Derivatives emerged to help farmers and traders manage risks and have since become important risk management tools. The derivatives market in India has grown significantly since liberalization in the 1990s. Derivatives allow participants to hedge risks, speculate, and engage in arbitrage. Common derivatives contracts include forwards, futures, options, and swaps. Traders use various strategies like spreads and straddles to limit risks and maximize returns based on their market outlook. While still growing, India's derivatives market is becoming a major global exchange.

1. DERIVATIVES A product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index or reference rate ), in a contractual manner. The underlying asset can be equity ,forex commodity or any other asset.

3. In 1650- Yodoya rice market in Osaka, Japan.

4. In 1848, CBOT is formed.

6. Instrument got Momentum after the liberalization process of RBI in 1991

7. In July 1999, Derivatives trading commenced in India

8. Exchange Traded Derivatives introduced in June 2000 in NSE & BSE

10. Providing economic agents a wider choice of risk management strategies.

12. Speculation

13. High Leverage

14. Arbitrage

16. Speculators

20. (b) Put option – a right to sell an asset at a predetermined price on or before a specific date If asset price is lower than the strike price Option is In The Money If asset price is exactly at the strike price Option is At The Money If asset price is higher than the strike price Option is Out Of The Money

22. Spot price

23. Initial Margin

24. Maintenance margin

26. Option Buyer - One who buys the option. He has the right to exercise the option but no obligation.

27. American Option - An option which can be exercised anytime on or before the expiry date.

28. European Option - An option which can be exercised only on expiry date.

29. Strike Price/ Exercise Price - Price at which the option is to be exercised.

30. Expiration Date - Date on which the option expires.

33. Risk is Low & confined to Spread. Return is also limited. While Trading try to minimize the Spread.

34. BULL PUT SPREAD For Investors who are bullish but at the same time conservative Write a PUT Option with a higher Strike Price and Buy a Put Option with a lower Strike Price Reliance Spot Price = Rs.270Premium on Rs. 270 PA = Rs.12Premium on Rs. 250 PA = Rs. 3Sell Rs.270 PA and Buy Rs.250 PANet Inflow = Rs. 9

36. BEAR CALL SPREAD Low Risk Low Reward Strategy Sell a Call Option with a Lower Strike Price and Buying a Call Option with a Higher Strike Price RelianceSpot Price = Rs.270 Premium on Rs. 290 CA = Rs. 5 Premium on Rs. 270 CA = Rs. 12 Sell Rs.270 CA and Buy Rs.290 CA Net Inflow = Rs. 7 Stock Price at Expiration Net Profit/ Loss 230 + 7 (Both Options expire worthless ) 250 + 7 (Both Options expire worthless ) 270 + 7 ((Both Options expire worthless) 300 - 13 (-30+10+7) 350 - 13 ( -80+60+7) Maximum Possible Profit = Rs.7 & Loss = Rs.13 Limited Upside & Downside

38. STRANGLE Long Strangle Buying a Strangle is simultaneous purchase of Out of Money CALL & PUT option for a Stock, with same expiration date. Satyam Computers Spot Price = Rs. 250 Premium on Rs. 270 CA = Rs. 5 Premium on Rs. 230 PA = Rs. 5 BUY Rs. 270 CA and Rs. 230 PA Total Premium Paid = Rs. 10 You Start making profits if Price goes above Rs. 280 or goes below Rs. 220

40. SHORT STRANGLE SELL OUT OF MONEY CALL & PUT OPTIONS Reliance Spot Price = Rs.270 Premium on Rs. 250 PA= Rs.5 Premium on Rs. 290 CA = Rs.4 Sell Reliance Rs. 250 PA @ Rs.5 and sell Rs.290 CA @ Rs.4. Total Premium Received = Rs. 9 You start incurring a loss if price goes above Rs. 299 or drops below Rs. 241

42. Comparison of Global Derivates Market with Indian Market Top 5 exchanges by number of single stock futures contracts traded in 1st half of 2010

43. Top 5 exchanges by number of stock index options contracts traded in 1st half of 2010

44. Top 5 exchanges by number of stock index futures contracts traded in 1st half of 2010

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