Page 236 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 8: Derivatives

Notes
Pay-off from Put Buying/Long ( )
S X t p Payoff Net Profit
55 60 2 5 3
56 60 2 4 2
57 60 2 3 1
58 60 2 2 0
59 60 2 1 -1
60 60 2 0 -2
61 60 2 0 -2
62 60 2 0 -2
63 60 2 0 -2
64 60 2 0 -2

The pay-off for the put buyer is: max (X – S, 0)
t
The pay-off for a put writer is: -max (X – S, 0) or min (S – X , 0)
t t

These are the two basic options that form the whole gamut of transactions in the options trading.
These in combination with other derivatives create a whole world of instruments to choose
from depending on the kind of requirement and the kind of market expectations.

Case Study Jensen Works it out for Helios

elios Group, having its base in Chicago, USA and London, UK, was a client of
Jensen Technologies LLC which provided high quality financial services custom
Hsoftware to the former. Helios Group was interested in adding more functionality
and features to their existing trading platform, as well as expanding its connectivity
options. Moreover, Helios needed someone to continuously improve the performance of
the system without sacrificing quality or affordability.
Jensen Technologies developed several applications for the client's customized futures
and options trading platform. This trading system was designed to execute trades across a
variety of options and futures exchanges, worldwide, in real time. The company developed
a wide variety of applications including a front-end trader's GUI for the Quote Application
that allows a trader to see the list of current quote requests sorted by exchange. It also
provides estimated quote values based on theoretical values and other parameters.
Contd...

LOVELY PROFESSIONAL UNIVERSITY 231