the first period, they close out for $100 dollars. I was actively trading it on limit orders to cause price fluctuations which allowed me to get close to mid-market prices. Near the end of the 1st period, I purchased them to my full capacity of my margin loan. Since I was actively trading I missed out on the risk free interest which was compounded on cash and it was paid weekly (12 seconds), for the first period it was 7% (weekly rate 0.1302%) percent and then for second period it changed to 9%(weekly
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Thursday, October 24, 1929, easily ranks as the most dramatic day that Wall Street has ever seen.1 That day witnessed the beginning of the Great Stock Market Crash that over the following few years would result in an almost ninety percent decline in the Dow Jones Industrial Average (DJIA). Although not nearly as dramatic as “Black Thursday,” September 15, 2008, is a date that modern day Wall Street insiders will not soon forget. On that day, one of Wall Street’s iconic investment banking firms
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Project Report on Derivatives | Introduction to Futures & Options 1.0INTRODUCTION In recent times the Derivative markets have gained importance in terms of their vital role in the economy. The purpose of this report to get an orientation to the derivatives and develop a basic understanding of what it is and how does it work. Derivatives are financial instruments, which derive their value from an underlying asset. The underlying asset can be bullion, index, share
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(agency theory effect) 4 Foreign Currency Derivatives What are they? Forward contracts Futures contracts Options Swaps 5 Foreign Currency Futures A foreign currency (FX) futures contract is an alternative to a forward contract that calls for future delivery of a standard amount of foreign exchange at a fixed time, place and price. It is similar to futures contracts that exist for commodities such as cattle, lumber, interest-bearing deposits, gold, etc. In the US, the most important
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use just one option, either European call or European put on IBM stock maturing in 8 months to bet on your view about IBM’s stock price prospects. Suppose that the current stock price and the strike price for both call and put on the IBM stock is $50. (a) What option will you invest in? Explain. Call. Call price will go up if the stock price goes up. The losses are limited by the option premium paid. (b) At what price will you breakeven if both put and call options are sold for the same premium
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you get the same position as Satyam in the cash market, but you pay a margin and not the entire amount. For example, if the margin is 20%, you would pay only Rs 56. If Satyam goes upto Rs 330, you will still earn Rs 50 as profit. Now that translates into a fabulous return of 89% in one month. Unbelievable!! But True nevertheless!! This is the advantage of ‘leverage’ which Stock Futures provide. By investing a small margin (ranging from 10 to 25%), you can get into the same positions as you would
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standardized and closely specified contract terms – – – – Traded in organized exchange Standardized, specific quantity, delivery date, mechanism Performance guaranteed by clearinghouse Margins – good faith deposit with the exchange • Option – the right to purchase underlying good at a specific price until a specific date – Calls and Puts • Swaps – Agreement between two or more parties to exchange sequence of cash flows over a period in the future 3 Derivatives - Applications • Price risk elimination
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What is meant by the exercise or strike price on an option? The price at which a specific derivative contract can be exercised. Strike price is mostly used to describe stock and index options, in which strike prices are fixed in the contract. For call options, the strike price is where the security can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold. The difference between the underlying security's current market price and the
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Midterm 1 Name____________________________________ Date____________________________________ 1 The net wealth of the aggregate economy is equal to the sum of A) all real assets. B) all financial assets. C) all physical assets. D) all real and financial assets. E) none of the above 2 Asset allocation refers to ____________. A) choosing which securities to hold based on their valuation B) investing only in "safe" securities C) the allocation of assets into broad asset classes
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Frequently Asked Questions on Derivatives Trading At NSE NATIONAL STOCK EXCHANGE OF INDIA LIMITED Derivatives Trading QUESTIONS & ANSWERS 1. What are derivatives? Derivatives, such as futures or options, are financial contracts which derive their value from a spot price, which is called the “underlying”. For example, wheat farmers may wish to enter into a contract to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction
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