Options or financial derivatives market. presentation

An organized market in which options on standardized underlying assets are traded, granting the holder of the contract the right to exercise the purchase or sale of a specific security, at a specific price and for a specified period.

market-of-options-or-financial-derivatives-presentation

Derivatives

Financial instruments (options and futures) whose price value is derived from the price of another asset called the underlying.

The objective of derivatives is to transfer the risk of the underlying.

The difference between options and futures is that they do not present symmetrical risks and rewards; because the buyer of an option retains all the potential benefits but the profit is always reduced by the amount of the option price.

In short, the most that the buyer of a potion can lose is the price of the option.

The options allow us to shape the risk to our liking or to the estimate that we have of the market.

Bearish strategies: They are used when we consider that the market will have strong oscillations, since if we buy a hedge PUT, we will need the shares to rise strongly to offset the cost of the PUT. Likewise, the PUT protects us from unlimited falls, then we will use this strategy, when we consider a very VOLATILE market in which the rise or fall of prices will be very marked.

On the other hand, the purchase of shares combined with the purchase of a PUT, means unlimited profits upwards and losses limited to the premium paid, if the market goes down, that is called "CALL", that is, if we consider that the market It can go up a lot, but we want our loss to be limited to the premium paid for the option, we must buy a CALL option and thus we will save the commissions for the shares, and we will also invest less money than buying shares, being able to place that money in paid liquidity and ready to launch into another business.

Underlying asset: it is the asset that is the object of the contract.

Exercise price - Strike: is the price at which the underlying asset could be bought or sold, which exercises the right granted by the contract to the buyer of the same.

Expiration Date - Maturity: is the day the option expires.

Inside the money - in the money:

Put in the money: it is the exercise price of the option that is above the price of the underlying asset.

Call in the money: is the price of the option exercise that is below the price of the underlying asset.

Amount required by MEFF to cover all the risks that this institution assumes for each contract it signs with a client.

MEFF: Derivatives Market

It is that a party to an option contract is not required to trade at a later date. Why?

In the futures contract both parties are obliged to perform the contract.

And in options, the writer of the option (seller) has the obligation to carry it out, if the buyer of the option insists on exercising it.

Binary options can be traded on almost all types of assets, the most popular being:

Stocks (Apple, Microsoft, BBVA, etc.)

Stock market indices (Nasdaq, Dow Jones, IBEX, etc.)