Equity Derivatives: Foundations| Forwards| Futures| Options

Derivatives derive value from underlying assets and help hedge against risk. They apply to commodities, metals, energy, agriculture, and financial assets, with futures and options.

Trace the history of the derivative market from 1650 Osaka rice futures to modern futures and forwards, highlighting hedging, global integration, and technology-driven cost reduction.

Identify hedgers, traders, and arbitrageurs and compare OTC versus exchange-traded markets, noting how forwards and futures help manage risk.

Compare forwards and futures: forwards are OTC, highly customized with counterparty risk and limited liquidity, while futures are exchange-traded, standardized with margin, daily mark-to-market, and a clearing house ensures settlement.

Options give buyers the right to exercise and buy or sell an asset at a price with a premium; swaps like IRS and CDS illustrate price discovery and risk transfer.

Identify the five major risk types in derivatives: counterparty, price, liquidity, legal or regulatory, and operational risk, and see how hedging uses equity derivatives like futures and options.

Explore the meaning and significance of stock market indices as statistical indicators and benchmarks. Learn how market-cap, free float, price, and equal-weight indices are calculated and used as derivatives underlyings.

Explore how to construct a market capitalization weighted index by weighting stocks by market capitalization, calculated as market price times shares outstanding, and compare old and new portfolio values.

Derive market capitalization via weighting values, converting to percentages, and adjusting decimals to two places, then verify the weights sum to one.

Explore four major index types—market capitalization weighted, free float, price-weighted, and equal-weighted—and learn how weights are calculated from price and shares.

Explain impact cost as price degradation from large orders, measured against the ideal price, and illustrated with bid-ask spreads, market liquidity, and transaction costs.

Compare forwards and futures, detailing price fixation versus exchange trading with margins and standardization. Understand futures payoff, pricing, and the roles of speculators, hedgers, and arbitrageurs.

Explore futures terminologies by comparing spot and futures prices, contract cycles, expiry and rolling, and understand margin, mark-to-market, tick size, and contract size.

Explore open interest, long and short futures, forwards vs futures, opening and closing positions, and payoffs on futures charts.

Explore futures and options contract specifications across major exchanges. Identify corn contracts of 5000 bushels, price quotes in cents per bushel, tick size, and quarterly expiries.

Examine Euro Stoxx 50 index futures contract specifications, including cash settlement, contract value, tick size, nearest quarterly months, last trading day, and final settlement with example timelines.

Analyze futures payoff diagrams by mapping the underlying asset price to profit or loss at expiry, showing unlimited potential for long and short positions with linear payoffs.

Explore how long and short futures generate profits or losses as prices move to expiry, visualize payoffs on a chart, and learn cash-and-carry pricing and arbitrage concepts.

Explains cash-and-carry arbitrage: buy spot gold and sell three-month futures to lock in profits when mispricing exists, considering costs and liquidity.

Explains hedging portfolio market risk with index futures, defines beta, and guides calculating the perfect hedge ratio and required contracts using portfolio value, beta, and index level.

Learn hedging terms like long hedge, short hedge, and cross hedge. See how futures offset cash market risk using index futures, currency hedges, and commodity hedges.

Explore long and short positions in futures, calendar spreads, inter commodity spreads, naked positions, and arbitrage such as cash-and-carry and inter-exchange arbitrage.

Explain fair futures pricing with the cost of carry and continuous compounding, and demonstrate profitable cash-and-carry arbitrage using a stock and its futures example.

explore cash-and-carry and reverse cash-and-carry arbitrage in equity derivatives, analyzing profits and losses from stock and futures movements and the cost of carry.

Explore inter-market arbitrage by exploiting price differences in futures across exchanges, with a BSE–NSC example, and learn how futures enable quick, cost-efficient risk management and portfolio restructuring.

Explore the introduction to options, including call and put rights, long and short positions, payoff, pricing models, Greeks, and hedging uses with the underlying asset, strike price, and expiry.

Explore American and European options, their exercise rights on index, stock, and futures underlying assets, and how buyers pay the option premium while writers bear the obligation.

Explore option terms such as spot price, strike price, in the money versus out of the money, intrinsic value, time value, open interest, and American option exercise and assignment.

Explore CME contract specifications for corn options on futures, including weekly options and american options, lot sizes, tick sizes, trading hours, and expiry calendars, plus exercise and delivery mechanics.

Explore payoff charts for equity options, detailing long and short calls and puts, premiums, strike prices, exercise rights, assignment, and unlimited losses for writers.

The lecture explains long put and short put payoffs with strike 6200, premium, and break-even, highlighting asymmetric risk of options versus symmetric futures.

Learn to open and close option positions, including long and short strategies, leverage, and key pricing factors such as intrinsic value, time value, volatility, premium, and time to expiration.

Explore how interest rates affect option prices and compare binomial and Black-Scholes models, then analyze the Greeks: delta, gamma, theta, vega, and riho, and their impact on premiums.

Understand how options are used by comparing in-the-money, at-the-money, and out-of-the-money contracts, including premium components, intrinsic value and time value, and buyer versus seller dynamics.

Explore option contract specs, payoffs, pricing models, and Greeks like alpha, gamma, and theta, including call and put options, then learn how futures and options strategies adapt to market conditions.