Derivatives: Futures and Options

Futures and options trading is fantastic as a risk reducing measure (hedging), but may not be equally fantastic as a speculative bet, especially when you do not have the required expertise, neither in derivatives nor in forecasting.

Learning about derivatives is one of the most important lessons to learn, for anyone making new forays into investment finance. They can be used to hedge open positions in stocks and this makes stock trading safer. Since it is the ‘right but not the obligation’ to buy an asset, it is obvious that the call option will only be exercised if the strike price is lower than the going market price for the underlying asset at that certain time in the future. These are normal financial instruments where you just buy or sell shares of company XYZ (for $20 each, if market value equals the intrinsic value). The only difference between them and the normal financial instruments (like shares), is just the little term called ‘underlying asset’. But when you have a derivative option on the shares of this company, you are basically holding a financial instrument that has no intrinsic value of its own. The value of your option to either buy or sell the shares of this company, derives its value from the actual market prices of the underlying asset, in this case, the shares of company XYZ. You’ll know then, why all traders haven’t mastered the art yet and become overnight millionaires. Futures are also agreements to buy or sell commodities at a certain predetermined price at some predetermined time in the future. They offer the trader, the option of passing on some of the risk that he’s bearing over to another party. These non-standardized financial instruments bear some amount of credit risk, since no exchange interferes between the buyer and the seller. The intention is to buy low and sell high in two different markets and pocket the differential profits.

They allow for large portfolio position changes without incurring the buying and selling transaction costs.

Forwards Contracts and Futures Contracts

By definition, a forwards contract is ‘an agreement to buy or sell an asset for a predetermined, fixed price, at a certain time or date in the future’. Options are fantastic in their ability to cater to every possible need of the stock market trader. On the other hand, a put option gives the buyer the right but not the obligation to sell a certain asset at an agreed price (strike price) by a certain date in the future. For example, if a party has a fixed rate payment obligation and another one has a floating rate one, the two can swap their interest obligations with each other without settling the underlying debt.

They are simple financial instruments. In a put option, the option will thus, only be exercised if the strike price is higher than the going market price at that specific point of time in the future. When you hold a long position in a forward contract, i.e., you have agreed to buy the underlying commodity at the agreed price, your payoff will be the differential between the forward price and the spot rate at that point in the future (F – S). Options are not limited to the exchange traded derivatives markets and some are also traded on the OTC markets.

Uses in Investment Finance

Mastering these instruments can make you a millionaire overnight, but it is good to understand them first. But before you start thinking about having bigger yields out of these instruments, know a little more about them. Think about it and you’ll know why so many have gone down while betting on these instruments. Being traded on exchanges robs the futures of the customization that is available on forwards, but on the other hand, as exchanges play clearing houses in the transaction, futures have relatively lower credit risk.

These markets happen to be of two types. The term futures encompasses all things like foreign exchange futures and stock index futures as well. Two or more options can be combined together (synthetic options) to give the trader just the kind of payoff he was visualizing, given his forecasts of the future price movements on the stock exchange. They are a boon for the hedgers but not always so for the arbitrageurs and speculators.

Shares of company XYZ have an intrinsic value of $20 each. Inexperienced options expire once their time duration ends and it is only the premium paid for buying the option that exchanges hands between the two parties.. Here’s and example of an underlying asset.

Below are some of the uses as listed by John C. Marginal swings in the value of these shares can leave you with the outcome – ‘Investment – $100 and Total Loss $100, 000’. The only difference between a normal spot transaction and a forward transaction is the time span between the contract and its fulfillment. How else is it possible that just investing $10 should help you take positions worth $1000. Options Contracts

Understanding Futures and Options

Interest rate swaps are also derivatives for they too derive their values from the underlying debt instrument. Many an investor have fallen to greed in this market, for everyone else, it is a risk management boon.

Whether futures and options, or swaps and forwards, all require careful and deliberate study. Plain vanilla swaps, or the least complicated of swaps, allow two parties to swap their interest obligations. So for once, a financial instrument has been named correctly, an instrument that derives its value from some other asset is termed as a derivative.

A point to note here is that, while futures and forwards are obligatory buy and sell contracts for the holders, options are rights and not obligations that the holder can choose on whether to exercise or not. For many, what they invest in these instruments are their savings so you can only imagine the impact.

Many investors fail to understand that investing in them means indulging in a kind of leveraging. These are extremely powerful instruments and though, ‘no guts no glory’ does summarize the ‘higher risk, higher potential return’ mantra of investment finance; having open positions in them is never prudent. By definition, they are financial instruments that derive their intrinsic values from the underlying asset that they are based on. On the other hand, with a short position (agreement to sell), your payoff will be the differential between the spot price of the commodity then and the futures price that you have agreed on (S – F).

Options are basically of two types, a call option and a put option. Last but not the least, they lend monetary power to the traders, for they can take large positions in the stock market with the minimal amount of cash, i.e., by just paying the premium amounts.

Interest Rate Swaps

Certain exotic types like Cacall, Caput, Barrier options, etc., lure investors with the greed of returns, but what happens many a time is that, traders fail to see the complexity involved in them. When investing in these instruments, be aware of the risk that you are taking on with that kind of leverage.

When they are used for hedging, they perform exceptionally well but when used for speculation, it is not prudent to rely too heavily on them. Arbitrage profit opportunities are those opportunities that allow for risk-free, zero net investment profits, by capitalizing on price differentials on the same commodity in different markets. Be careful and ask all the right questions before you bring out the cash.

Since most of them involve the play of big money with very little in the way of initial investment, most people fail to foresee the impact they can have on their total funds. Hull in his 1999 book titled ‘Options, Futures, and Other Derivatives’.

Futures contracts are derivatives very similar to forward contracts, with the main difference being that while forwards are traded OTC, futures are traded on an exchange. While spot is an immediate, present tense contract, a forward is a later date or future tense contract that is just being finalized today. First the futures and options are traded on the exchange traded derivatives market and are standardized instruments with negligible credit risk. For many of these instruments, small changes in the underlying asset can swing your fortunes from millionaire to bankrupt within seconds. Research them and you will find a very grim picture, more houses have been broken with these instruments than have been built. Not understanding how they work and investing large sums of money in them blindly is a folly. Know their uses and advantages, their drawbacks as well as their various types, namely forwards, swaps, futures and options.

What is the Derivatives Market?

They are very good risk management tools and are mainly used to hedge risks that a trader is routinely exposed to. Lack of knowledge coupled with greed, turn them into your worst possible nightmare. While most financial assets have intrinsic asset values or prices, the intrinsic value of a derivative is based on the financial asset that forms the basis of a derivatives contract. Forwards and futures prices are good reflectors of the price directions as well as the expected change in the future prices of the underlying asset.

They offer the traders an option to change the nature of their liabilities and exchange the risks associated with some of their unwanted liabilities with some more bearable ones.

They can be used to make arbitrage profits. If you wish to play the stock markets, they offer an unbelievable amount of ground to play in, especially when it comes to hedging and risk management. On the other hand, forwards, swaps, and CDS are usually traded on the over-the-counter (OTC) markets. Forwards contracts are over-the-counter contracts that usually trade on commodities. He either takes on another risk in return or makes a cash payment in exchange for the risk transfer.

Instruments like forwards and futures play a key role in giving directions to the market prices of the future. There is no monetary transaction to the contract when it is first negotiated, and money only changes hands on contract maturity. Even though you have invested only $100, the position that you had taken in the market was on $10000 shares. A call option gives the buyer the right but not the obligation to buy a certain asset from the call option writer, by a certain date and for a certain price, known as the strike price

Casino-Gaming :: Why People Like Casinos?

If you have always wanted to try craps but could never afford the Vegas tables you can enter into a game online. They can learn about other cultures, other’s lives, and just have a great time. It is also about playing the best poker players in the world at the online tournaments.

Some of the gamblers will play online casino slots thinking that luck is on their side; that this once they will hit the button and win the million dollar jackpot. There seems to be an inherent sense that games are enjoyable. If you are waiting for the bingo call to start you can be playing a slot machine to win a couple of dollars. Players can feel like they do not have to think about their problems, their stresses, when they are playing a game. We are able to buy a lottery ticket, take a chance on the spinning of a wheel, or use strategy to earn free cash.

The online casino gambling also gives players a break from reality. Many of us grow up still enjoying a game now and then. You do not just have to play one game.. You can change games whenever you want to. They are also thinking what they need to do to win. Our first reason is the atmosphere of fun. One, you can play online casino games and win money. As children, parents offer us different types of games to help us learn things like social skills and to keep us occupied. The fact is there are many reasons why people like casinos. Gamblers can play someone in China while sitting in the UK. This lucky feeling draws gamblers in every day.. It is about the free money. Whether you are sitting in a land casino or at home visiting the virtual world of casinos online, there is always that excitement. When we are adults we also get to enjoy the benefits of playing games for money. The online casino games vary from slot machines and arcade games to variations of table games. If someone is playing the online casino poker they are thinking about what they need to bet. Enjoyment is always a key to playing online casinos.

The four reasons we have listed above all center on two things. Instead they focus on the wins, the strategy it takes to win, and the good times they are having. In the online casino world meeting people from all over the world is a possibility. Roulette is another option of online casino games. We have just listed a few.

It would be impossible to list every reason for why people like casinos, but we do have some of the top reasons that individuals find casinos and most importantly online casinos enjoyable. The music that plays or the flashing lights of the online casino slots draw players in.

It is also about meeting people. Craps, baccarat, Texas Hold’em and other games are always available online. By playing five cents one could win a hundred dollars

CLSA hedge fund bets on electric cars, China wind | Reuters

Bolivia holds 50 percent of the world’s lithium deposits, but extracting it may be a challenge.

(Additional reporting by Kevin Lim; Editing by Rupert Winchester)

By Neil Chatterjee

| SINGAPORE

. Automakers and battery firms are now seeking tie-ups.

He said Asian countries were in various states of moving toward such cleaner economies, with Japan leading the globe in making its manufacturing more energy-efficient after the 1970s oil shocks, China building more nuclear power capacity than anyone else, and India studying how to avoid polluting its ground water.

CRA, part of Asia-focused brokerage CLSA, manages $100 million of assets spread over several funds, including a long-short fund that invests in clean tech equity and a more focused fund dedicated to clean water.

“This trend is going to continue for the foreseeable future, because resources are constrained — the atmosphere has been used as a dump for free,” said Pidden on the sidelines of a UBS hedge fund conference.

Pidden said the firm was betting on existing technologies and did not like to take technology risks. “People want electricity — coal as power generation needs to be addressed,” he said.

“In 15 years there will be drop in demand for oil as a transportation fuel,” he said.

“The era of oil will be over by 2050 because we will have electrified the transportation system,” Pidden said confidently.

CRA has beaten indices such as the MSCI index of Asia-Pacific stocks traded outside Japan since its inception in August 2006, Pidden said without giving details, though many clean-tech funds dived last year.

China expects wind capacity to hit 100 gigawatts by 2020. Vestas is the world’s biggest maker of wind turbines, while Chinese industry suppliers include gearbox maker China High Speed Transmission and China Wind Systems.

The fund has a large exposure to Japan, home to electric car leaders such as Toyota and Nissan as well as battery firms Panasonic and Hitachi. A move to fully electric cars would completely change the auto supply chain, from different raw materials such as lithium for batteries to more consumer financing for the higher initial purchasing cost and less need for a spare parts industry.

Andrew Pidden, managing director of the Singapore-based firm, said the world will move toward a low energy and low carbon economy because of several large drivers — the rising cost of energy, the desire to clean up the planet and a push from consumers for green products.

SINGAPORE CRA Management, a clean-technology focused hedge fund manager, is betting on offshore wind, electric vehicles and cleaner coal, all technologies that it sees taking off on a massive scale in Asia.

“We believe in 10 years there will be a lot of wind off China and South Korea,” he said. “Asia will lead the world in the development of these products.”

Chile’s SQM is the world’s top lithium producer and experts say a lithium boom may be coming. He said the areas investors were most interested in, because of the potential scale, were transportation and power generation.

“Asia leads on battery development, solar panel production, and it’s soon to lead in installations with China,” he said

Will the big game save gaming in Atlantic City?

Though 44 percent of people surveyed by Rutgers-Eagleton poll thought that sports betting was a positive for Atlantic City, another 48 percent were less sure of its value, while another 31 percent thought it would make no difference. Florida developer Glen Straub, who submitted the losing bid, is challenging the sale.

“The reality is that it’s a big deal for Monmouth Park and that’s it,” said Alan Woinski, the president of Gaming USA, a consulting firm based in Paramus, New Jersey, in an interview, referring to a struggling race track in Oceanport, New Jersey, that under the state’s new law will be able accept sports bets. For one, the decline of New Jersey’s gaming industry has been years in the making and was hastened when lawmakers in neighboring Pennsylvania, a key Atlantic City market, allowed casino gaming. . Over the past few months, operators of the Revel Casino Hotel, which at one time was touted as linchpin of an Atlantic City revival, Trump Plaza and Showboat, closed their doors. “This whole thing is a snow job.”

“I don’t think it’s going to be the lifeline for the casinos,” said Alex Bumazhny, who follows the casino industry for Fitch Ratings, adding that the credit rating agency “doesn’t think it will make a big difference” in Atlantic City.

Another obstacle is that New Jersey residents are divided over the benefits of sports betting. Atlantic City casino revenue reached a peak of $5.2 billion, and tumbled to $2.86 billion last year nearly two dozen casinos were built within driving distance of the Jersey shore gambling mecca. According to data from the American Gaming Association, a trade group, about $3.4 billion was wagered on sports at casinos in Nevada in 2012, though the total amount generated by the state’s casinos race books was much smaller. 15, 2014 in Atlantic City, New Jersey.

“Nobody expected such a bizarre move,” said I.

Earlier this month, Brookfield Asset Management, owner of Las Vegas’ Hard Rock Hotel & Casino, acquired Revel for $110 million, a fraction of the $2.4 billion to build. But that law comes amid a major slump in gambling in the state. Nelson Rose, a professor at Whittier Law School who has written a textbook on gaming law, adding he wasn’t sure if New Jersey’s move will survive a court challenge. Chris Christie signed into law last week, Atlantic City racetracks and casinos can start accepting sports bets.

The NFL subsequently sued to block the law, claiming that it violated an 1992 federal law that restricted sports betting to four states. There probably isn’t anything that can save Atlantic City.”

Still, sports betting is starting up in New Jersey despite ferocious competition from a number powerful interests. Supreme Court refused to hear the state’s appeal, leaving the ban in place.

Atlantic City’s embattled casino industry, which has lost thousands of jobs this year as money-losing operator shut their doors, shouldn’t expect much of a boost from sports betting, experts say.

DON EMMERT/AFP/Getty Images

A further damper on sports betting profits at Atlantic City casinos is the fact that it’s legal in Delaware and a handful of other states.

The reasons are many. “This isn’t going to save Atlantic City.

Second, as an economic activity, sports betting isn’t a game-changer. The AGA pegs the gross gaming revenue from sports bets at $170 million, a tiny percentage of the $10.9 billion consumers plunked down in the state’s casinos in 2012.

Under a measure New Jersey Gov. The Trump Taj Mahal has threatened to shut down next month unless it receives concessions from state officials. The state then eliminated all of its laws outlawing sports betting at tracks and casinos. Despite such concerns, Christie initially moved to permit sports betting in 2011 after voters approved a constitutional amendment to legalize it.

But State Senator Raymond Lesniak, an outspoken proponent for sports betting, pushed through a bill this that year that abolished the state’s existing prohibitions against sports betting. Casino industry experts have argued that it will be difficult for Brookfield to operate Revel as a casino because it never made a profit. and the NCAA have long opposed sports gambling because of fears it would lead to game-fixing. A federal court ruled in the league’s favor, and the U.S.

revel.jpg

A lifeguard boat sits on the beach in front of the closed Revel Casino Sept. Professional sports leagues in the U.S

Using Reverse Line Movement To Win

Carib ruled the roost season at 93-66-9, 58.5 percent, +18.55 units after ABC held the penthouse spot in the 2007-08 season.

Article Directory: http://www.articledashboard.com

To back this up, our friends over at Prosportsonline.net have tracked the records for games where over 60 percent of the public has been on one side, yet there was reverse line movement of at least one full point from the opening number at the top sportsbooks in NFL, NCAAF, NBA and NCAAB. This may enable you to get the stale more favorable sports betting line at the time the reverse line movement hits at the triggering Sportsbook. The huge problem with this is that the nfl line, ncaaf line or nhl line may have moved too much by that time, and all of the value has been sucked out of the unpopular side.

. This is where an important word of caution is in order though. All of this will be fun to follow (not to mention profitable) when every sport except baseball are going on simultaneously during the winter months.

http://prosportsonline.net

NBA sports betting has the lowest two-year five-book RLM winning percentage among the 11/10 sports, but then again, every gambler in the world would kill to go 382-301-9, 55.9 percent, +48.90 units, and the 57.5 percent win rate this past season is nothing to sneeze at. The records quoted below are based on the bets being made at the triggering books, so beating the move by a half-point or a few cents now and then would actually make your record even better.

College Basketball sports betting was not too shabby either, with a two-year mark of 492-356-22, 58.0 percent, +91.96 units. Keep an eyes on the top five sportsbooks at Sports Insights though, as NCAAF sports betting has been very liquid in that regard, with only one sportsbook (believe it or not, Bodog) finishing in the top five both years.

So what exactly is reverse line movement? RLM takes place when a large majority of bets are on one team, yet the line moves in the opposite direction. Furthermore, they list the RLM records for many individual sportsbook, making it easy to spot which books this system is working at and which books it may be best to ignore.

The highest two-year winning percentage using RLM from the top five books belongs to College Football, which went 480-341-10, 58.5 percent, +95.10 units. Last year was a good RLM season for NFL sports betting (45-29, 60.8 percent, +11.91), but two sportsbooks that were in the top five in NFL RLM in both seasons.

Also, games where over 60 percent of the public are on one side, yet there is reverse line movement of at least 10 cents on the Money Line from the opening number at the top five sportsbooks in MLB and NHL sports betting has also been profitable.

So what we recommend is to only use the top five each season for each individual sport (in terms of units won). Keep in mind that NCAAB was the most liquid sport in terms of top-five sportbooks however, with not a single sportsbook making the top five both years. To illustrate, let us say that San Diego Chargers open at -7 over the Miami Dolohins, and over 70 percent of the sports bets placed on the game are on San Diego. It should be noted that many fewer MLB games have qualified so far this season (is the whole world using RLM now?), but smaller profits is still profit.Again, these records are for Money Lines only and do not include totals.Finally, NHL sports betting has picked up 148.49 units in two years, and unlike MLB, NHL had four sportsbooks out of the top five gain double-digit units this past season. We tracked the top five books for each of the pointspread sports for the last two years, as as you can see, this strategy has been profitable in every sport. Another important recommendation is to use a slow moving (but reliable) sportsbook. This would make Miami +6 the RLM play.

So what causes RLM when the aim of most sportsbooks is to get as close to balanced action on both sides as possible? The answer to this is quite simple: the sharp bettors; the one’s who give sports betting advice. RLM takes place when more money/ sportsbook picks are bet by the small percentage of bettors that are on the unpopular side (the sharps) than is bet by the huge majority of players betting the popular side (the squares). Note that these records are for sides only and do not include totals.

The NFL sports betting is generally considered the toughest sport to beat, yet blindly following this method produced an exceptional 59.2 percent win rate last season, improving the two year record to 328-249-12, 56.8 percent, +59.06 units. Quite a few RLM followers watch the moves until almost game time, and then bet accordingly. However, instead of the line rising as you might expect, it instead drops to Chargers -6.

prosportsonline.net

Now do the sharps win every single time? Absolutely not! However, they are right more often than they are wrong, so being on the same side as the sharps is a prudent strategy over the long run, and again, the best thing is that there in absolutely no conventional sports handicapping necessary..

By: Manny G

Thus, following reverse line movements is the same thing a following the smart money. Keep a close eye on Canbet here, as that Australian sportsbook cracked the top five both years.

The proper way to make a sports bet using reverse line movement is to place your bet as soon as there is an RLM of one full point (or 10 cents in MLB and NHL) off of the opening line. Sure, using this approach leaves open the possibility of the line turning around and moving back against you, but as you will see in bit, betting as soon as an RLM qualifies has been profitable in every major North American sport such as the last two seasons, so if one line turns around, so be it

New Jersey sports betting law struck down by U.S. appeals court | Reuters

government, called the law “yet another attempt” to allow sports betting “only under the conditions of the state’s choosing.”

It is also a victory for Major League Baseball, the National Basketball Association, the National Football League, the National Hockey League and the National Collegiate Athletic Association, which opposed New Jersey’s laws.

The 10-2 decision is a defeat for Republican Governor Chris Christie, who has seen courts void two state laws, including one in 2012, designed to raise revenue through sports betting.

Reflecting the stakes, two former U.S. The other thought PASPA was unconstitutional because it violated state sovereignty.

The case is National Collegiate Athletic Association et al v. Circuit Court of Appeals, Nos. solicitors general were on opposite sides of the case, with Paul Clement arguing for the sports organizations and Theodore Olson representing New Jersey.

Clement was not immediately available for comment.

New Jersey’s law banned wagers on state college teams and limited bets to people age 21 and older at casinos and racetracks.

The 3rd U.S.

One dissenting judge thought the 2014 law permissible despite PASPA. Governor of the State of New Jersey et al, 3rd U.S. 14-4546, 14-4568, 14-4569.

New Jersey argued that its law amounted to only a “partial repeal” of its prohibitions on sports betting, did not “license or authorize by law” such betting, and could help curb the “thriving” black market in the practice.

“We do have two judges dissenting,” Lesniak said, “and we certainly will take a shot at the Supreme Court.”

Rendell acknowledged the law’s “salutary purpose” in trying to revive those troubled industries, but said PASPA does not unconstitutionally “commandeer” the state.

“We are reviewing the opinion and considering our options,” said Paul Loriquet, a spokesman for state Attorney General Christopher Porrino.

The American Gaming Association, an industry trade group, wants PASPA repealed.

“We were relying on having sports betting to give a big boost to our ailing Atlantic City casinos and our suffering racetracks,” state Senator Raymond Lesniak, a Democrat from Elizabeth who sponsored the 2014 law and a 2011 voter referendum allowing sports betting, said in an interview. “It’s just wrong for Congress to deny New Jersey what the state of Nevada has.”

Nevada bookmakers made $231.8 million on sports betting in 2015, the state has said.

“Because PASPA, by its terms, prohibits states from authorizing by law sports gambling, and because the 2014 law does exactly that, the 2014 law violates federal law,” Circuit Judge Marjorie Rendell wrote. Circuit Court of Appeals in Philadelphia said the 2014 law allowing sports betting at casinos and racetracks violated the Professional and Amateur Sports Protection Act, a 1992 federal law prohibiting the practice in all states other than Nevada, Delaware, Montana and Oregon.

(Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and Tom Brown)

A federal appeals court on Tuesday said New Jersey cannot legalize sports betting, in a big defeat for supporters of the years-long effort to allow such wagers in the state..

The sports organizations, backed by the U.S