An Equity derivative is a derivative instrument\u00a0with\u00a0underlying assets based on\u00a0equity securities. The value will fluctuate with changes\u00a0in its underlying asset’s equity, which is usually measured by share price. Equity derivatives can be used to hedge the risk associated with taking a position in stock by setting limits to the losses incurred by either a short or long position in a company’s shares. The investor receives this insurance by paying the\u00a0cost of the derivative contract, which is referred to as\u00a0a\u00a0premium. In case of purchases\u00a0of stock,\u00a0a loss\u00a0in share value by purchasing a put\u00a0option can be protected. On the other hand, if the investor has shorted shares,\u00a0he or she\u00a0can hedge against a gain in share price by purchasing a call option.<\/p>\n
Options are the most common equity derivatives because\u00a0they directly grant the holder the right to buy or sell equity at a predetermined value. More complex equity derivatives include equity index swaps, convertible bonds or stock index futures.<\/p>\n
Types of Equity Derivatives:<\/strong><\/p>\n Equity options<\/strong><\/p>\n Equity options are the most common type of equity derivative. They provide the right, but not the obligation, to buy (call) or sell (put) a quantity of stock (1 contract = 100 shares of stock), at a set price (strike price), within a certain period of time (prior to the expiration date).<\/p>\n Warrants<\/strong><\/p>\n A warrant is a security that entitles the holder to buy stock of the company that issued it at a specified price, which is much higher than the stock price at time of issue. They can be used to enhance the yield of the bond, and make them more attractive to potential buyers.<\/p>\n Convertible bonds<\/strong><\/p>\n Convertible bonds are bonds that can be converted into shares of stock in the issuing company, usually at some pre-announced ratio. It is a hybrid security with debt- and equity-like features. It can be used by investors to obtain the upside of equity-like returns while protecting the downside with regular bond-like coupons.<\/p>\n Equity futures, options and swaps<\/strong><\/p>\n Investors can gain exposure to the equity markets using futures, options and swaps. These can be done on single stocks, a customized basket of stocks or on an index of stocks. These equity derivatives derive their value from the price of the underlying stock or stocks.<\/p>\n Other examples of equity derivative securities include exchange-traded funds etc.<\/p>\n","protected":false},"excerpt":{"rendered":" An Equity derivative is a derivative instrument\u00a0with\u00a0underlying assets based on\u00a0equity securities. The value will fluctuate with changes\u00a0in its underlying asset’s equity, which is usually measured by share price. Equity derivatives can be used to hedge the risk associated with taking a position in stock by setting limits to the losses incurred by either a short […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[939],"tags":[6808,6806,6807],"class_list":["post-2565","post","type-post","status-publish","format-standard","category-derivatives","tag-concept-of-equity-derivatives","tag-equity-derivatives","tag-equity-derivatives-concept","entry"],"_links":{"self":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2565","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/comments?post=2565"}],"version-history":[{"count":0,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2565\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/media?parent=2565"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/categories?post=2565"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/tags?post=2565"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Exchange-traded derivatives<\/h2>\n