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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

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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 ...
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1answer
58 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 ...
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0answers
23 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 ...
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2answers
63 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 ...
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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. ...
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1answer
61 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 ...
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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, ...
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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 ...
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1answer
284 views

How are derivatives different from bucket shops?

How are derivatives like covered warrants or CFDs different from the bucket shops that were made illegal in the US? Should I worry that some regulator decides that my "market maker" is an illegal ...
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2answers
232 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 ...
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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 ...
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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 ...
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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 ...
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2answers
438 views

Black & Scholes article : option pricing

I am currently reading the famous article by Fischer Black and Myron Scholes called 'The pricing of Options and Corporate liabilities'. Just at the beginning of the article, they go on and explain ...
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1answer
2k views

How can the writer of an option cancel or reverse the position & obligation before exercise or expiration?

How can the writer of, say, a call option cancel or reverse the position and its obligation (to deliver shares) before the option is exercised or the expiration date reached? Can an option that has ...
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3answers
759 views

Fund or ETF that simulates the investment goals of an options “straddle” strategy?

With all the market volatility of late, I was thinking that it might be a good short term strategy to employ a straddle approach. For those not familiar with Options trading: This is a strategy ...
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1answer
199 views

Can the bid price for selling the same call option in calendar spread be different from that in covered call?

I am trying to sell C (citi) call options expiring 2013 Jan at $5.00 in 2 different modes. Calendar spread mode: Bid Price is $0.24 Covered call mode: Bid Price is $1.01 1)Why is there a difference ...
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2answers
132 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 ...
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4answers
6k views

“Derivative” and “asset-backed security”: Same concept, or related?

Derivative and asset-backed security seem to be similar, as both are based on some other assets. So I wonder if they are the same concept?
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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 ...
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1answer
368 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 ...
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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. ...
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2answers
9k views

Difference between Black-Scholes, Binomial models and Market price in European index options?

Need some help! I have calculated the theoretical price of an index option using BS and Binomial models and are now comparing the three. While BS and Binomial have approximately the same value, ...
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2answers
482 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 ...
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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.
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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 ...
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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?
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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 ...
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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 ...
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2answers
175 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 ...
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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 ...
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1answer
401 views

What is credit default swap rate?

I understand that for a credit default swap (CDS), its CDS spread is the rate of payments that the buyer of the CDS makes to the seller in each year. I also heard of "CDS rate". I wonder how it is ...
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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 ...
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5answers
794 views

Is there a way to bet on the trade volume of a stock?

Say, stock ABC trades 100,000 shares per day. I feel strongly that in the near future it will trade 200,000 shares per day. Is there an instrument I can buy to profit on this? To be clear, I don't ...
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1answer
97 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 ...
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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 ...
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4answers
1k views

Why trade futures if you have options?

This article explains the difference between futures and options. It seems a futures contract is an obligation, while an option is a right (not an obligation). If this is true, why would anybody ever ...
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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 ...
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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 ...
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2answers
401 views

What are futures and how are they different from options?

As a form of investment there are contracts to buy commodities at a specific time in the future or at a specific price. How is this different from an option to buy a share?
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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 ...
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2answers
2k views

Can heavy demand for options drive up or down a stock price?

I understand the market maker is the one quite frequently on the other side of my buy or sell option order (to make sure their is liquidity in the market, and offering the bid / ask spread as "...
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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 ...
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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 ...
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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 ...
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2answers
407 views

Advice for a beginner investor interested in trading stocks and derivatives online?

I wanted to start an E-Trade account more or less just to fool around with. The goal is always to make money obviously, but at first I just kind of want to experiment and get familiar with the ...
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3answers
5k views

How are futures contracts setup at an exchange?

I'm having a hard time wrapping my head around how the actual contracts are structured at an exchange. Here are my questions: If an exchange facilitates the trading of futures contracts and nobody ...
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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 ...
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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 ...
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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 ...