Financial Daily from THE HINDU group of publications
Sunday, Aug 01, 2004
Financial Daily from THE HINDU group of publications Sunday, Aug 01, 2004 |
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Investment World
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Derivatives Markets Markets - Derivatives Markets Options: Uses and benefits
Who can write the options in the Indian Derivatives market? In the Indian Derivatives market, SEBI has not created any particular category of options writers. Any market participant can write options. However, the margin requirements are stringent for options writers. What are Stock Index options? Stock Index options are options where the underlying asset is a Stock Index for e.g. Options on S&P 500 Index/Options on the BSE Sensex etc. Index options were first introduced by the Chicago Board of Options Exchange in 1983 on its Index `S&P 100'. As opposed to options on individual stocks, index options gives an investor the right to buy or sell the value of an index, which represents group of stocks. What are the uses of Index options? Index options enable investors to gain exposure to a broad market, with one trading decision and frequently with one transaction. To obtain the same level of diversification using individual stocks or individual equity options, numerous decisions and trades would be necessary. Since, broad exposure can be gained with one trade, transaction cost is also reduced by using the Index options. As a percentage of the underlying value, premiums of index options are usually lower than those of equity options as equity options are more volatile than the index. What are options on individual stocks? Options contracts where the underlying asset is an equity stock are termed as options on stocks. They are mostly American style options cash settled or settled by physical delivery. Prices are normally quoted in terms of the premium per share, although each contract is invariably for a larger number of shares, e.g. 100. Source: www.bseindia.com
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