The concept of underlying and derivatives can be easily understood through examples. Let’s take the example of an apple. The apple itself is the underlying, possessing its own value. If we derive apple juice from it, the juice becomes the derivative. Similarly, wheat is an underlying, and when we make rotis, tortillas, or croissants from…
Securities and Exchange Board of India, SEBI 50 50 rule has generated considerable interest among option sellers in India. This rule mandates that when paying margin money to the exchange, option sellers must allocate a maximum of 50% through collateral and a minimum of 50% as a cash component. In this blog post, we will…
Margins are required by the exchange and/or broker to maintain the position based on several factors. Traders shall ensure to have sufficient funds in their trading account to cover potential losses from the positions. Failure to maintain adequate margin may result in a margin call, which could require the trader to deposit additional funds or…
Option premium of a contract on Exchanges like NSE, BSE is similar to approaching a landowner to buy a piece of land with a small amount paid him upfront. Example of Option Premium Let’s say you want to buy a piece of land that you really like, but you don’t have all the money to…
Option prices are determined by current market price of the underlying asset, the strike price of the option, the time remaining until the option expiration date, and the expected volatility of the underlying asset. Option pricing in the derivative market is determined by various factors, including the current market price of the underlying asset, the…
Futures and Options differ from each other with respect to the “obligation” to buy or sell something at a certain price on a specific date in the future. Read more… How Futures and Options work Imagine you have a cricket bat that you really like and you want to make sure you can buy it…