DAILY CURRENT AFFAIRS IAS | UPSC Prelims and Mains Exam –20th May 2024
Archives (PRELIMS & MAINS Focus) FUTURES & OPTIONS TRADING Syllabus Prelims – Economy Context: A frenzied growth in India’s equity options market, which clocked a record 85 billion trades last year and accounted for 84 percent of all equity option contracts traded in 2023, is unnerving policymakers and regulators. Background:- Retail investors now make up over 35 percent of options trades, undeterred by the fact that 9 out of 10 individual traders in the equity futures and options (F&O) segment are recorded to have incurred losses. About FUTURES & OPTIONS TRADING Futures and options are two types of financial derivatives that derive their value from an underlying asset such as shares, stock market indices, commodities, ETFs, and more. Futures Futures are contracts that obligate the buyer to purchase a specific asset, and the seller to sell and deliver that asset, at a specific future date. They are typically used to hedge against risk or for speculation. Key Features: Standardization: Futures contracts are standardized in terms of contract size, expiration date, and other details, facilitating easy trading on exchanges. Obligation: Both parties in a futures contract are obligated to fulfill the contract at expiration. This means the buyer must purchase, and the seller must sell the asset at the agreed-upon price. Margin Requirements: Traders must maintain a margin account, which requires an initial margin (a percentage of the contract’s value) and maintenance margin (minimum balance to keep the position open). Options Options, on the other hand, give the buyer (of an options) the right, but not the obligation, to buy (or sell) an asset at a specific price at any time during the life of the contract. They are often used for hedging, speculation, or arbitrage. Key Features: Types: There are two types of options: call and put. A call option confers the right to buy a stock at the strike price before the agreement expires. A put option gives the holder the right to sell a stock at a specific price. Right, Not Obligation: The buyer has the right but is not obligated to exercise the option.The seller, however, has the obligation to fulfill the contract if the buyer exercises the option. Premium: The buyer of an option pays a premium to the seller for this right. The premium is the price of the option. Strike Price: This is the price at which the option holder can buy (call) or sell (put) the underlying asset. Expiration Date: Options have a finite life and must be exercised on or before their expiration date. Here are some key differences between futures and options: Obligation: A futures contract requires a buyer to purchase the underlying security or commodity—and a seller to sell it—on a specific future date, unless the holder’s position is closed earlier. An options contract, however, gives an investor the right, but not the obligation, to buy (or sell) shares at a specified price at any time before the contract’s expiration. Risk: Futures contracts carry a high level of risk because they require the holder to buy or sell the asset in the future, regardless of its current market price. Options contracts, on the other hand, limit potential loss to the cost of the option premium. Cost:Futures require margin and can involve significant capital commitment.Options require the payment of a premium, which is generally lower than the margin for futures. Source: Indian Express CHIR PINE Syllabus Prelims – Environment Context: As forest fires rage through Uttarakhand, the chir pine with its inflammable leaves or needles has been in the news for less benign reasons. Background: After a government ban in 1981 on felling of trees over 1,000 mt above sea level, the chir got an opportunity to spread lower in the foothills where the sal grows and above too, among the broad-leaved trees because it’s the nature of the chir to colonise. About CHIR PINE A conifer that can grow up to a height of about 30 metres, the chir pine covers almost 16.5 per cent of Uttarakhand’s total forested area. It owes its scientific name, Pinus roxburghii, to William Roxburgh, a Scottish doctor and naturalist, who went on to become superintendent of the East India Company’s botanic garden at Calcutta and who is widely regarded as the father of Indian botany. Native to the Himalayas, chir pine or the longleaf Indian pine, was not introduced to the Himalayas by the British, as is often believed, though they certainly gave it preference for its commercial use, mainly lumber and resin. Found all over the Western Himalayas at an elevation between 1,000 and 2,000 metres, it covers large parts of Garhwal and Kumaon where it can be seen growing on steep slopes and can be identified by its three needles and its round cone (unlike the elongated cones of other pines). Chir Pine does not allow any vegetation to grow around it as it makes the soil more acidic through its fallen needles. The accumulating carpet of needles on the forest floor under these trees makes conditions unfavourable for many common plants and trees to grow A few years ago, the Uttarakhand government had considered cutting pine trees to combat forest fires, an idea it later abandoned. For the short-term and long-term management of the forests in Uttarakhand, the dense chir pine forest, more like monocultures, must be converted into mixed forests. More broad-leaf species should be promoted and the dense chir pine forests should be effectively managed and their wood used. The state could effectively manage the chir forests and earn some revenue as well. The needles of chir falling onto the forest floor both suppressed the grass and rendered the hillside dangerous for cattle. Thus, in late April or early May, villagers resorted to the time-honoured remedy of fire to obtain a fresh crop of grass. Steps taken by the British to stop this practice often sparked popular protests. While its needles tend to catch fire easily because of their high resin content, the bark of the tree doesn’t catch fire easily since it has a very high
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