DERIVATIVES

Consider a farmer who grows paddy and has to sell it at a profit. He will sell it after
harvest (which has three months to go),in the spot market then. There is a possibility of
the prices going down. To avoid this risk he may sell his crop at an agreed upon rate now
with a promise to deliver the asset (crop) at a predetermined rate in future. This is a
forward contract.
It is true that by this way he is foreclosing upon him the possibility of a bumper profit in
the event of prices going up steeply.
In a forward contract the contracting parties negotiate on, not only the price at which the
commodity is to be delivered on a future date, but also on what quality and quantity to be
delivered and at what place. No part is standardised and the two parties sit across and
work out each and every detail of the contract before signing it.

FUTURES CONTRACTS –

In case all the features of a forward contract are standardized except the price of the
contract, such a contract becomes a standardized instrument which can be traded in the
market or on an exchange.Such a contract is known as a futures contract.

A Derivative is a contract whose value is derived from the value of an underlying asset
(which is widely held and easily marketable), such as,
- Agricultural and other tangible commodities
- Currencies
- Short term or long term financial instruments
Or intangibles like
- Commodities price index (inflation rate)
- Equity price index
- Bond price index

The counterparties to such contracts are those other than the original issuer (holder) of the
underlying asset.

Usually in trading derivatives the taking or making of delivery of underlying assets is not
involved. The transactions are mostly settled by taking offsetting positions in the
derivatives themselves. There is therefore no effective limit on the quantity of claims
which can be traded in respect of underlying asset.

Although the standardized, general, exchange traded contracts has evolved, there are
many privately negotiated, customized, OTC traded financial contracts which expose the
users to operational risks, counterparty risk, liquidity risk and legal risk. There is also an
uncertainty about the regulatory status of such derivatives.
 A. FUTURES
The FCRA i.e Forward Contracts (Regulation) Act 1952 classifies contracts as
a. Ready Delivery Contract (RDC) – It provides for delivery of goods/instruments
and payment of a price therefore either immediately or within 11 days. It leads to
spot or cash transactions.
b. Forward Contract (FC): which are deferred for execution to a future but fixed
date. They are of two types (i) Non Transferable Specific Delivery Contract
(NTSDC) and (ii) Transferable Specific Delivery Contract (TSDC)

FUTURES are Transferable SDC’s between two counterparties that fix the terms of an
exchange or that lock in the price today of an exchange which will take place at some
future date. Depending on the underlying asset one can talk of commodity futures,
financial futures viz. stock index futures, interest rate futures (treasury bills or bonds etc.)
and currency futures. The terms of a futures contract cannot be changed during the life of
the contract .The very motivation of these contracts is not actual delivery except in a
residual sense, as they are entered into mostly either for hedging or speculation.
Trading is done through exchanges which have their own clearing houses. These
exchanges protect themselves by requiring both buyers and sellers to maintain margins
large enough to cover movement in prices. Along with the initial margin, as the prices
changes daily additional margins are called for as per the mark to market process.

History – 1995 – Promulgation of the Securities Law(Amendment) Ordinance – It

withdrew the prohibition on options on securities. However the market did not take off as
there was no regulation.
1996 – SEBI set up a 24 member committee under the chairman ship of Dr.L.C.Gupta. It
submitted its report in 1998 recommending that derivatives be treated as “securities” for
governing purpose.
1999 – Securities contract and regulation act was amended to include derivatives within
the ambit of securities.
March 2000 – Three decade old notification prohibiting forward trading in securities
rescinded.
July 2001 – individual trading in security derivatives commences.

Properly functioning futures market render the following services;

Provide hedging facilities
Introduce an element of stability in market prices
Indicate expected future prices
Facilitate arbitrage over space and time.

FUTURES FORWARDS
Standardized Customized
Smaller in size comparatively larger in size
Only on Organized Exchanges on OTC and off exchanges
Secondary market services no secondary market
5% actual delivery 95% actual delivery
Daily settlement settlement only on expiry
Margins required no collaterals required.

Leading Derivatives market

Table No. Index Futures Stock Index Options Stock Options Total Turnover ( cr.) Average
Turnover ( cr.) Returns Notional Notional Daily
6: Product
Turnover Turnover Turnover Turnover
wise ( cr.) ( cr.) ( cr.) ( cr.)
turnover at
NSE Year
2013-14 2176314.26 3203112.18 19462635.85 1602742.62 26444804.86 155557.68
2012-13 2527130.76 4223872.02 22781574.14 2000427.29 31533003.96 126638.57
2011-12 3577998.41 4074670.73 22720031.64 977031.13 31349731.74 125902.54
2010-11 4356754.53 5495756.70 18365365.76 1030344.21 29248221.09 115150.48
2009-10 3934388.67 5195246.64 8027964.20 506065.18 17663664.57 72392.07
2008-09 3570111.40 3479642.12 3731501.84 229226.81 11010482.20 45310.63
2007-08 3820667.27 7548563.23 1362110.88 359136.55 13090477.75 52153.30
2006-07 2539574 3830967 791906 193795 7356242 29543
2005-06 1513755 2791697 338469 180253 4824174 19220
2004-05 772147 1484056 121943 168836 2546982 10107
2003-04 554446 1305939 52816 217207 2130610 8388
2002-03 43952 286533 9246 100131 439862 1752
2001-02 21483 51515 3765 25163 101926 410
2000-01 2365 - - - 2365 11
Derivatives trading membership needs to be taken separately. BSE and NSE provide
trading platforms.

2001 - 4038 cr
2002 – 03 – 4,42,342 cr
2012-13 – 1,37,00,000 cr
2013 – 14 – 2,64,44,804 cr

2001-02 equity derivatives was 16% of cash equity market

Mar 2003 it became 77%. Foreign funds are active players. There is an arbitrage in cash
market and futures market.

Stock futures and stock options are actively traded. Index futures and index options
although introduced earlier have not picked up.

NSE accounts for 99% of the derivatives market.

Stocks and Futures – Demat Account

FUTURES TERMINOLOGY –

Spot Price – The price at which an asset trades in the spot market.
Futures Price – The price at which futures contract trade in the futures market.
Contract Cycle – The period over which the contract trades. Normal cycle on NSE are
One mnth (near mnth), two mnths (mid mnths) and three mnths (far month) expiring on
the last Thursday of the month.(Rolling system)
Expiry date – The last date on which the contract will be traded.after which it will cease
to exist.
Contract size – The amount of asset that has to be delivered under one contract. For
instance, the contract size on NSE’s S&P CNX Nifty Index futures is 200 units.

Futures Specifications

Contract Specifications : S&P 500

Underlying - S&P 500

Trading Exchange – NSE
Contract Size - Permitted lot size shall be 200 and multiples thereof (min. value Rs 2
lakh) (For e.g S&P 500 is quoting at 2147.25  per lot = 200*2147.50  4,29,500.)
Price steps – 0.05
Price Bands – N.Appl.
Contracts available – 1,2&3 mnths
Expiry Date – Last Thursday or the previous trading day if Thursday is a trading holiday.
Settlement basis – Daily MTM and final settlement will be cash settled on T+1 basis.
Settlement Price – Daily settlement price will be the closing price of the futures contract
for the trading day and the final settlement price shall be the closing value of the
underlying index on the last trading day.

Contract Specifications : Stock Futures

Underlying – Individual Securities

Trading Exchange – NSE / BSE
Contract Size - Permitted lot size shall be 100 and multiples thereof (min. value Rs 2
lakh) (For e.g Ambuja Cement is quoting at 261.7  per lot = 100*261.7  26,170)
Price steps – 0.05
Price Bands – N.Appl.
Contracts available – 1,2&3 mnths
Expiry Date – Last Thursday or the previous trading day if Thursday is a trading holiday.
Settlement basis – Daily MTM and final settlement will be cash settled on T+1 basis.
Settlement Price – Daily settlement price will be the closing price of the futures contract
for the trading day and the final settlement price shall be the closing value of the
underlying security on the last trading day.

Long Futures – Buying or will be taking delivery.

Short Futures – Selling or will be giving delivery.

Futures trading is like trading without owning stocks.

TCS is currently trading at 2501.50 and the august future is priced at 2505.50.
To buy the future 10% initial margin has to be deposited.
On the expiry date the share price goes up to 2507. The relative returns are given below.

Future (8 contracts) Stock 800 shares

Opening Price 2505.50 2501.50
Closing Price 2507 2507.00
Initial Investment 2505.5 x 100 x 0.10 = 25,055 20,01,200/-
25,055 x 8 = 2,00,440/- (800 shares)
Net Gain (2507.0 – 2505.5) * 800 = 1,200 5.5 x 800 shares
= 4,400
ROI 1,200/2,00,440 = 0.5986 % 4400/20,01,200
= 0.2198 %

BUYER  EXCHANGE  SELLER

EXCHANGE

Intermediaries
The intermediaries who facilitate trade of futures, could be categorized according to the
function they perform as well as the aim with which they trade.

1. Clearing Members (CM) – They are members of National Securities Clearing

Corporation Ltd. (NSCCL). The eligibility norms for becoming a CM are:
- Net Worth of at least Rs. 300 lakh.
- Deposit of Rs. 50 lakh to NSCCL, which forms the base capital of the member.
- Additional incremental deposit of Rs 10 lakh to NSCCL for each additional
trading member for whom the CM undertakes to clear and settle.

Types of CM’s –

Trading Member Clearing Member (TM-CM) – clears and settles his own proprietary
trades and clients trades as well as clears and settles for other TM’s.
PCM (Professional Clearing Member) : PCM is a CM who is not a TM. Banks or
custodians come under this category. They clear and settle for TM’s.

The primary function of a CM comprise the following:

 Clearing : Compute outstanding positions of all his TM’s
 Settlement : Performing actual settlement
 Risk Management : Setting position limits based
on upfront deposits/margins for each TM and monitoring
positions on a continuous basis.
A TM shall perform order execution on the trading system while the CM shall clear and
settle all deals.
 2. Trading Members – TM’s are members of one or more of the exchanges like BSE
or NSE. These members can trade either on their own account or on behalf of
their clients. The members have more than one user, the number of which is
modified by the respective exchanges from time to time.
3. Participants – Big players like FI’s may also do trading through a trading member,
but may not be confined to a single trading member. They may be routing their
transactions through more than one trading member. They are called participants.
However, all the transactions are settled through one clearing member only.
4. Users – the software used for trading, facilitates the use of the system by a
hierarchy of users in a trading firm. The hierarchy has three levels comprising the
in charge, the manager and the dealer.

The Clearing Mechanism – A clearing house is an inseparable part of a futures exchange.

This exchange acts as a seller for the buyer and a nuyer for the seller in the process of
execution of a futures contract.
The moment the buyer and the seller agree to enter into a contract, the clearing house
steps in and bifurcates the transaction such that,
 Buyer buys from the clearing house, and
 Seller sells to the clearing house.
Thus, the buyer and the seller do not get into the contract directly; in other words there is
no counterparty risk (Novation). The idea is to secure the interest of both.

Exposure Monitoring – A CM’s open position calculation is arrived at by aggregating the

open position of all the TM,s clearing through him. A TM’s open position will in turn be
arrived at as the summation of his proprietary open position and clients open position.

a) Proprietary / Clients Open position

While entering orders on the trading system TM’s are required to identify them as
proprietary (if they are own trades) or clients (if entered on behalf of clients )
through ? Pro / Cli indicator provided in the order screen. The proprietary
positions are calculated on Net basis and clients position are traded on gross basis.
i.e a buy open trade is off set by sell close trade and vice versa.
b) Open Position – Open position for proprietary position and client position are
calculated separately.

Example
Shah is a clearing member (CM) who has two TM’s under him, namely X and Y who in
turn have two clients Client 1 and Client 2. They trade in option contracts on Nifty and
their positions are as follows.

Security Proprietary Client 1 Client 2 Net

Buy Sell Net Buy Sell Net Buy Sell Net
X Nifty (Jan) 4 2 2 3 1 2 4 2 2 6
Y Nifty (Jan) 2 3 (1) 2 1 1 1 2 (1) (1)

Shah’s open position for Nifty Jan contract will be

 Member Long Position Short Position
X 6 0
Y 1 -2
Total for X & Y +7 -2

Customer Margins –

Initial Margin – Margin is money deposited by both the buyer and the seller to assure the
integrity of the contract.it is around 10% of the value of the contract. Minimum margin is
set by the exchange using the concept of value at risk.
VaR measures the risk (and consequently the amount) that a portfolio might lose in a day
due to adverse price movements of the underlying. The range of price movement is
determined using the historical volatility of the asset.

Maintenance Margin – it is around 80% of the initial margin .In the MTM process if an
investor has ended in a loss position which has eroded partially the initial margin such
that it is below the maintenance margin, he receives a margin call from the exchange. He
has to deposit cash immediately. If the investor does not respond the broker would close
out the investor’s position by entering a reverse trade in the investors account.

Settlement Procedures

Settlement of Futures Contracts on Individual Securities

Futures contract on individual securities are cash settled in the following manner:

a) Daily Mark to Market

b) Final Settlement

Marking to Market (MTM) – An investors final position wrt his portfolio is maintained
on a daily basis using the MTM process.

Futures Contract –
Apart from the conceptual difference between forwards and futures, they differ from each
other on the practical plane as well.
In a futures contract, at the end of the trading session each day both the parties to the
contract carry forward the transaction to the next day by closing out the previous days
transaction. The party who has faced a loss makes up the shortfall by paying what is
called the variation margin. Technically, at the end of the day, the parties to the contract
then enter into a new forward contract with the same maturity date as existed in the
original contract but at a new forward price. This process is known as
“marking to market”. The clearing house replaces each existing futures contract with a
new one.

On Nov 15, the spot price for Telco is Rs 473/share. Mr. X buys 15 contracts of Jan
Telco Futures at 491. Initial margin is 800 per contract and maintenance margin is 600
per contract. Each contract is 50 shares. Daily settlement price for the next few days are
as follows.
Nov 15 496
Nov 16 503
Nov 17 488
Nov 18 485
Nov 19 491

Mr. X withdraws profits from his margin account only once on Nov 16th and the amount
is equal to half the maximum amount allowed. Compute the balance in his account on
each of these 5 days.

15 Nov Details Amount

Opening Balance:
Initial Margin Paid 800/cont x 15 12,000
+ Profit / Loss today 15 x 50 x 5 3,750
=closing balance 15,750
16 Nov
Op. Bal From previous day 15,750/-
+ Profit / Loss today 15 x 50 x 7 5,250/-
= Balance before withdrawal 21,000
Profit withdrawn 21,000 – 12,000 = 4,500
9000 / 2
= clos. bal 16,500/-
17 Nov
Op Bal From previous day 16,500
+ Profit / Loss today 15 x 50 x -15 (11,250)
Balance before margin call 5,250
Margin call paid (to bring amount back to initial 6,750
Margin as balance has fallen below the
Maintenance margin of 600/contract
i.e 15 x 60 = 9,000
= closing balance 12,000
18 Nov
Opening Balance From previous day 12,000
+ Profit / Loss today 15 x 50 x -3 (2,250)
= balance 9,750
Margin call paid None
= clos bal 9,750
19 Nov
Opn bal From previous day 9,750
+ Profit / Loss today 15 x 50 x 6 4,500
= clos bal 14,250/-
MTM Problem
On Dec 2, the spot price for Ambuja Cement is Rs 2546.50/share. Mr. X buys 20
contracts of Jan Futures at 2553. Initial margin is 1500 per contract and maintenance
margin is 1200 per contract. Each contract is 100 shares. Daily settlement price for the
next few days are as follows.
Dec 2 2548
Dec 3 2555
Dec 4 2541
Dec 5 2550
Dec 6 2557
Mr. X withdraws profits from his margin account only once on Dec 3 and the amount is
equal to half the maximum amount allowed. Compute the balance in his account on each
of these 5 days.

2 Dec Details Amount

Opening Balance:
Initial Margin Paid 1500/cont x 20 30,000
+ Profit / Loss today 20 x 100 x (-) 5 (-) 10,000
=closing balance 20,000
3 Dec
Op. Bal From previous day 20,000/-
Margin call paid as it is less than maintenance margin 10,000/-
Of 1200 x 20 = 24,000/-
+ Profit / Loss today 20 x 100 x 7 14,000/-
= Balance before withdrawal 44,000
Profit withdrawn 44,000 – 30,000 = 7,000
14,000 / 2
= clos. bal 37,000/-
4 Dec
Op Bal From previous day 37,000
+ Profit / Loss today 20 x 100 x -14 (28,000)
Balance before margin call 9,000
Margin call paid (to bring amount back to initial 21,000
Margin as balance has fallen below the
Maintenance margin of 1200/contract
i.e 20 x 1200 = 24,000
= closing balance 30,000
5 Dec
Opening Balance From previous day 30,000
+ Profit / Loss today 20 x 100 x 9 18,000
= balance 48,000
= clos bal 48,000
6 Dec
Opn bal From previous day 48,000
+ Profit / Loss today 20 x 100 x 7 14,000
 = clos bal 62,000

Clearing Mechanism – A trading members open position is arrived at as the summation

of his proprietary open position and clients open position.

Types of Orders –

A client can place various types of orders through his TM. The order could be time bound
or price bound or both.

1. Spot Order – Such an order is valid only for the moment it is fed into the system.
In case it is not executed , it is cancelled there and then.
2. Day Order – A day order is valid only for the day on which it is placed. Failing
execution of the order, it lapses automatically.
3. Good Till Days / Date (GTD) order – As the name suggests, a GTD order is valid
only till specified. However, this has to be within the maximum number of days
as stipulated by the stock exchange.
4. Good Till Cancelled (GTC) order – As in GTD, a GTC order would remain valid
till the client cancels it subject to the time limit stipulated by the stock exchange.
5. Market Order – A market order is one which is executed at the available quote in
the system as soon as it is entered into the system.
6. Stop Loss order – When an order has been executed, a client may like to insure it
against any wild adverse movement. As such, he may pre-feed an order into the
system specifying that in case the scrip crosses a particular price, the order should
automatically get squared up.

Open Interest – Contracts entered into but not liquidated. During the trading life of a
futures contract positions keep getting opened and closed. Open interest is broadly the
outstanding short position or the outstanding long position at any particular point of time.

'Open Interest'
1. A common misconception is that open interest is the same thing as volume of
options and futures trades. This is not correct, as demonstrated in the
following example:

-On January 1, A buys an option, which leaves an open interest and also creates
trading volume of 1.
-On January 2, C and D create trading volume of 5 and there are also five more
options left open.
-On January 3, A takes an offsetting position, open interest is reduced by 1 and
trading volume is 1.
-On January 4, E simply replaces C and open interest does not change, trading
volume increases by 5.

(Naye log purana maal) (naye log naya maal will add to open interest or purane log or
naya maal will add to open interest)

( NUMERICALS ON FUTURES )

OPTIONS PRICING

Put Call relationship (Stall, 1969) is used for arriving at an options price so that
arbitrageurs do not have the opportunity to trade in puts and calls and make riskless
profits.

Consider two portfolios consisting of

- The call option ( C ) and an amount of cash equivalent to the present value of the
strike price PV (Sp).

- The put option ( P ) and the underlying asset ( UA ).

At expiration both should be equal (if the rfr works).

At expiration the following matrix displays the various pay – offs.

Payoffs from Portfolio at Expiration

Payoff From Current Value ( UA < Sp) ( UA > Sp)

Portfolio A
Stock UA UA UA
Put P Sp - UA 0
Total Sp UA
Portfolio B
Call C 0 UA - Sp
Bonds PV (Sp) Sp Sp
Total Sp UA
ABAN OFFSHORE (2011)

1. 1000 equity stock purchased (4 lots of 250 shares ) on 26th aug Friday 2011.
Price 366.65
Required outlay 1000 * 366.65 = 3,66,650/- (+ STT , Broker commission etc. )

Price on 29th sept 2011=

If sold =
2. Derivatives futures trading at NSE for Aban offshore on 26th aug 2011.
Open 378.79, high 378.95, low 348, close 365.30, open int (000) 497, no. of
contracts 2679.

Purchased 1000 aban futures for 10% margin money (one month futures)
Required outlay is 10% of (365.3 * 1000) = 10% of 356300/- i.e 35,630/-

Price on 29th sept 2011 =

3. Derivatives options for Aban offshore on 26th aug 2011.

DERIVATIVES OPTIONS TRADING AT NSE 26th AUG

Aban Offshore (250) Open Interest – Contracts entered into but not liquidated
Close Open Int No. of contracts
CE 360.00 SEP 23.00 22 33
CE 380.00 SEP 14.10 14 25
CE 400.00 SEP 6.70 16 12
CE 420.00 SEP 4.65 6 9

PE 360.00 SEP 18.85 6 13

3 a. Bought 1000 aban call options (sep 360.00 – call means the right to buy) @ 23.00
Required outlay 1000 * 23/- = 23,000/-
Price on expiry (29th sep 2011) =

3.b Bought 1000 aban call options (sep 380.00 – call means the right to buy) @ 14.10
Required outlay 1000 * 14.10/- = 14,100/-
Price on expiry (29th sep 2011) =

3.c Bought 1000 aban call options (sep 400.00 – call means the right to buy) @ 6.70
Required outlay 1000 * 6.70/- = 6,700/-
Price on expiry (29th sep 2011) =

3.d Bought 1000 aban call options (sep 420.00 – call means the right to buy) @ 4.65
 Required outlay 1000 * 4.65/- = 4,650/-
Price on expiry (29th sep 2011) =

3.e Bought 1000 aban Put options (sep 360.00 – Put means the right to sell) @ 18.85
Required outlay 1000 * 18.85/- = 18,850/-
Price on expiry (29th sep 2011) =

HEDGED TRANSACTIONS –

Call + Put (1000 call + 500 Put)

I. In the money / out of the money

a. Rate on 23rd September – Aban offshore – 371.75

Open 375 – close 359.8 / future close 357.40

Essar Oil Stock on 26th aug 2011 – 87.90

futures (near month) – close 85.4 open int 1166 no. of contracts 2231

Essar oil stock on 23rd sept – 92.50

ABAN OFFSHORE
Date Spot July Aug September
Wed 8th July 789.55 777.90 (1727) 771.45 (27) -
Thu 9th July 701.90 680.55 (1855) 670.10 (42) -

Thu 30th July 1015.90 1019.30 (1075) 1016 (1647) -

Fri 31st July 993.35 992.85 (531) 992.01 (1870)

Suppose the lot size for Aban Offshore is 50 shares. Margin money is 20% of the contract
amount. A person buys one lot of one month futures on Thu 9 th july. Total contract amount
for one lot is 680.55 × 50 = 34,027.50 ; 20% of 34,027.50 is 6805.50.

On the expiry date Aban offshore is trading at

He makes a profit of 1015.90 – 680.55 = 335.35 and for 50 shares 335.35 × 50 =
16,767.50 ROI = 6805.50 / 16,767.50 = 40.58 %.

OPTIONS
Through futures an investor participates in stock trading with a fairly lower capital say
10-15% called as the margin. However he does not has the protection on the downside i.e
if prices go against his beliefs he starts loosing money in a big way. Is there a product
which offers him the right to ride the gains and also the flexibility to get out if it falls?
Yes ! Options. Although at a cost.
Options are the right to buy/sell shares ( called underlying ) at a price (called the strike
price ) on ( European )or before (American) a future date (called the expiration date ) for
payment of a small fee (called premium ).

ABAN OFFSHORE
Date Spot July Aug September
Wed 8th July 789.55 777.90 (1727) 771.45 (27) -
Thu 9th July 701.90 680.55 (1855) 670.10 (42) -

Thu 30th July 1015.90 1019.30 (1075) 1016 (1647) -

Fri 31st July 993.35 992.85 (531) 992.01 (1870)

DERIVATIVES OPTIONS TRADING AT NSE 9TH JULY

Aban Offshore (400)
CA 700.00 JUL 56.80 2 6
CA 800.00 JUL 27.00 3 8
CA 900.00 JUL 12.80 24 24
CA 1000.00 JUL 5.60 13 7

Futures and Options ET Fig.doc

-Plain
-Composite
-Joint or hybrid
-Synthetic
-Leveraged or mildly leveraged
- Customized or standardized
-OTC or organized exchange traded

Forwards ( FRA’s i.e Forward rate agreement ), futures, options , ratio range forward,
swaps ( IRS i.e interest rate swaps ), warrants, convertible bonds, credit derivatives,
captions, swaptions, futures options, the ratio swaps, periodic floors, spread lock one and
two, treasury linked swaps, wedding bands three and six, inverse floaters, index
amortising swap etc.

Swaps: Swaps are private agreements between two parties to exchange cash flows in the
future according to a prearranged formula. They can be regarded as portfolios of forward
contracts. The two commonly used swaps are :
• Interest rate swaps: These entail swapping only the interest related cash flows
between the parties in the same currency.
• Currency swaps: These entail swapping both principal and interest between the
parties, with the cashflows in one direction being in a different currency than those
in the opposite direction.

Swaptions: Swaptions are options to buy or sell a swap that will become operative at the
expiry of the options. Thus a swaption is an option on a forward swap. Rather than have
calls and puts, the swaptions market has receiver swaptions and payer swaptions. A
receiver swaption is an option to receive fixed and pay floating. A payer swaption is an
option to pay fixed and receive floating.

Derivatives from NSE Live