Financial call option. A call option is a derivative that consists of the right, but not the obligation, to buy a certain amount of the underlying instrument at a given price, the strike price, on or before a certain time. Here the 'underlying instrument' means a security such as a bond or a share, a commodity, or sometimes another derivative or financial.

Financial call option

Investopedia Video: Call Option Basics

Financial call option. A call option gives the holder the right, but not the obligation, to purchase shares of a particular underlying stock at a specified strike price on the option's expiration date. How it works (Example). Options are derivative instruments, meaning that their prices are derived from the price of another security. More specifically.

Financial call option


Never miss a great news story! Get instant notifications from Economic Times Allow Not now. Call option is a derivative contract between two parties. The buyer of the call option earns a right it is not an obligation to exercise his option to buy a particular asset from the call option seller for a stipulated period of time. Once the buyer exercises his option before the expiration date , the seller has no other choice than to sell the asset at the strike price at which it was originally agreed.

The buyer expects the price to increase and thus earns capital profits. Initial public offering is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.

Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public w.

It is a place where shares of pubic listed companies are traded. The primary market is where companies float shares to the general public in an initial public offering IPO to raise capital. Once new securities have been sold in the primary market, they are traded in the secondary market—where one investor buys shares from another investor at the prevailing market price or at whatev.

Management buyout MBO is a type of acquisition where a group led by people in the current management of a company buy out majority of the shares from existing shareholders and take control of the company.

For example, company ABC is a listed entity where the management has a 25 per cent holding while the remaining portion is floated among public shareholders. In the case of an MBO, the current. A 'trend' in financial markets can be defined as a direction in which the market moves. A bullish trend for a certain period of time indicates recovery of an economy. Stop-loss can be defined as an advance order to sell an asset when it reaches a particular price point.

It is used to limit loss or gain in a trade. The concept can be used for short-term as well as long-term trading. Stop-loss is also known as 'stop order' or 'stop-market order'. The Return On Equity ratio essentially measures the rate of return that the owners of common stock of a company receive on their shareholdings.

Return on equity signifies how good the company is in generating returns on the investment it received from its shareholders. The denominator is essentially the d. It is a temporary rally in the price of a security or an index after a major correction or downward trend. The term is borrowed from a phrase, which says "even a dead cat will bounce if dropped from a height.

The Iron Butterfly Option strategy, also called Ironfly, is a combination of four different kinds of option contracts, which together make one bull Call spread and bear Put spread. Together these spreads make a range to earn some profit with limited loss.

Ironfly belongs to the 'wingspread' options strategy group, which is defined as a limited risk strategy with potential to earn limited profit. Hedge fund is a private investment partnership and funds pool that uses varied and complex proprietary strategies and invests or trades in complex products, including listed and unlisted derivatives. Put simply, a hedge fund is a pool of money that takes both short and long positions, buys and sells equities, initiates arbitrage, and trades bonds, currencies, convertible securities, commodities a.

The loan can then be used for making purchases like real estate or personal items like cars. The only thing that this loan cannot be used for is making further security purchases or using the same for depositing of margin. In order to raise cash f. Choose your reason below and click on the Report button.

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Butterfly Spread Option Definition: Butterfly Spread Option, also called butterfly option, is a neutral option strategy that has limited risk. The option strategy involves a combination of various bull spreads and bear spreads. A holder combines four option contracts having the same expiry date at three strike price points, which can create a perfect range of prices and make some profit for the holder.

A trader buys two option contracts — one at a higher strike price and one at a lower strike price and sells two option contracts at a strike price in between, wherein the difference between the high and low strike prices is equal to the middle strike price.

Both Calls and Puts can be used for a butterfly spread. Any butterfly option strategy involves the following: That allows the trader to earn a certain amount of profit with limited risk. In this strategy, either you go for Calls or Puts or a combination of both.

In the same way, you either go long or short on options or a combination of longs and shorts depending on what you are foreseeing in future and what is your payoff strategy. Suppose, a trader is expecting some bullishness in Reliance Industries, when it trades at Rs 1, Now, a trader enters a long butterfly bull spread option by buying one lot each of December expiry Call options at strike prices Rs and Rs 1, at values of The cost to the trader at this point would be 3.

If the strategy fails, this will be the maximum possible loss for the trader. If the Reliance Industries stock trades at the same level i. Rs 1, on the expiry date in December end, the Call option at the higher strike price will expire worthless as out-of-the-money strike price is more than the trading price , while the Call option at the lower strike price will be in-the-money strike price is less than trading price and the two at-the-money Call options that had been sold expired worthless.

Now subtracting the initial cost of Rs 3. But if the trader decides to exit this strategy before expiry, say, when the Reliance Industries stock is trading around Rs in cash market, and the Call options are trading at 40 Rs , 5 Rs and 0. Call Option — There are various risks to this strategy, which include: The maximum profitability will be when the cash price is equal to the middle strike price on the expiry day.

The breakeven points for this strategy are: The maximum profit will be when the cash price is beyond the range of lower and higher strike prices on the expiry day. The breakeven points of this strategy are: Capital Protection Fund Definition: Capital protection-oriented fund is a class of closed-end hybrid fund. The capital protection, however, is not guaranteed in India. Capital protection-oriented funds are closed-end mutual fund schemes with a portfolio that is skewed towards debt.

Because it is closed-end, fresh units of the scheme will be available for subscription only during the new fund offer NFO period. Subsequent purchase and sale of units is possible only on the exchange platform, where the fund is listed.

However, this is easier said than done, as secondary market transaction can often become a Herculean task in the absence of sufficient liquidity. The portfolio comprises of a mix of equity and debt, typically of the nature of a hybrid fund. However, it is heavily oriented towards debt especially zero coupon debt and only a small part of the portfolio is invested in equity.

The maturity of the debt portfolio is aligned with the lock-in period of the fund, thereby insulating it from the gyrations of interest rate movements.

As debt instruments are held till maturity, the probability of marked-to-market losses due to interest rate fluctuations is mitigated. The capital protection orientation of the fund means that the debt component will be managed in such a manner that the returns from it increase to the level of initial capital invested.

At the same time, the equity portion of the portfolio is managed with the aim to provide a fillip to the overall portfolio value. For instance, if the minimum debt exposure is fixed at 80 per cent, then this is managed to generate per cent of the principal invested.

The remaining 20 per cent comprising equity is managed to generate an upside to the portfolio. The portfolio is normally invested in highest grade debt instruments. These funds provide superior downside risk protection during a market downturn but offer limited upside during market upturns.

They are suitable for conservative investors with a low risk appetite. These funds provide even the most conservative investors an opportunity to invest a small part of their portfolio in equity, thereby giving them the scope to participate in equity market upturns.

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