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β’ What is a derivative
β’ Various derivative products
β’ Participants in derivatives market
β’ Uses of derivative instruments
β’ Beta & hedge ratio
β’ Option Greeks
Time for a Thread π§΅
Curated in collaboration with @AdityaTodmal
β’ What is a derivative?
β’ Which assets can derive the value from its underlying
Various products in the derivatives world
β’ Forwards
β’ Futures
β’ Options
β’ Swaps
β’ Exchange Traded
β’ OTC
Participants in the Derivatives Markets
β’ Hedgers
β’ Traders/Speculators
β’ Arbitrageurs
How derivatives help the participants?
β’ Hedgers : To mitigate price risk
β’ Corporations: transfer risk to reduce their exposure
β’ Traders: willing to take the risk depending on their view
β’ Arbitrageurs: Exploit price difference in a product in two different markets
Derivatives market helps in improving in:
β’ Price Discovery
β’ Transferring risks
β’ Hedge exposures
Derivatives derives its value on:
β’ Underlying price
β’ Volatility of the underlying
β’ Riskiness of the underlying
β’ Interest rate/cost of funding
The Payout in derivatives is dependent :
β’ if the underlying starts to trade above/below a certain price
β’ or based on an event eg. corporate bond default
What is Price Risk & its sub-types:
β’ Unsystematic Risk
β’ Systematic Risk
β’ Unsystematic Risk : Diversifiable by taking exposure in different sector
β’ Systematic Risk: Market risk, and cant be diversified
Derivatives helps in managing various types of risk:
β’ Price Risk
β’ Interest Rate Risk
β’ Credit Risk
What is Beta?
β’Sensitivity of a scrip/portfolio vis-a-vis index movement
β’ Beta >1 qualifies for aggressive portfolio & vice-versa
How Beta of the portfolio can be utilized to hedge a portfolio?
Hedge Ratio:
β’ Helps to determine the quantity of the index contract to hedge the portfolio
Who are arbitrageurs
β’ How they make profits?
β’ Role of arbitrageurs in the market
Types of Options:
β’ Call Option
β’ Put Option
Terminologies in Options
β’ ITM Option
β’ ATM Option
β’ OTM Option
Option Greeks
β’ Delta
β’ Gamma
β’ Theta
β’ Vega
β’ Rho
Delta & Gamma explained with help of an example
Theta : Friend of Option Writers
Vega: Increase in volatility leads to increase in premiums & vice-versa
Rho: Sensitivity of the option wrt change in the interest rates
⒠This was an introductory 𧡠on derivatives
β’ Ref Source: NISM Equity Derivative module, and other open source over the internet
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β’ Retweet the first tweet and help others find this π§΅
β’ Happy learning π€ to everyone!
β’ I curate threads on trading & financeπππ
β’ You can check out other threads π on my profile πβοΈ
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Have & happy & a safe π· weekend!
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