uerlvaLlves

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A producl Wrose va|ue |s der|ved lror lre va|ue ol ore or rore oas|c var|ao|es, ca||ed oases
(urder|y|rg assel, |rdex or relererce rale ), |r a corlraclua| rarrer. Tre urder|y|rg assel car oe
equ|ly , lorex corrod|ly or ary olrer assel.
In the Ind|an context the secur|t|es contracts (kegu|at|on)Act 19S6(SC(k)A)
def|nes "Der|vat|ve" to |nc|ude
-A securlLy derlved from a debL lnsLrumenL share loan
wheLher secured or unsecured rlsk lnsLrumenL or conLracL for dlfferences
or any oLher form of securlLy
-A conLracL whlch derlves lLs value from Lhe prlces or lndex of prlces of underlylng
securlLles
Forwards
A forward contract is customized contract between two entities, where settIement
takes pIace on a specific date in the future at today's pre-agreed price.
Futures
An agreement between two parties to buy or seII an asset at a certain time in the
future at a certain price . Futures contacts are speciaI types of forward
contracts in the contracts in the sense that the former are standardized
exchange-traded contracts.
Options
Options are of two types - caIIs and puts. CaIIs give the buyer the right but not the
obIigation to buy a given quantity of the underIying asset, at a given price on or
before a given future date. Puts give the buyer the right, but not obIigation to seII a
given quantity of the underIying asset at a given price on or before a given date.
@9S CI DkIVA@IVS
IU@UkS C9@ICNS
uLures conLracL ls an agreemenL Lo
buy or sell speclfled quanLlLy of Lhe
underlylng asseLs aL a prlce agreed
upon by Lhe buyer and seller on or
before a speclfled Llme 8oth the
buyer and se||er are ob||ged to
buy]se|| the under|y|ng asset
ln opLlons Lhe buyer en[oys Lhe rlghL
and noL Lhe obllgaLlon Lo buy or sell
Lhe underlylng asseL
unllmlLed upslde downslde for boLh
buyer and seller
LlmlLed downslde (Lo Lhe exLenL of
premlum pald) for buyer and unllmlLed
upslde or seller (wrlLer) of Lhe
opLlon proflLs are llmlLed whereas
losses can be unllmlLed
uLures conLracLs prlces are affecLed
malnly by Lhe prlces of Lhe underlylng
asseL
rlces of opLlons are however affecLed
by a)prlces of Lhe underlylng asseL
b)Llme remalnlng for explry of Lhe
conLracL and c)volaLlllLy of Lhe
underlylng asseL
0|FFEREN6E ETwEEN FUTURE8 & 0PT|0N8
Ca|| Cpt|on 9ut Cpt|on
Cpt|on 8uyer
uys Lhe rlghL Lo buy Lhe
underlylng asseL aL Lhe
SLrlke rlce
uys Lhe rlghL Lo sell Lhe
underlylng asseL aL Lhe
SLrlke rlce
Cpt|on Se||er
Pas Lhe obllgaLlon Lo sell
Lhe underlylng asseL Lo
Lhe opLlon holder aL Lhe
SLrlke rlce
Pas Lhe obllgaLlon Lo buy
Lhe underlylng asseL from
Lhe opLlon holder aL Lhe
SLrlke rlce