Stack Exchange Network

Stack Exchange network consists of 175 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers.

Visit Stack Exchange

Questions tagged [derivatives]

This tag is to be used for any question on deravites. It should typically be used in conjuction with the actual instrument being used like Options, Swaps, Futures

0
votes
0answers
35 views

What regulations I face with doing business related to derivatives trading? [closed]

Lets say I'm going to start a business of hedging client companies (worldwide) and selling/buying correspondent derivatives on exchange (like CME, CBOE, etc). The workflow is the following: I ...
1
vote
1answer
57 views

Mortgage Holders as Option Writers

Can someone explain to me how does it benefit the mortgage holder to be a writer of the option call on the long term debt and the put option on real estate prices? Other than the premium be gained I ...
0
votes
0answers
22 views

Futures and premium

A stock will either go up to uS or down to dS next period. The risk-free rate is r. I'm using replicating portfolios to derive the premium on a futures contract with futures price F. What would the ...
0
votes
1answer
27 views

Forward contract hedge and market-maker

Referring to Mcdonald's "Derivatives markets" book, a market-maker or arbitrageur must be able to offset the risk of a forward contract. It is possible to do this by creating a synthetic forward ...
1
vote
2answers
61 views

Option Premium paid vs received

I understand what is the premium on an option. In case I acquire an option, the premium is considered as the price I pay to have the "right" to exercise the option. In case I sell an option, the ...
0
votes
0answers
18 views

Effects of Backwardation and Contango on Supply

As an example, if on June 1st, we observe that the term structure of oil prices is in backwardation up to the end of that year. After the New Year, the term structure of oil prices is in contango. ...
2
votes
1answer
59 views

What's the difference between a variance swap and a long straddle option trade?

A long straddle is when one is anticipating a swing in stock price, but you’re not sure which direction it will go. And a variance swap is a financial derivative used to hedge or speculate on the ...
1
vote
1answer
95 views

How often do regular businesses hedge their economic risks?

It's claimed that derivative instruments were made to allow real businesses to hedge their risks (unpredictable increase of supplies price, decrease price of the product in the future and so on, ...
-1
votes
1answer
34 views

What are the names of contracts being traded on the Futures and Options markets?

These are standardized contracts that allow you to bet on the future price of assets - commodities, stocks etc You can even buy a right to purchase a stock on a certain date or the reverse, force ...
-1
votes
3answers
243 views

Does this derivative contract between friends make sense?

Suppose there is someone with an investment horizon of 10 years (Retired Bob), and another person with an investment horizon of 30 years (Hungry Joe). Retired Bob doesn't want to take risk, but Hungry ...
1
vote
1answer
48 views

What types of derivatives, other than stock options, are available to the retail trader? [closed]

How can a retail trader identify other derivative instruments to trade, and how can one go about doing so?
2
votes
3answers
116 views

Does an equivalent to stock “options” exist for CDs?

I was curious if an individual is able to purchase the option to get a CD at a particular rate in the future? Or alternatively defer the purchase of a CD and lock in the existing rate.
0
votes
2answers
58 views

Derivatives/Options: Underlying Asset

I am aware that the underlying of a derivative contract can be more or less "anything" : stocks, bonds, commodities, currencies, etc... However, I would like to know if it is normal that there are ...
0
votes
2answers
123 views

What is option execution?

What is the meaning of "the execution of the Option" or "Option execution" in the examples below? Is it "signing"? The Completion, as well as the execution of the Option may be carried out if on ...
0
votes
2answers
173 views

How do Bitcoin futures acutally affect the underlying spot market?

Lets say when the futures expire today on settlement date, does the seller of the future actually literally sell BTC on the open market so he can pay the cash to the Future buyer/holder? I was told ...
0
votes
3answers
243 views

Hedging for inflation

I have liquidated my entire portfolio. I now have cash, earning low interest with tax. I want to build back my position, but am waiting for the right time in the market, likely higher interest rates. ...
5
votes
2answers
1k views

What is the Meaning of the Black-Scholes Value?

We are currently learning about the Black-Scholes Merton Model. I understand the process of finding the call option. However, I'm wondering what the answer actually means. For example: Stock Price ...
1
vote
1answer
96 views

Margin accounts and futures delivery

I'm trying to understand the market mechanics of futures with delivery. For sake of example, assume 0 interest rates and no cost of carry, and that I bought a futures contract on Jan 1 with Feb 1 ...
1
vote
3answers
242 views

What products can be used to insure against a large market drop?

What products can be purchased to insure against a large market drop, assuming assets involved are US, Canadian and Asian stocks (in the form of public company shares, mutual funds and ETFs)? Options ...
2
votes
2answers
230 views

Can a warrant be “cancelled” by its issuer?

I am wondering if a bank that sells derivatives (Warrants, Turbos ...) can "cancel" their products after a very bad event. Example : Today, I buy 5000 PUT warrants. Then tomorrow, a market crash ...
5
votes
4answers
3k views

Why is XYZ $70.5 strike call more expensive than $68 strike call?

The link below shows the February 16 call option listing for company XYZ. I used to think that, the higher the strike price, the cheaper the call option. Obviously, the price pattern for this ...
1
vote
2answers
161 views

How can an option seller get out of a contract?

I was recently on Optional Alpha, which provides an overview of how to trade options, from A to Z. During one of the videos/lectures, there was an introduction for: buy to open, sell to close, sell ...
0
votes
3answers
153 views

Are option prices whimsical?

Presumably, as in stocks, option prices are dictated by laws of supply and demand. If the same assumption is valid for options, especially standard options, how does one reconcile that set-up with a ...
3
votes
3answers
439 views

Several questions on Bitcoin futures

I have been reading news on crypto-currencies. As a developer, I understand well how Bitcoin works. I also have a basic understanding of finance in general and stocks in particular. I understand how ...
1
vote
1answer
114 views

Confused about eurodollar futures

A eurodollar futures contract is a cash-settled futures contract based on a Eurodollar Time Deposit and having a principal value of USD $1,000,000 with a 3-month maturity. Suppose that a a bank ...
1
vote
2answers
131 views

Short an option - random assignment?

I'm still really new to options but I'm trying to understand this concept of assignment. Let’s say I’m short a call of Microsoft at a strike of 80 set to expire in a quarter. Microsoft surges for ...
1
vote
2answers
477 views

Black scholes, futures, and American vs. European options

After having taken a look at this question about American and European options I was under the impression that the main difference between American and European options in Black Scholes pricing was ...
1
vote
1answer
366 views

Difference between Fair Value derivative and Speculation derivative [closed]

I understand the purpose of a fair value hedging instrument (preserve the fair value of an asset, liability, etc) and a speculation derivative (default classification if the derivative isn't ...
1
vote
1answer
243 views

Equity derivatives intraday short selling in India (NSE/BSE)

Am I getting it right that in India in terms of short selling in F&O market its what in the rest of the world is called naked short and you actually make promise to depositary that you will ...
6
votes
1answer
378 views

Reasons for a warrant's intrinsic value and price not adding up?

I'm looking at a specific (American-style) warrant of a company and let's say I see something like the following: Warrant Bid/Ask: 0.30$/0.35$ Strike Price: 15$ Current stock price: 16$ Expiration ...
3
votes
1answer
82 views

How to continuously plot futures data

Since futures trade on a contract by contract basis, how can you plot the price over an extended period of time? As a reference I have included a plot of VX futures (VIX CBOE volatility index) from ...
0
votes
0answers
40 views

Total return swaps for stock index

Apparently, inverse stock market ETFs (so-called bear ETFs) are constructed by taking positions in total return stock market index swaps, that is, the ETF forms a contract with an investment bank, who ...
11
votes
1answer
223 views

Is there a catch on this structured derivative product?

I have a friend who is looking at purchasing this derivative product from JPMorgan. It looks more or less like it's pretty difficult to lose ( ie. not do better than investing in a plain s&p ...
0
votes
1answer
176 views

Does the premium of an option of a certain strike price increase at a slower rate from OTM to ITM as gamma affects delta?

I buy an OTM strike the price converge towards the selected strike price premium increase at a rate of delta does the rate of the increase slow down due to gamma?
3
votes
1answer
1k views

How does delta and gamma change in relationship to distance between strike and underlying price?

Would be great if someone can provide a graphical explanation to show changes in gamma and delta as price goes toward in the money and away as further out the money. Are there differences that I ...
1
vote
1answer
126 views

Are the legs of a CDS tradeable assets?

In a CDS, one party is entitled to a premium leg (a series of payments until a credit event), and the other party is entitled to a default leg (the payment of a bond's face value at a credit event). A ...
3
votes
1answer
154 views

How to read options prices

I have been doing research on Options and thus far most of it has been relatively theoretical (mainly pricing models and put/call hedging strategies). Recently I have been looking into actually ...
2
votes
4answers
7k views

Buy or sell futures contracts

I cannot find a clear and unambiguous definition of the terms "selling futures contract" or "buying futures contract". From Hull's book: [...] a futures contract is an agreement between two ...
1
vote
2answers
424 views

Is this legal: going long on call options and artificially increasing the price of the underlying asset seconds before expiration?

Let's say I bought a particular call option and own the majority of it. On the very last second (before the expiry date, seconds before the market closes), if I bought every single offer in the ...
1
vote
1answer
156 views

Does a list of all Option Strategies exist? Where can I find it?

There are a lot options strategies that are available. Is there a exhaustive count of option strategies? If yes, then where would we find such an list? Is it possible to get a list of all option ...
1
vote
0answers
46 views

What does it mean to find the Present Value of a FRA?

What does it mean when the present value of a forward rate agreement is calculated? Is this a price that the owner of the FRA can sell it for? Thanks for the help.
0
votes
2answers
69 views

If Option prices are publically quoted on an options exchange, why do people use Black-Sholes to estimate their price?

I always wondered why the Black-Sholes-Merton model was used to estimate the price of European-style options when their prices are available on quoted exchanges? I think I am missing something big ...
2
votes
1answer
229 views

Is there a way to see how much leverage a mutual fund or ETF is using to generate a return

I am taking over some of my IRA and 401K money and I want to move towards a more value based approach with an emphasis on dividends. One thing I have learned on this quest is that most options have ...
1
vote
1answer
165 views

Where is the liquidity on European derivatives exchanges

This has bugged me for a long time, and I feel like I am missing some information. When I browse Eurex, a derivatives exchange in Europe, I don't see the kinds of liquidity I would expect. For ...
6
votes
4answers
2k views

What exactly is a “derivative”?

I haven't been able to find exactly what a derivative means. It seems to be some sort of cross of insurance, stock, and lay-a-way. When I try to look it up, all I find is all the problems not ...
1
vote
1answer
971 views

What happens after a counterparty defaults on a derivative trade?

I understand that counterparty risk, or the risk of the counterparty defaulting when they lose on a bet, is inherent when trading derivatives. My question is what happens after they default? Is there ...
1
vote
0answers
32 views

Do the rewards of custom contract size in OTC derivatives justify the counterparty risk?

If I decide to trade OTC derivatives, I take on counterparty risk. Since the transaction is not overseen by a clearing house/firm, I accept the risk that the counterparty may not honour the obligation....
2
votes
0answers
719 views

UK taxation for options and futures trading

I live in UK and I see that there are 2 taxes when trading: CGT to be paid on capital gain and is 18% or 28% depending if you are basic tax payer or not income tax on any interest or dividend ...
2
votes
0answers
119 views

Financial product with high variance, instead of lottery

When I was a kid, our family would once a year play the lottery. We kids talked with our parents about what we would do if we won the jackpot, and whenever we won something small like $100, we would ...
1
vote
3answers
1k views

how derivatives transfer risk from one entity to another

In his book 'options, futures and other derivatives', John hull writes: Derivatives such as forwards, futures, swaps, and options are concerned with transfer- ring risk from one entity in the economy ...