## Virtual trading in options india

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Being long on an interest put option means you will receive payments if the reference rate falls below the strike price. A call option is also known as a cap, and longing it will give you the right to receive payments if the interest rate rises above the strike price.

Now according you FRA instrument is meant for lenders only. First, to be clear, the combination of a long position in an interest rate call and a short position in an interest rate put same expiration, same notional, same fixed rate, same floating rate, same loan period is equivalent but not identical to a long position in an FRA. Financial Exam Help Skip to main content. Be prepared with Kaplan Schweser. Chirantana Nov 6th, 3: Hello Everyone, Please help me to understand below mentioned: I am not able to understand Interest Put option.

Holder has the right to make do unknown interest payment and receive fixed interest payment. Study for Success in Gurifissu Nov 6th, 4: Chirantana Nov 6th, 4: Hi Gurifissu, You explained it correctly but still not able to draw the picture of the prcoess in mind. And B has upside risk so he will buy interest call option with above mentioned details. Correct me if I am wrong in above scenario. Smagician Nov 6th, 9: Consider what happens with the option portfolio in the three possible scenarios at expiration: If the floating rate is higher than the fixed rate, then the call expires in the money and you get paid the difference between the floating rate and the fixed rate on the notional amount, for the loan period , and the put expires out of the money so you neither gain nor lose on it If the fixed rate is higher than the floating rate, then the call expires out of the money so you neither gain nor lose on it, and the put expires in the money and you have to pay the difference between the floating rate and the fixed rate on the notional amount, for the loan period If the floating rate and the fixed rate are equal, both options expire at the money, so you neither gain nor lose on them Now consider what happens with the FRA in those same scenarios at expiration: If the floating rate is higher than the fixed rate, then you get paid the difference between the floating rate and the fixed rate on the notional amount, for the loan period , and If the fixed rate is higher than the floating rate, then you have to pay the difference between the floating rate and the fixed rate on the notional amount, for the loan period If the floating rate and the fixed rate are equal you pay nothing and you are paid nothing As you can see, in all scenarios, the payoffs are the same.

Simplify the complicated side; don't complify the simplicated side. Chirantana Nov 7th, 5: Smagician Nov 7th, 7: