whose price is much below that (in the ballpark of $225 at the ...
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2
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Deep in the money put options
I'm trying to make sense of this option:
Type: put
Expiry: 2021-02-05 (= this week's Friday)
Bid: 580.4
Ask: 584.9
Contract size: 100
Strike: 800
The underlying's last price is $225.
Buying this put ...
- 205
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votes
1
answer
184
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Please explain this put option
Earlier today, I purchased 2 put options on GME. The opening price was around $295. The price dropped $30 in 45 minutes to below $265. Why am I not making any money? I looked at all of the put option ...
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2
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116
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Are there any major advantages of selling put options with a longer expiry date?
If I wish to sell put options to collect the premium, are there advantages of setting a time to expiry of 56 days as opposed to 30 days? Does this lower the risk? Here I am considering American style ...
- 113
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0
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50
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How do we trade and earn profits in future contracts? [closed]
Suppose there is a future contract with a market price of $100 and its lot size is 50, so can I purchase the lot at $100? And while selling before expiry or in intraday, suppose the price is $150, so ...
1
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2
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165
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Options : low IV = selling, high IV = buying?
Trying to make sense of the following sentences found in an article
High volume and low volatility indicates that option contracts are
being sold.
High volume and high volatility indicates option ...
- 143
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1
answer
155
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Is the market maker for a particular stock also the market maker for that stock's options?
Is the market maker for a particular stock also the market maker for that stock's options?
... or is it a different person entirely that makes the options markets for that stock?
If it's 2 different ...
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1
answer
47
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Vanilla options on major US equity indexes – what is the best way to buy them via individual brokerage account?
Please help me with two questions:
What is the best way to buy plain vanilla options on US large, mid, and small cap indexes, such as Russell. I’m looking for some actively tradeable options with ...
- 157
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0
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63
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Return on a futures contract
If Sam invests $200000 on Futures and takes Futures short position on an index fund whose settlement is one year from now, with the current futures price being $1200.
The relation between spot price(S)...
0
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1
answer
63
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What Strategy are these option writers following?
This is the option chain from NIFTY Index about a month from expiry.
Apart from speculation what strategy could these option writers be following by writing in the money calls at 10000 or puts at ...
- 279
2
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0
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724
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Do I get a second chance if I fail the SGX quiz?
To trade Specified Investment Products (SIPs) such futures, options and structured warrants, I need to pass the SGX quiz. What happens if I fail the quiz? Will I get a second chance? What is the ...
- 16.9k
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2
answers
258
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Carry trading using forward contracts
I am curious as to how someone performs a carry trade using forward contracts.
I've read that you go long on the currency that has the higher interest rate but this confuses me. In particular, I've ...
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4
votes
3
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238
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How do derivative prices react so quickly to changes in underlying prices?
Just trying to understand something with the market pricing and how it works. There are literally thousands, if not millions of derivatives tied to say an index fund (which in turn are composed of a ...
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1
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301
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How can I gamble in a "lottery" by using financial instruments?
I noticed that some financial instruments have lottery-like payoffs. If that is really the case, I am planning to play the "lottery" using financial instruments instead of the lotteries ...
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2
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6k
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How do I bet that a stock price will not move?
If I believe a stock will go up, I buy the stock. If I believe a stock will go down, I short the stock. If I believe a stock will neither go up nor down, what do I do? How do I profit from a non-...
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1
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What are prepaid warrants used for?
I understand the how regular warrants (i.e. non-prepaid warrants) work, and what they could be used for. However, I don't understand what prepaid warrants are used for. Suppose a company issues a ...
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1
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Price of a share's futures [duplicate]
Is the price of a share's future contract in the secondary market dependent on supply demand of the share in the secondary market or is it also influenced by the supply demand of the future's contract ...
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84
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Who are allowed to take short positions in WTI CRUDE Oil futures?
Can any individual like me take short position?
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56
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What financial intrument pays out a fixed amount when a strike price is reached?
What is the name of the financial instrument that pays out a fixed amount when a strike price has been reached? For example, the contract may stipulate that I get paid exactly $100 when the S&P ...
- 16.9k
0
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1
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149
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Do compound options trade on exchanges or do they only trade over-the-counter?
Do options on options (i.e. compound options) trade on derivatives exchanges? Or are they only traded over-the-counter? If they do trade on exchanges, which exchanges do they trade on?
- 16.9k
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2
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Short put options (derivatives)
Can anyone solve this question??
"An options trader is short put options on a stock. Explain the directional market risk to this position and how could the trader hedge themselves in the underlying if ...
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3
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2k
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What, exactly, are the "S&P 500 index swaps" held by UPRO?
I've thought about investing in UPRO, the ProShares UltraPro S&P500 3x leveraged ETF. But, of course, I don't want to invest in it until I have a good understanding of it, including its historical ...
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451
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negative delta for bull put spread
I am working on bull put spread. Currently the spot is way below both the strike prices. So one strike is deep in the money and other is in the money. Net position delta retrieved from Bloomberg for ...
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2
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Who is on the buy-side of a sell-to-close call options trade?
While I think I understand the mechanics of opening a call position, I am confused about the mechanics of closing a call option prior to expiry. I am party A.
Buy-to-open:
Party A (buy-side) is ...
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127
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What does it exactly mean by saying "buy/sell a futures contract"?
If I buy a crude oil futures contract at $20/barrel and sell it later at $10/barrel, I seem to buy/sell two different contracts. First, the entities of the contract change from me and exchange to ...
- 373
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2
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274
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What is the real cost for storing a barrel of crude oil at present?
The recent negative price of WTI crude oil futures contract indicates the receipt/storage of a barrel of crude oil can cost more than $37， which is unbelievable. Does anybody know the real cost at ...
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128
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What is the price of commodity at delivery day for a futures contract?
If I hold a futures contract till the delivery day, what price should I pay for the commodity delivered to me, the price of the futures contract when I bought it, the price of the last transaction at ...
- 373
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1
answer
57
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Usual procedure when options/futures/forwards expire?
What is the most common procedure when options/futures/forwards are held until expiry?
Will the underlying asset be delivered in a physical way or will the value of the derivative be exchanged as a ...
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20
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3
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11k
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What happens if I do not honor a futures contract?
I have little knowledge about futures contracts. The recent negative price of crude oil spurred my curiosity about this stuff.
I read this post about buying/selling futures contracts. According to ...
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397
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Could an individual make money off of oil futures? [duplicate]
There was another post about this but oil is going for -32 dollars a barrel. What if I acquired A million barrels of oil. I’d be sitting on 32 million with which I could theoretically use to buy an ...
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1
answer
107
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Who is your counterparty when longing / shorting on leverage?
I understand the basic cases of how longing/shorting works and how two parties with opposing price predictions can make a derivative contract to settle in cash when the price of an asset goes up or ...
- 113