Explanation:

The amount one needs to deposit in the margin account at the time entering a futures contract is known as the initial margin.

Explanation:

Long Strangle As in case of straddle, the outlook here (for the long strangle position) is that the market will move substantially in either direction, but while in straddle, both options have same strike price, in case of a strangle, the strikes are different. Also, both the options (call and put) in this case are out-of-the-money and hence the premium paid is low.

Explanation:

A stock index contains a basket of high market cap stocks. So its very difficult to manipulate it when compared to individual stocks.

Explanation:

Payment of Initial Margin by a broker cannot be netted against two or more clients. So he will have to pay the margin for the open position of each of his clients.

So margin payable for Mr. Raj is : 10 x 5200 x 50 at 10% = Rs 2,60,000

Margin payable for Mr. Rahul is : 5 x 5250 x 50 at 10% = Rs 1,31,250

Total = Rs 3,91,250.

Explanation:

Clearing member is required to provide liquid assets to cover various margins and liquid networth requirements. The total liquid assets comprise of at least 50% of the cash component and the rest is non cash component.

1. Cash Component:

• Cash

• Bank fixed deposits (FDRs) issued by approved banks and deposited with approved custodians or Clearing Corporation.

• Bank Guarantees (BGs) in favour of clearing corporation from approved banks in the specified format.

• Units of money market mutual fund and Gilt funds where applicable haircut is 10%.

• Government Securities and T-Bills

2. Non Cash Component:

• Liquid (Group I) Equity Shares as per Capital Market Segment which are in demat form, as specified by clearing corporation from time to time deposited with approved custodians.

• Mutual fund units other than those listed under cash component decided by clearing corporation from time to time deposited with approved custodians.

Explanation:

Option Premium is the price which the option buyer pays to the option seller.

Explanation:

Contract month is the month in which futures contract expires.

At the expiry of the nearest month contract, a new contract with 3 months maturity will start. Thus, at any point of time, there will be 3 contracts available for trading.

Explanation:

A Trading Member can also be a Clearing Member by meeting additional requirements.

Explanation:

The minimum price movement in a scrip is called TICK. It is minimum move allowed in the price quotations. Exchanges decide the tick sizes on traded contracts as part of contract specification.

The difference between the spot price and the futures price is called basis.

Explanation:

Basis means the difference between Spot Price and Future Price or difference between two future price of the same underlying.

Basis risk is the chance that the basis will have strengthened or weakened from the time the hedge is implemented to the time when the hedge is removed – ie. the risk that the two future prices will not fluctuate identically.

Explanation:

Specific risk or unsystematic risk is the component of price risk that is unique to particular events of the company and/or industry. This risk is inseparable from investing in the securities. This risk could be reduced to a certain extent by diversifying the portfolio.

Explanation:

An exchange traded option can only be traded till the last date of expiry ie. its maturity. After that it will not be available for trading.

For eg – If 27th June is the last Thursday of the month ie. the maturity, all options of June month will cease to exist as soon as the market closes on 27th June.

Explanation:

The Option premium is collected by the exchange but is given to the seller of option.

Explanation:

An In the money (ITM) option would give holder a positive cash flow, if it were exercised immediately.

A call option is said to be ITM, when spot price is higher than strike price. And, a put option is said to be ITM when spot price is lower than strike price. In our examples, call option is in the money

Explanation:

When you buy a CALL option, to close this position you will have to sell a CALL option of same strike price and expiry.

Explanation:

Margin to be collected from Mr Shah : Rs 740 X 8 contracts X 250 (Market lot) at 6%

= Rs 1480000 x 6% = Rs 88,800

Margin to be collected from Mr Patel : Rs 754 X 5 contracts X 250 (Market lot) at 6%

= Rs 942500 x 6% = Rs 56,550

So the total margin : 88,800 + 56,550 = Rs 145350

Explanation:

A call option is a financial instrument that gives the buyer the right, but not an obligation, to buy a set quantity of a security at a set strike price at some time on or before expiration.

In easy terms – what ever may be the market price, the buyer will get the security at the set price or strike price as he has paid a premium for it.

Explanation:

Out of the Money Option – A call option with a strike price that is higher than the market price of the underlying asset, or a put option with a strike price that is lower than the market price of the underlying asset. An out of the money option has no intrinsic value, but only possesses time value.

As in the above example, LKK is trading at Rs 300. For such a stock, call options with strike prices above Rs 300 would be out of the money calls, while put options with strike prices below Rs 300 would be out of the money puts. Out of the money options are significantly cheaper than in the money or at the money options.

Explanation:

All modern stock exchanges have highly developed online surveillance sytems to monitor the volumes / position and prices of all listed products and also check any unusual activity etc. in them.

Explanation:

Professional clearing member clears the trades of his associate Trading Member and institutional clients. He need not be a member of an exchange.