Page 150 - DCOM510_FINANCIAL_DERIVATIVES

Unit 9: Trading Futures and Option

Notes

Notes Unmatched portion of the order is cancelled immediately.
2. Price condition:
(a) Stop-loss: This facility allows the user to release an order into the system, after the
market price of the security reaches or crosses a threshold price.

Example: If for stop-loss buy order, the trigger is 1027.00, the limit price is 1030.00
and the market (last traded) price is 1023.00, then this order is released into the system
once the market price reaches or exceeds 1027.00. This order is added to the regular lot
book with time of triggering as the time stamp, as a limit order of 1030.00. For the stop-
loss sell order, the trigger price has to be greater than the limit price.
3. Other conditions:
(a) Market price: Market orders are orders for which no price is specified at the time the
order is entered (i.e. price is market price). For such orders, the system determines
the price.
(b) Trigger price: Price at which an order gets triggered from the stop-loss book.

(c) Limit price: Price of the orders after triggering from stop-loss book.
(d) Pro: Pro means that the orders are entered on the trading member’s own account.
(e) Cli: Cli means that the trading member enters the orders on behalf of a client.

Self Assessment

Fill in the blanks:
14. A ……………………….is an order which is valid for the day on which it is entered.

15. ………………………is the price at which an order gets triggered from the stop-loss book.



Case Study Trading in Reliance Industries Ltd. (RIL)

he Reliance Group is India’s largest private sector enterprise, with businesses in the
energy and materials value chain. Group’s annual revenues are in excess of US$ 66
Tbillion. The flagship company, Reliance Industries Limited, is a Fortune Global 500
company and is the largest private sector company in India. RIL is trading at ` 720 levels,
Mr. X are bullish in the long term, but wants to hedge himself from the fall in cash strategy
goes wrong. He will buy 250 shares of RIL from the cash market @ ` 720 and buy 1700 Put
Option @ ` 10 as premium. The lot size of RIL is 250.
Question:
Find out the net investment and net profit/net loss in the following case:
Case 1: If RIL dips to ` 690
Case 2: If RIL closes at ` 720

Case 3: If RIL rises up to ` 750
Source: http://www.mydaytradingtutor.com/currency-trading-examples.htm

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