(1)     Introduction of Derivatives:

• Definition – Types – Participants and Functions- Development of Exchange traded derivatives – Global derivatives markets – Exchange traded vs OTC derivatives markets – Derivatives trading in India – L. C. Gupta committee – J. C. Varma committee – Requirements for a successful derivatives markets.

(2)     Futures – Introduction:

• Futures: Introduction- Future terminology- Key features of futures contracts – Future vs. Forwards – Pay off for futures – Equity futures – Equity futures in India – Index futures – Stock futures – Future trading strategies – Hedging – Speculation – Arbitrage – Spread trading.

(3)     Futures – Options – Introduction and Pricing Options:

• Options: Introduction – Option terminology – Types – Options pay off – Equity options contracts in India – Index Options – Stock options – Options trading strategies – Hedging – Speculation – Arbitrage – Straddle – Strangles – Strips and Straps – Spread trading.
• The cost of carry models for stock and index futures – cash price and future price, arbitrage opportunity.
• Factors affecting options pricing – Option pricing models – Binominal pricing model – The black and Scholes model –Pricing of Index options.
• Sensitivity of option premia (Delta, Gamma, Lambda, Theta, Rho).

(4)     Trading Clearing and Settlement of Options and Futures:

• Futures and Options trading system – Trader workstations – contract specification – specification for stock and index eligibility for trading charges
• Clearing entities and their role – clearing mechanism –adjustment for corporate actions – open position calculation
• Margining and settlement mechanism – Risk management – SPAN – Mechanics of SPAN – Overall portfolio margin requirements.

Author: S. P. Das

FOURTH EDITION 2023