Financial Class II Assignment

1.Difference between forwards and future.

FUTURES FORWARDS

They are traded on exchange They are traded in OTC

Are standardized Are customised

Identify of counterparty is Identity is relevant

irrelevant
Regulated Not Regulated

Marked to Market No marked to Market

Easy to terminate Difficult to terminate

Less costly More Costly

Very liquid Highly illiquid

2. Difference between futures and Options.

FUTURES OPTIONS

Futures is a pure Trading Tool Options is a risk limiting tool

both parties share the risk Risk is borne by one party

Future can be bought and sold Options can be bought and sold in
in derivates derivatives market
 The amount of loss or profit The amount of loss is restricted to
that one can make in futures option premium paid
contract depends on price at
time of execution of contract

3. what is long strangle and short strangle?

Ans. Long strangle means when you buy the options of call and put at the
OTM and In short strangle you sell call and put at OTM.

4. what is features of call and put options?

CALL OPTION PUT OPTION

Market will go call will go up Market will up put will go down

Market will go down call will go Market will go down put will be up
down
Buy call profit unlimited Sell put profit unlimited

Sell call profit is limited Buy put profit is limited

Buy call risk is limited Sell put risk is limited

Sell call risk is unlimited Buy put risk is unlimited

Bullish Bearish

5.what is delta of call and put

Ans. The delta is a ratio comparing the change in the price of an asset, usually
a marketable security, to the corresponding change in the price of
its derivative. For example, if a stock option has a delta value of 0.65, this
means that if the underlying stock increases in price by 1 per share, the option
on it will rise by 0.65 per share, all else being equal.

The delta for call is always positive which is between zero to one. Long call
delta is + and short call delta is - .The delta for the call option on XYZ shares is
.35. That means that a 1 change in the price of XYZ stock generates a .35
change in the price of call options. Therefore, if shares trade at 20, and the call
option trades at 2, a change in the price of shares to 21 means the call option
will increase to a price of 2.35.

The delta for put is positive which is denoted as negative from -1 to 0. Buy
put delta is – and sell put delta is + .Put options work in the opposite way. If
the put option on XYZ shares has a delta of -.65 then a 1 increase in
shares' price generates a .65 decrease in the price of put options. Therefore, if
shares trade at 20, and the put option trades at 2, and then shares increase to
21, the put option will decrease to a price of1.35.

6.what are the types of future contract?

There are a few major groups available for futures trading such as agricultural
products (e.g. crude palm oil, soy bean), energy (e.g. crude oil), metals
(e.g. gold, silver), live stocks, financial instruments, and stocks.