Spot Market is the marketplace where there is an immediate exchange of cash and asset.
Cash Market – Buyers receives the cash for the stock immediately
Exchange’s role in derivative instruments is:
Futures – Collects refundable margin money from both parties, monitors Mark to Market on daily basis till the expiry of contract and makes settlement.
Options- Collects premium from both parties and settles at the end of expiry of contracts.
Margin – It is amount lend by the broker over and above our capital.
MTM(Mark to market) – Settlement on a daily basis from buyer to seller or Seller to Buyer.
Premium – It is an amount paid by the buyer to the seller in options during the execution of the contract.
Strike price- The price above or below which the buyer or seller may execute the contract in call option or put option.
Expiry date – Date of expiry of contract.
Lot size – Futures and options can only be bought as a lot. One lot may contain number.
Future contract –The buyer / seller have the right to buy or sell the product and have to settle the terms of the contract on or before the decided date.
Option contract – The buyer has the right but is not obligated to buy on or before the decided date. But the seller has to comply if the buyer exercises the terms.
Future contract –The buyer / seller have the right to buy or sell the product and have to settle the terms of the contract on or before the decided date.
Option contract – The buyer has the right but is not obligated to buy on or before the decided date. But the seller has to comply if the buyer exercises the terms.
Day 3 – Futures and Options
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