𝐁𝐚𝐬𝐢𝐜𝐬 𝐨𝐟 𝐃𝐞𝐫𝐢𝐯𝐚𝐭𝐢𝐯𝐞𝐬 • What is a derivative • Various derivative products • Participants in derivatives market • Uses of derivative instruments • Beta & hedge ratio • Option Greeks Time for a Thread 🧵 Curated in collaboration with @AdityaTodmal

• What is a derivative? • Which assets can derive the value from its underlying

Various products in the derivatives world • Forwards • Futures • Options • Swaps • Exchange Traded • OTC

Participants in the Derivatives Markets • Hedgers • Traders/Speculators • Arbitrageurs

How derivatives help the participants? • Hedgers : To mitigate price risk • Corporations: transfer risk to reduce their exposure • Traders: willing to take the risk depending on their view • Arbitrageurs: Exploit price difference in a product in two different markets

Derivatives market helps in improving in: • Price Discovery • Transferring risks • Hedge exposures

Derivatives derives its value on: • Underlying price • Volatility of the underlying • Riskiness of the underlying • Interest rate/cost of funding

The Payout in derivatives is dependent : • if the underlying starts to trade above/below a certain price • or based on an event eg. corporate bond default

What is Price Risk & its sub-types: • Unsystematic Risk • Systematic Risk

• Unsystematic Risk : Diversifiable by taking exposure in different sector • Systematic Risk: Market risk, and cant be diversified

Derivatives helps in managing various types of risk: • Price Risk • Interest Rate Risk • Credit Risk

What is Beta? •Sensitivity of a scrip/portfolio vis-a-vis index movement • Beta >1 qualifies for aggressive portfolio & vice-versa

How Beta of the portfolio can be utilized to hedge a portfolio?

Hedge Ratio: • Helps to determine the quantity of the index contract to hedge the portfolio

Who are arbitrageurs • How they make profits? • Role of arbitrageurs in the market

Types of Options: • Call Option • Put Option

Terminologies in Options • ITM Option • ATM Option • OTM Option

Option Greeks • Delta • Gamma • Theta • Vega • Rho

Delta & Gamma explained with help of an example

Theta : Friend of Option Writers

Vega: Increase in volatility leads to increase in premiums & vice-versa

Rho: Sensitivity of the option wrt change in the interest rates

• This was an introductory 🧵 on derivatives • Ref Source: NISM Equity Derivative module, and other open source over the internet • If you ❤️ this, why not share? • Retweet the first tweet and help others find this 🧵 • Happy learning 🤓 to everyone!

• I curate threads on trading & finance📉📈📊 • You can check out other threads 📌 on my profile 😃✌️ Follow us: @AdityaTodmal & @niki_poojary for more such interesting 🧵! Have & happy & a safe 😷 weekend!