Fd Report1

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A MINI-PROJECT REPORT ON

A STUDY ON OPTIONS STRATEGIES IN DERIVATIVE

MARKET

To

Dr. P. Raja Babu

Associate ProfessorKLUBS

By

RAJENDRA KUMAR

11251001

KL University

Green fields

Vaddeswaram


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Abstract:

This project examines the options strategies in derivative markets and clearing

corporation role in the market and its concept. There are different types of strategies and risk are

there in options under derivative segment which explain how investor invest in option market in

derivative market.

Key Words:

Option market

Option strategies

Derivative market

Options risk

Introduction:

Options are a type of financial instruments called derivatives because they drive their

value from the value and characteristics of one (or) more underlying entities such as an assets,

Index, or Interest rate. Usually the underlying assets are stocks, but options can be created for

many other types of entities, including already derived values.

Example: Inflation and Volatility

Options strategies are the simultaneous and oftentimes mixed, buying and selling of one

or more options that differs in one or more of the options variables. Of course, buying or selling

a single option in the simplest options strategy.

Options strategies allow to profit from movement in the underlying that are bullish,

bearish or neutral. In the case of neutral strategies, they can be further classifies into those that

are bullish on volatility and those that are bearish on volatility. The options positions used can be

long and/or short positions in calls.

Options markets

Derivative Securities: Value is derived or stems from changes in the value of some otherassets.

Call option: The right (but not obligation) to buy.

Put option: The right (but not obligation) to sell.

Total volume: nearly 5 billion contracts in 2012.

The most popular option: Equity options.


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Option Clearing Corporation (OCC):

Sole issues of all securities options listed on exchanges and NASD.

All options transactions are ultimately cleared through OCC.

OCC takes the opposite side of every option traded.

Guarantees contract performance and reduces the credit risk.

Option Concept:

Hedge position: Option transaction to offset the risk inherent in some other investment

(to limit risk).

Speculative position: Option transaction to profit from the inherent riskiness of some

underlying asset.

Option contract is a Zero Sum Game before commissions and other transaction costs.

Option Risks:

Delta: The sensitivity of option value to a unit change in the underlying asset (hedge

ratio).

Gamma: The responsiveness of delta to unit changes in the value of the underlying

assets.

Theta: The sensitivity of option value to change in time.

Vage: The sensitivity of option value to change in volatility.

Rho: The sensitivity of option value to change in interest rate.

Options Strategies:

There are 4 types of strategy under option strategy in derivative market, they are:

Bull strategy

Bear strategy

Volatility strategy

Neutral Strategy

Bull Strategy:

Bull strategy consists of 6 different strategies they are:


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Bull Call Spread

Bull Put Spread

Cash Secured Short Put


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Covered Call Buy Write

Long Call

Protective or Married put


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Bear Strategy:

There are 3 different types of strategies are there, they are:

Bear Call Spread

Bear Put Spread


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Long Put

Volatility Strategy:

There are 4 different types of strategies are there, they are:

Call Back spread


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Long Straddles

Long strangle

Put Back Spread


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Neutral Strategy:

In neutral there are 7 different types of strategies are there they are:

Calendar Spread

Collar


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Convered Combination Strangle

Iron Condor

Long call butterfly


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Short Straddle

Short Strangle

Conclusion:

These are the 4 types of strategies in option market under derivative segment. And the 5 types of

risk used in call or put a particular stock at strike price. To calculate the option risk on each

security listed in NYSE and BSE option calculator is available online at www.obeo.com

Documents

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