Analytical Applications of Options Trading

Authors

  • Muhammad Asif Ehsan School of Government and International Affairs, Durham University, UK

DOI:

https://doi.org/10.53555/bma.v3i4.1723

Keywords:

Options, call options, put options

Abstract

An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price for a specified period of time. Options are the most versatile and unique financial instruments as they are available on a large variety of underlying assets like common stock, currencies, debt instruments, interest rates and so on. Options on stock indices and futures contracts, wherein the underlying asset is a futures contract, are also traded on organized options exchanges. The paper notes that the main disadvantage of over-thecounter market is that the option writer (seller) may default. It means that the buyer is subject to credit risk. In order to overcome this problem, market participants adopt a number of measures such as calling for some collateral from the counterparties. Although the market participants are free to trade in options using their own requirements, standard terms and conditions for OTC options and guidelines for trading practices are governed by International Currency Options Market (ICOM) or International Swap Dealers Association Incorporation (ISDA).

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References

Apte, P.G. (2007). International Financial Management. Tata McGraw-Hill Publishing Company Limited, New Delhi

Click, R.W. & Coval, J.D. (2004). The Theory and Practice of International Financial Management. Prentice-Hall of India Private Limited, New Delhi Gupta, S.L. (2006). Financial Derivatives: Theory, Concepts and Problems. PrenticeHall of India Private Limited, New Delhi

Hull, J.C. (2005). Introduction to Futures and Options Markets. Prentice-Hall of India Private Limited, New Delhi

Hull, J.C. (2007). Options, Futures and Other Derivatives. Prentice-Hall of India Private Limited, New Delhi

Saunders, A. & Cornett, M.M. (2007). Financial Markets and Institutions. Tata McGraw-Hill Publishing Company Limited, New Delhi

Smullen, J. & Hand, N. (eds.) (2005). Oxford Dictionary of Finance and Banking. Oxford University Press Strong, R.A. (2006). Derivatives: An Introduction. Eastern Press Pvt. Limited, Bangalore

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Published

2018-07-31

How to Cite

Ehsan, M. A. . (2018). Analytical Applications of Options Trading. International Journal For Research In Business, Management And Accounting, 3(4), 33–37. https://doi.org/10.53555/bma.v3i4.1723

Issue

Vol. 3 No. 4 (2018): International Journal For Research In Business, Management And Accounting

Section

Articles

License

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