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OPTIONS AND ITS MARKET

Presented by:

Jyoti

Iruna

Ira

AyushShiva

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INTRODUCTION

Derivative

Derivatives are products whose

values are derived from one or morebasic variables called bases.

Derivatives are an important class of

financial instruments that are centralto todays financial and trademarkets.

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OPTIONS

A contract that gives the buyer the right but not theobligation, to buy or sell a specific amount of a givenstock, commodity, currency, index, or debt, at aspecified price during a specified period of time.

Options are categorized as derivative securities.

Option premium:

Option buyers pay a price for the right to buy or sellthe underlying security.

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Every financial option is a contractbetween two counterparties with theterm of option specified in a term

sheet.

Option contract contains variousspecification.

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Benefits of options

Orderly, Efficient and Liquid Markets

Flexibility

Leverage

Limited Risk For Buyer

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History of option

First Account of Options 332 B.C

The very first account of options was mentionedin Aristotle's book named "Politics", published in

332 B.C.

Tulip mania of 1636

Option trading in USA in 1872

Black Scholes model

CBOE and OCC formed in 1973

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Types of option

Call option

Put option

European option American option

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INTRODUCTION TO OPTIONMARKET

The exchange where most of buyingand selling of option contracts takeplace

Trading option are listed in variousfuture and option exchanges

Exchange offer the trading parties aplatform to discover price and createtransaction

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Types of option market

Over-the-counter market:

Decentralized market

OTC options (or dealer options) are private

transactions between two parties Market value of the traded option is difficult tojudge, since it is between 2 parties.

OTC deals are the result of discussion andnegotiation between two counter- parties

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Organized Options Market:

Centralized market

Standardized contracts and are settledthrough a clearing house

Since the contracts are standardized,accurate pricing models are often available.

Exchange-traded options include:

Stock options, Commodity options

Options on futures contract

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Participants of Options Markets

Buyers

Buyers refers to the parties thatpurchase option contracts

Sellers

Sellers refer to the parties that write or

sell option contracts.

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Basic Trades or Positions in theOptions Market

Long position in call option

30

20

10

0

-5

70 80 90 100

110 120 130

Profit ($)

Terminalstock price ($)

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Long position in put option

30

20

10

0

-770605040 80 90 100

Profit ($)

Terminalstock price ($)

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Short position in Call option

-30

-20

-10

0

5

70 80 90 100

110 120 130

Profit ($)

Terminalstock price ($)

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Short position in Put option

-30

-20

-10

7

070

605040

80 90 100

Profit ($)Terminal

stock price ($)

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CONCLUSION