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A MINI-PROJECT REPORT ON
A STUDY ON OPTIONS STRATEGIES IN DERIVATIVE
MARKET
To
Dr. P. Raja Babu
Associate ProfessorKLUBS
By
RAJENDRA KUMAR
11251001
KL University
Green fields
Vaddeswaram
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Abstract:
This project examines the options strategies in derivative markets and clearing
corporation role in the market and its concept. There are different types of strategies and risk are
there in options under derivative segment which explain how investor invest in option market in
derivative market.
Key Words:
Option market
Option strategies
Derivative market
Options risk
Introduction:
Options are a type of financial instruments called derivatives because they drive their
value from the value and characteristics of one (or) more underlying entities such as an assets,
Index, or Interest rate. Usually the underlying assets are stocks, but options can be created for
many other types of entities, including already derived values.
Example: Inflation and Volatility
Options strategies are the simultaneous and oftentimes mixed, buying and selling of one
or more options that differs in one or more of the options variables. Of course, buying or selling
a single option in the simplest options strategy.
Options strategies allow to profit from movement in the underlying that are bullish,
bearish or neutral. In the case of neutral strategies, they can be further classifies into those that
are bullish on volatility and those that are bearish on volatility. The options positions used can be
long and/or short positions in calls.
Options markets
Derivative Securities: Value is derived or stems from changes in the value of some otherassets.
Call option: The right (but not obligation) to buy.
Put option: The right (but not obligation) to sell.
Total volume: nearly 5 billion contracts in 2012.
The most popular option: Equity options.
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Option Clearing Corporation (OCC):
Sole issues of all securities options listed on exchanges and NASD.
All options transactions are ultimately cleared through OCC.
OCC takes the opposite side of every option traded.
Guarantees contract performance and reduces the credit risk.
Option Concept:
Hedge position: Option transaction to offset the risk inherent in some other investment
(to limit risk).
Speculative position: Option transaction to profit from the inherent riskiness of some
underlying asset.
Option contract is a Zero Sum Game before commissions and other transaction costs.
Option Risks:
Delta: The sensitivity of option value to a unit change in the underlying asset (hedge
ratio).
Gamma: The responsiveness of delta to unit changes in the value of the underlying
assets.
Theta: The sensitivity of option value to change in time.
Vage: The sensitivity of option value to change in volatility.
Rho: The sensitivity of option value to change in interest rate.
Options Strategies:
There are 4 types of strategy under option strategy in derivative market, they are:
Bull strategy
Bear strategy
Volatility strategy
Neutral Strategy
Bull Strategy:
Bull strategy consists of 6 different strategies they are:
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Bull Call Spread
Bull Put Spread
Cash Secured Short Put
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Covered Call Buy Write
Long Call
Protective or Married put
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Bear Strategy:
There are 3 different types of strategies are there, they are:
Bear Call Spread
Bear Put Spread
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Long Put
Volatility Strategy:
There are 4 different types of strategies are there, they are:
Call Back spread
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Long Straddles
Long strangle
Put Back Spread
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Neutral Strategy:
In neutral there are 7 different types of strategies are there they are:
Calendar Spread
Collar
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Convered Combination Strangle
Iron Condor
Long call butterfly
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Short Straddle
Short Strangle
Conclusion:
These are the 4 types of strategies in option market under derivative segment. And the 5 types of
risk used in call or put a particular stock at strike price. To calculate the option risk on each
security listed in NYSE and BSE option calculator is available online at www.obeo.com