OPTIONS AND ITS MARKET

Presented by: Jyoti Iruna Ira Ayush Shiva

INTRODUCTION
Derivative Derivatives are products whose values are derived from one or more basic variables called bases. Derivatives are an important class of nancial instruments that are central to todays nancial and trade markets.

Derivatives may be traded for a variety of reasons : Hedging Speculation Arbitrageur

OPTIONS
A contract that gives the buyer the right but not the obligation, to buy or sell a specific amount of a given stock, commodity, currency, index, or debt, at a specified 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 sell the underlying security.

 Every financial option is a contract between two counterparties with the term of option specified in a term sheet. Option contract contains various specification.

Benefits of options
Orderly, Efficient and Liquid Markets Flexibility Leverage Limited Risk For Buyer

History of option
First Account of Options 332 B.C
The very first account of options was mentioned in 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

Types of option
Call option Put option European option American option

INTRODUCTION TO OPTION MARKET

The exchange where most of buying and selling of option contracts take place Trading option are listed in various future and option exchanges Exchange offer the trading parties a platform to discover price and create transaction

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 to judge, since it is between 2 parties. OTC deals are the result of discussion and negotiation between two counter- parties

Organized Options Market: Centralized market Standardized contracts and are settled through 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

Participants of Options Markets

Buyers
Buyers refers to the parties that purchase option contracts

Sellers
Sellers refer to the parties that write or sell option contracts.

Basic Trades or Positions in the Options Market

Long position in call option
30 Profit ($) 20 10 70 0 -5 110 120 130 80 90 100 Terminal stock price ($)

 Long position in put option

30 Profit ($) 20 10 0 -7 Terminal stock price ($) 40 50 60 70 80 90 100

 Short position in Call option

Profit ($) 5 0 70 -10 -20 -30 80 90 100 110 120 130 Terminal stock price ($)

 Short position in Put option

Profit ($) 7 0 -10 -20 -30 40 50 60 70 80 90 Terminal stock price ($) 100

CONCLUSION