[Options, futures and derivatives] Study Notes (options, forwards)

• Derivatives derivative
  of derivatives depends on the value of other assets, transfer of risk can be achieved, so as to achieve the purpose of hedging (hedge), or you can make speculation.
  Specifically, such as: Futures future, long-term forwards, swaps swaps, options options, exotic options exotics
• The underlying asset underlying asset
• Real option real option, can be used for asset valuation theory.
• Open outcry open outcry system

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OTC (over-the-counter, OTC) features:
non-Standard Products's, such as: forward contracts (forward contract), swaps (swaps);
Telephone Market;
some at Credit Risk, there is the risk of default ( under the transaction one of the very adverse circumstances, it might occur).
Traders can directly interact with corporate treasurers and banks.
More flexible.

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Exchange (Exchange, floor trading) features:
Standard Products's, such as: Futures (futures), options (Options);
Trading Floor (trading floor) or Computer Trading;
NO at Credit Risk (No Dealing default risk);

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Currently, OTC much larger than exchange-traded.
Long-term (forward)
forward contracts (forward contracts), at some point in the future to determine the price of the buy / sell contract assets;
worth noting that the prices here correspond delivery price.
In general, foreign exchange forward contracts are used for, house and so on.
In contrast, the recent contract (spot contracts), is to buy now / sell contract assets.

• Forward contracts Some concepts:
  a long position (long position): the buyer to buy the underlying asset of that party.
  Short position (short position): the seller, to sell the underlying asset of that party.
  Loss of long positions (the payoffs from the long position) = $S_{T}-K$ , which $S_{T}$Represents the market price of the underlying asset when the contract expiration date, $$

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Options

1. The buyer of a call option profit and loss analysis

Call option is - to buy something - right,

• 100 is to determine whether the contract point: If the market price does not exceed 100, then do not enforce the contract, and go shopping markets; if the market price is more than 100, then you can perform the contract (at most pay premium only), then consider resold market, may also make money.
• 105 is a break-even point of balance: the market price of more than 100 + 5, exercise the option to sell to buy after the market is profitable; otherwise it is a loss.
• As the call option buyer, when the loss is limited, but the profit it can be infinite.

2. The call option seller's profit and loss analysis

If the market price is lower than 100, then the buyer will not perform the contract,

• 105 is a profit and loss balance price,
  if the market price is 120, then the buyer will execute the contract, the seller (if out of stock, then they would have to buy from the market price of 120, and then fulfill the contract), the seller's loss 120-100- 5 = 15.
• If the market price is 103, then the seller still made a profit: the buyer will be asked to perform the contract, the buyer gains 103-100-5 = -2, so the seller will earn 2.
• Call option seller's revenue is limited (up to earn a premium), and unlimited time loss.

Put option buyer's profit and loss analysis

• Put option buyer, worried about what their own hands (hands may temporarily not stuff) would be devalued, so - spend $ 7 premium - bought put options - at a price of $ 70 may be to sell things to the counterparty (put option the seller).
• Put option buyer, if the losses, which is wasted premium, that is, not to enforce the contract (not sold to counterparties), that is, to sell to the market, because the market price is higher than 70. So, we put option buyer the loss is limited, and the benefits are unlimited.
• If the market price of 50, the put option buyer - 50 market price to buy things from the market - (the seller at a price of 70 things to sell put options) and then perform the contract, then the put option buyer made a 70-50-7 = 13.
• 63, profit and loss of balance. The market price of 63, this time put option buyer - to buy from the market - and then perform the contract (at a price of 70 to sell things to put option seller), then put option buyer gains 70-63-7 = 0.
• If the market price is $ 68 put option buyer's market price 68 yuan to buy something, then execute contracts to sell the 70 put option seller, this time put option buyer's income is 70-68-7 = -5
  .

Put option seller of profit and loss analysis

Put option seller, giving others sell to their own power.

• Put option seller - not only when the contract is executed - profit (earning premium), but the reason the contract will not be executed, because the put option buyer to sell the market saw more appropriate, therefore, at this time the market price is higher. So, put option seller - income is limited, and unlimited time loss.
• If 50 (price is lower than 70), the other party (put option buyer) will execute the contract, which means - put option seller - had to accept - others (put option buyer) 50 70 buy things but to sell themselves, is - put option seller - a loss.
• 63 is the breakeven point. If the market price of 63, put option buyer - at the price of 63 - to acquire something from the market - and then decide to enforce the contract, this time, the put option seller have to accept this single business. Put option buyer gains 70-63-7 = 0, no profit no loss, put option seller is break even.

summary:

A typical feature options trading are: Nondeliverable not happen, everyone (of both parties) can only pay the spread.

• [Options trading buyer's profit and loss analysis]
  • Limited loss: 0 <= loss <= premium
    call option: the market price is lower than the agreed price;
    a put: the market price is higher than the agreed price.
    Loss = premium
  • Profit potentially infinite:
    the call option: the market price is higher than the agreed price;
    a put: the market price is lower than the agreed price;
• [Options trading seller of profit and loss analysis]
  • Limited profit: 0 <= earnings <= premium
    • Call option: the market price is lower than the agreed price;
    • Put option: the market price is higher than the agreed price;
    • Premium earnings =
  • The risk of a potentially infinite
    • Call option: the market price is higher than the agreed price;
    • Put option: the market price is lower than the agreed price;