Sign in Subscribe

Topic

derivatives

A collection of 23 issues

What Is a Basis Swap in Interest-Rate Markets?

Introduction In the world of fixed-income trading and corporate treasury management, interest-rate derivatives are indispensable tools for shaping cash-flow profiles and managing exposure to market volatility. Among these instruments, the basis swap plays a specialized but crucial role. While plain-vanilla interest-rate swaps exchange a fixed rate for a floating rate,

What Is a Put Option? Definition, Examples & Benefits

Introduction to Put Options A put option is a financial contract that gives the buyer the right, but not the obligation, to sell an underlying asset at a predetermined strike price before or on a specified expiration date. In options trading, puts are popular for hedging and for profiting from

Out-Of-The-Money Option: A Comprehensive Guide

What Is an Out-Of-The-Money Option? An out-of-the-money (OTM) option is a call or put contract whose strike price is unfavorable compared with the current market price of the underlying asset. For a call, the strike lies above today’s spot price; for a put, the strike sits below it. Because

What Is Open Interest and Why It Matters in Trading

Understanding Open Interest Open interest is the total number of outstanding derivative contracts—such as futures or options—that have not been settled. Unlike volume, which resets daily, open interest is cumulative, updating when new contracts are opened or old ones are closed. This metric offers deep insight into market

What Is Notional Amount? Definition, Importance & Examples

Understanding Notional Amount In derivatives trading, the term “notional amount” refers to the total face value used to calculate payments on instruments such as interest-rate swaps, currency forwards, options, and futures. Unlike principal in traditional loans, it usually never changes hands, but it anchors all cash-flow calculations. Real-World Illustration For

Understanding Non-Deliverable Forwards (NDFs): A Complete Guide

What is a Non-Deliverable Forward? A Non-Deliverable Forward (NDF) is a cash-settled, short-term forward contract on a foreign currency that is restricted or illiquid in the international market. Instead of exchanging the notional amounts at maturity, the two parties settle the difference between the agreed forward rate and the prevailing

Understanding Naked Option Strategies: Risks & Rewards

Definition of a Naked Option A naked option, also called an uncovered option, is an options contract sold without owning the underlying asset or holding an offsetting position. Because the writer lacks collateral, potential losses can be theoretically unlimited if the market moves sharply against the position. Naked Call Explained

What Is a Listed Option? Definition, Benefits & Trading Guide

Introduction to Listed Options A listed option is a standardized contract traded on a regulated exchange, such as the Chicago Board Options Exchange (CBOE), that grants the buyer the right—but not the obligation—to buy or sell an underlying asset at a fixed strike price before a specified expiration

Understanding the Knock-Out Option in Financial Derivatives

Introduction A knock-out option is a type of barrier option in which the contract automatically expires worthless once the underlying asset reaches a pre-specified price level, known as the knock-out barrier. Popular with traders who want limited premium costs, this exotic derivative provides structured exposure to markets while embedding a

Understanding Knock-In Options: Definition, Types, and Trading Strategies

What Is a Knock-In Option? A knock-in option is a type of barrier option that only comes into existence if the underlying asset’s price reaches a pre-specified level, known as the knock-in barrier. This structure allows traders to obtain contingent exposure while reducing upfront option premiums. Because the contract