Nikita Poojary

Nikita Poojary

08-01-2022

13:14

𝐁𝐚𝐬𝐒𝐜𝐬 𝐨𝐟 πƒπžπ«π’π―πšπ­π’π―πžπ¬ β€’ What is a derivative β€’ Various derivative products β€’ Participants in derivatives market β€’ Uses of derivative instruments β€’ Beta & hedge ratio β€’ Option Greeks Time for a Thread 🧡 Curated in collaboration with @AdityaTodmal

β€’ What is a derivative? β€’ Which assets can derive the value from its underlying

Various products in the derivatives world β€’ Forwards β€’ Futures β€’ Options β€’ Swaps β€’ Exchange Traded β€’ OTC

Participants in the Derivatives Markets β€’ Hedgers β€’ Traders/Speculators β€’ Arbitrageurs

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

Derivatives market helps in improving in: β€’ Price Discovery β€’ Transferring risks β€’ Hedge exposures

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

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

What is Price Risk & its sub-types: β€’ Unsystematic Risk β€’ Systematic Risk

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

Derivatives helps in managing various types of risk: β€’ Price Risk β€’ Interest Rate Risk β€’ Credit Risk

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

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

Hedge Ratio: β€’ Helps to determine the quantity of the index contract to hedge the portfolio

Who are arbitrageurs β€’ How they make profits? β€’ Role of arbitrageurs in the market

Types of Options: β€’ Call Option β€’ Put Option

Terminologies in Options β€’ ITM Option β€’ ATM Option β€’ OTM Option

Option Greeks β€’ Delta β€’ Gamma β€’ Theta β€’ Vega β€’ 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

β€’ This was an introductory 🧡 on derivatives β€’ Ref Source: NISM Equity Derivative module, and other open source over the internet β€’ If you ❀️ this, why not share? β€’ Retweet the first tweet and help others find this 🧡 β€’ Happy learning πŸ€“ to everyone!

β€’ I curate threads on trading & financeπŸ“‰πŸ“ˆπŸ“Š β€’ You can check out other threads πŸ“Œ on my profile πŸ˜ƒβœŒοΈ Follow us: @AdityaTodmal & @niki_poojary for more such interesting 🧡! Have & happy & a safe 😷 weekend!



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