Search icone
Search and publish your papers

Futures and options: working

Or download with : a doc exchange

About the author

General public

About the document

Published date
documents in English
term papers
4 pages
General public
3 times
Validated by
0 Comment
Rate this document
  1. Introduction.
  2. Characteristics of financial derivatives.
    1. The risk involved.
    2. Meaning of financial futures.
  3. Hedging and managing of risk.
  4. The concept of correlation between the portfolio and the index.
    1. Different scenarios of hedging risks with futures.
  5. Meaning of options.
    1. Trading of options.
    2. Profitability of options.
    3. The functioning of call options and option combinations.
    4. The notion of options.
  6. Conclusion.
  7. Bibliography.

Since the 1970's, the trade of derivative securities has over expanded and has characterised most of the transactions in the world financial marketplaces. However, derivatives do not constitute a new notion in the financial world, since they first appeared in the 17th century, with the trade of commodities. Hence, cultivators, to hedge risks -that means to protect themselves from variations between the sale price and the delivery price- looked for a solution, a contract that would guarantee them a minimum price, so that they can still make profit. Derivatives securities are instruments whose values are derived from the values of other relates securities. There are various types of derivatives but the two most popular ones are financial options and futures. The former can be defined as a ?contract that gives its holder the right to purchase (call option) or sell (put option) a specified asset under specified conditions?.

[...] To conclude, one can say that derivatives such as futures and options are very efficient and useful instruments in the financial markets. Indeed, by the system of hedging, one can reduce risk and maintain a certain stability vis-à-vis the variations of prices, exchanges rates or interest rates Yet the complexity of derivative trading is huge and a good understanding of the different mechanisms is required to maximise profit and to avoid market crisis. However, in recent years, individual company losses through derivatives have become almost ?routine?.[14] One justification for the phenomenon is about speculation which can lead to very unstable situations. [...]

[...] This will only occur if the stock price is inferior to At a price between and the investor will exercise the call option but will incur a loss equivalent difference with the premium. Thus, it's only at a price superior to that the investor will break even. Similarly; in a put options contract, with the same conditions, the investors would only make profits if the price of the underlying asset were inferior to the premium. Thus with this mechanism, options can be used either to reduce risk (hedging) or to increase risk (speculating). [...]

Similar documents you may be interested in reading.

Commodity futures market

 Science & technology   |  Electronics   |  Thesis   |  03/05/2009   |   .doc   |   40 pages

Commodity futures as a risk reduction and investment instrument

 Economics & finance   |  Finance   |  Indian project   |  03/21/2009   |   .doc   |   58 pages

Top sold for finance

Yale University Investments Office: August 2006 case analysis

 Economics & finance   |  Finance   |  Case study   |  08/17/2009   |   .doc   |   8 pages

International finance distribution of currency of AUD and USD

 Economics & finance   |  Finance   |  Worksheets   |  08/05/2017   |   .doc   |   4 pages