IF Topic 1

One party buys from the other party the right to buy (or sell) something in the future at the price agreed today: the option seller (writer) has commitment to deliver if called on to do so

• - a call is the right to buy an underlying asset
• -a put is the right to sell an underlying asset
• -an AMerican option can be exercised at any time prior to its expirary dates
• -a European options can be exercised at expirary

• A commitment agreed to privately by two
• parties to buy and sell something on a stated future date at a price agreed
• today.

• A forward has two parties: a seller who
• agrees to deliver a set quantity on a given date at a fixed price and a buyer
• who agrees to take delivery

• Like a forward contract, a futures contract
• is a commitment; unlike a forward contract, a futures
• contract is designed by, and traded on, an organised exchange.

• Examples: interest rate futures, currency futures, share
• price index futures, commodity futures

• Futures contracts are standardised, specifying:
• - the contract unit (e.g. the share price index)
• - delivery months (commonly four per calendar year,
• e.g. March, June, September and December) for when each contract matures
• -quotation
• -delivery details (usually cash settlement)
• - Futures in the FX market are far less important than forwards and options