FD Terms
FD Terms
Open Interest
Open Interest refers to the total number of outstanding derivative contracts, such as
futures or options, that have not been settled or closed by the end of a trading day.
2. Mark-to Market
3. In-the-Money (ITM):
A call option is ITM when the stock price is above the strike price.
A put option is ITM when the stock price is below the strike price.
Example: If a call option's strike price is ₹100 and the stock trades at ₹120, it's ITM.
4. Out-of-the-Money (OTM):
A call option is OTM when the stock price is below the strike price.
A put option is OTM when the stock price is above the strike price.
Example: If a call option's strike price is ₹150 and the stock trades at ₹120, it's OTM.
5. At-the-Money (ATM):
When the stock price is approximately equal to the strike price.
Example: If a strike price is ₹120 and the stock trades at ₹120, it's ATM.
6. Delta (Δ):
▪ Measures the rate of change of the option's price concerning changes in the price of
the underlying asset.
▪ For call options, Delta ranges from 0 to 1, and for put options, Delta ranges from -1
to 0.
▪ Example: A Delta of 0.5 means the option price will increase by ₹0.50 for every ₹1
increase in the underlying asset's price.
7. Gamma (Γ):
▪ Measures the rate of change of Delta as the underlying asset's price changes.
▪ Indicates the curvature or sensitivity of Delta to price changes.
▪ Higher Gamma implies greater fluctuations in Delta, especially for ATM options
nearing expiry.
8. Market Order:
▪ Executes the trade immediately at the current market price.
▪ Example: Buying or selling a stock at its prevailing price.
9. Limit Order:
▪ Sets a specific price at which the trade should be executed.
▪ Example: Buying a stock only if the price falls to ₹100 or below.
10.Stop Order (Stop-Loss):
▪ Executes a trade when the price reaches a specified level, to limit losses or protect
profits.
▪ Example: Selling a stock if it falls below ₹90.
11.Stop-Limit Order:
Combines a stop order with a limit order, executing at a specified limit price after the
stop price is triggered.
12.Types of risk
Market Risk:
• The risk of losses due to changes in market prices, such as stock prices, interest rates, or
exchange rates.
Credit Risk:
• The risk that a borrower or counterparty will fail to meet their financial obligations.
Operational Risk:
• Risks arising from failures in internal processes, systems, human errors, or external
events.
Liquidity Risk:
• The risk of not being able to buy or sell assets quickly without affecting their market
price.
Systemic Risk:
• The risk of collapse in an entire financial system or market due to interconnections
between institutions.
The Butterfly Strategy is an options trading strategy that aims to profit from low
volatility in the underlying asset's price. It involves using three strike prices and a
combination of buying and selling options to create a limited risk and reward profile.
15.Commodity forward
Interest Rate Futures are standardized financial contracts traded on exchanges, where
participants agree to buy or sell a debt instrument at a specified price on a future date.
These contracts are used to hedge or speculate on changes in interest rates.
A Bull Spread is an options trading strategy used when a trader expects a moderate rise
in the price of the underlying asset.
18.Arbitrage
A Put Buy Position is an options strategy where a trader purchases a put option to profit
from a potential decline in the price of the underlying asset.
A trading strategy involving buying an asset in the cash market and simultaneously selling it in the
futures market to lock in a risk-free profit from price differences.
Intrinsic value refers to the difference between an option's strike price and the underlying asset's price.
Time value is the premium paid above intrinsic value due to the time left until expiration.
23. Theta:
The rate at which an option's value declines over time, assuming all other factors remain constant,
commonly known as time decay.
A customized, over-the-counter agreement between two parties to buy or sell an asset at a specified
price on a future date.
The smallest increment by which the price of a financial instrument can move, affecting the granularity
of price changes.
The daily adjustment of an account to reflect current market values, ensuring that margin accounts
maintain adequate collateral.
A covered position involves holding an asset while selling a related option. A spread involves holding
both a long and short position in related options to limit risk.
The current bid or offer price of a financial instrument, representing the most recent market price
available.
29. Option:
A financial contract giving the buyer the right, but not the obligation, to buy or sell an asset at a
specified price within a certain time period.
30. Swaps:
Derivative contracts where two parties exchange cash flows or financial instruments, commonly used
for interest rate or currency risk management.
31. Forward:
A non-standardized contract between two parties to buy or sell an asset at a predetermined future date
and price.