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For instance, if Mr. X buys 5 contracts on Sensex futures then he would be long on 5 contracts on Sensex futures. If Mr. Y buys 4 contracts on Pepper futures then he would be long on 4 contracts on pepper. X sells 5 contracts on Sensex futures then he would be short on 5 contracts on Sensex futures. Y sells 4 contracts on Pepper futures then he would be short on 4 contracts on pepper. X shorts say 5 contracts on Infosys futures and longs say 3 contracts on Reliance futures, he is said to be having open position, which is equal to short on 5 contracts on Infosys and long on 3 contracts of Reliance.
If next day, he buys 2 Infosys contracts of same maturity, his open position would be � short on 3 Infosys contracts and long on 3 Reliance contracts. Naked and calendar spread positions Naked position in futures market simply means a long or short position in any futures contract without having any position in the underlying asset. Calendar spread position is a combination of two positions in futures on the same underlying - long on one maturity contract and short on a different maturity contract.
For instance, a short position in near month contract coupled with a long position in far month contract is a calendar spread position. Calendar spread position is computed with respect to the near month series and becomes an open position once the near month contract expires or either of the offsetting positions is closed.
A calendar spread is always defined with regard to the relevant months i. A client is said to be closed a position if he sells a contract which he had bought before or he buys a contract which he had sold earlier. Limitations of Futures Contract As futures are standardized contracts introduced by the exchanges, they too have certain limitations in the context of limited maturities, limited underlying set, lack of flexibility in contract design and increased administrative costs on account of MTM settlement etc.
Differences between Forwards and Futures Feature Forward contracts Futures contracts Operational It is not traded on the It is an exchange-traded mechanism exchanges. Contract Terms of the contracts differ Terms of the contracts are specifications from trade to trade tailor made standardized. Counter-party Exists, but at times gets reduced Exists but the clearing agency risk by a guarantor. Liquidation Low, as contracts are tailor High, as contracts are profile made catering to the needs of standardised exchange-traded the parties involved.
Further, contracts. Price discovery Not Efficient, as markets are Efficient, centralised trading scattered. Quality of Quality of information may be Futures are traded nationwide.
Speed of information Every bit of decision related and its dissemination is week. Today futures, Index futures and currency futures and options Individual stock futures in India.
Pay off charts for futures In case of futures contracts, long as well as short position has unlimited profit or loss potential. This results into linear pay offs for futures contracts. Futures pay offs are explained in detail below: Pay off for buyer of futures: Long futures Let us say a person goes long in a futures contract at Rs.
This means that he has agreed to buy the underlying at Rs. Now, if on expiry, the price of the underlying is Rs. Similarly, if the price of the underlying falls to Rs.
The X Axis has the market price of the underlying at expiry. In the upward direction, we have profits and in the downward direction, we show losses in the chart. The profits and losses for the short futures position will be exactly opposite of the long futures position. If prices fall to 60 at expiry, the person who has shorted at Rs. This is shown in the above chart.
There is no single way to price futures contracts because different assets have different demand and supply patterns, different characteristics and cash flow patterns. This makes it difficult to design a single methodology for calculation of pricing of futures contracts.
Market participants use different models for pricing futures. Here, our discussion is limited to only two popular models of futures pricing - Cash and Carry model and Expectancy model.
This model assumes that in an efficient market, arbitrage opportunities cannot exist. In other words, the moment there is an opportunity to make money in the market due to mispricing in the asset price and its replicas, arbitrageurs will start trading to profit from these mispricing and thereby eliminating these opportunities. Let us understand the entire concept with the help of an example. Price of acquiring the asset as on future date in both the cases should be same i. If prices are not same then it will trigger arbitrage and will continue until prices in both the markets are aligned.
The cost of creating a synthetic futures position is a fair price of futures contract. Fair price of futures contract is nothing but addition of spot price of underlying asset and cost of carrying the asset from today until delivery. Cost of carrying a financial asset from today to the future date would entail different costs like transaction cost, custodial charges, financing cost etc whereas for commodities, it would also include costs like warehousing cost, insurance cost etc.
Let us take an example from Bullion Market. The spot price of gold is Rs per 10 grams. The cost of financing, storage and insurance for carrying the gold for three months is Rs. Now you purchase 10 gram of gold from the market at Rs and hold it for three months. We may now say that the value of the gold after 3 months would be Rs per 10 gram. Assume the 3-month futures contract on gold is trading at Rs per 10 gram.
What should one do? Apparently, one should attempt to exploit the arbitrage opportunity present in the gold market by buying gold in the cash market and sell 3-month gold futures simultaneously. We borrow money to take delivery of gold in cash market today, hold it for 3 months and deliver it in the futures market on the expiry of our futures contract.
Amount received on honouring the futures contract would be used to repay the financer of our gold purchase. The net result will be a profit of Rs 50 without taking any risk. In the entire process, we have not considered any transaction cost-brokerage etc. Because of this mispricing, as more and more people come to the cash market to buy gold and sell in futures market, spot gold price will go up and gold futures price will come down.
This arbitrage opportunity continues until the prices between cash and futures markets are aligned. Now people will borrow gold and deliver it to honour the contract in the cash market and earn interest on the cash market sales proceeds. After three months, they give gold back to the lender on receipt of the same in futures market. Cost of transaction and non-arbitrage bound Cost components of futures transaction like margins, transaction costs commissions , taxes etc.
In fact, these cost components create a non-arbitrage bound in the market i. In other words, because of the frictions in the market, for arbitrage to get triggered, it is important for the futures price to fall beyond the non arbitrage bound in either direction for the arbitragers to make profit from the arbitrage opportunities.
Fair Price Non arbitrage bound Practically, every component of carrying cost contributes towards widening this non- arbitrage bound. Here, we should appreciate that wider the non-arbitrage bound, farther the markets are from the equilibrium. In other words, for markets to be efficient, different costs of operating in the markets should be as low as possible. Lower costs would narrow down the non-arbitrage bound, which in-turn would ensure the efficient price alignment across the markets.
For instance, underlying asset like securities equity or bonds may have certain inflows, like dividend on equity and interest on debt instruments, during the holding period. These inflows are adjusted in the future fair price. Suppose , you buy index in cash market at level i. If index futures is trading above , we can buy index stocks in cash market and simultaneously sell index futures to lock the gains equivalent to the difference between futures price and future fair price the cost of transaction, taxes, margins etc.
Note: Cost of borrowing of funds and securities, return expectations on the held asset etc. The number of fair values of futures can be equal to the number of market participants in the market. Perhaps the difference among the fair values of futures contracts and non-arbitrage bound for different market participants is what makes the market on continuous basis. Assumptions in cash and carry model Cash and carry model of futures pricing works under certain assumptions.
This assumption does not work especially when underlying asset has seasonal pattern of demand and supply. The prices of seasonal assets especially commodities vary drastically in different demand-supply environments. When supplies arrive to the market place, prices are generally low whereas prices are generally high immediately before the supply of the underlying. When an underlying asset is not storable i.
The cash and carry model is not applicable to these types of underlying assets. Similarly, many a times, the underlying may not be sold short. This is true in case of seasonal commodities. Even though this simple form of cash and carry model does not discount for transaction cost, taxes etc. That is why this model is suitable for pricing forward contracts rather than futures contracts.
Assumptions of the model and characteristics of underlying asset can help us in deciding whether a specific asset can be priced with the help of this model or not. Further, suitable adjustments are made in the model to fit in the specific requirements of the underlying assets. Convenience Yield Let us touch one more concept in futures market called Convenience Yield.
We need to go back and have a look at the formula for fair price of futures contract. However, sometimes inflows may also be intangibles. Intangible inflows essentially mean values perceived by the market participants just by holding the asset.
These values may be in the form of just convenience or perceived mental comfort by holding the asset. For instance, in case of natural disaster like flood in a particular region, people start storing essential commodities like grains, vegetables and energy products heating oil etc. As a human tendency we store more than what is required for our real consumption during a crisis. If every person behaves in similar way then suddenly a demand is created for an underlying asset in the cash market.
This indirectly increases the price of underlying assets. In such situations people are deriving convenience, just by holding the asset. This is termed as convenience return or convenience yield.
Convenience return for a commodity is likely to be different for different people, depending on the way they use it. Further, it may vary over a period.
In fact, convenience is a subjective issue and may be very difficult to price. Convenience yield sometimes may dominate the cost of carry, which leads futures to trade at a discount to the cash market. In this case, reverse arbitrage is also not possible because no one lends traders the assets to sell short in the cash market.
In such situations, practically, the cash and carry model breaks down and cannot be applied for pricing the underlying assets. Expectancy model of futures pricing According to the expectancy model, it is not the relationship between spot and futures prices but that of expected spot and futures prices, which moves the market, especially in cases when the asset cannot be sold short or cannot be stored. It also argues that futures price is nothing but the expected spot price of an asset in the future.
This is why market participants would enter futures contract and price the futures based upon their estimates of the future spot prices of the underlying assets. Similarly, if futures price are lower than spot price of an asset, market participants may expect the spot price to come down in future.
Price discovery and convergence of cash and futures prices on the expiry It is important to understand what actually futures prices indicate?
For instance, if say Jan. We can explain this by saying that that market expects the cash index to settle at at the closure of the market on last Thursday last trading day of the contract.
Point is that every participant in the market is trying to predict the cash index level at a single point in time i. This results in price discovery of cash index at a specific point in time. Now, we may also state that futures prices are essentially expected spot price of the underlying asset, at the maturity of the futures contract.
Accordingly, both futures and spot prices converge at the maturity of futures contract, as at that point in time there cannot be any difference between these two prices. This is the reason why all futures contracts on expiry settle at the underlying cash market price. This principal remains same for all the underlying assets. Some features are very peculiar to commodity derivative markets. Even in the case of physical settlement, financial assets are not bulky and do not need special facility for storage, whereas in commodity market, due to the bulky nature of the underlying assets, physical settlement in commodity derivatives creates the need for warehousing.
The varying quality of asset does not really exist as far as financial underlying is concerned but in case of commodities, the quality of the asset underlying a contract can vary significantly. The classic example is the farmer who sells futures contracts to lock into a price for delivering a crop on a future date. The buyer might be a food-processing company, which wishes to fix a price for taking delivery of the crop in the future.
Another case is that of a company due to receive a payment in a foreign currency on a future date. It enters into a forward transaction with a bank agreeing to sell the foreign currency and receive a predetermined quantity of domestic currency. It is much less expensive to create a speculative position using derivatives than by actually trading the underlying commodity or asset.
As a result, the potential returns are much greater. A classic application is the trader who believes that increasing demand or scarce production is likely to boost the price of a commodity. He has two options with him - first option is to buy and store the physical commodity whereas other option is to go long futures contract. Trader chooses the second option to go long futures contract on the underlying asset.
If commodity price increases, the value of the contract will also rise and he can reverse back position to book his profit.
Arbitrageurs An arbitrage is a deal that produces risk free profits by exploiting a mispricing in the market. Such opportunities are unlikely to persist for very long, since arbitrageurs would rush in to buy the asset in the cheap location and simultaneously sell at the expensive location, thus reducing the pricing gap. As mentioned above, there are three major players in derivatives market � Hedgers, Traders, and Arbitrageurs. Hedgers are there to hedge their risk, traders take the risk which hedgers plan to offload from their exposure and arbitragers establish an efficient link between different markets.
Accordingly, Traders form one of the most important participants of the derivatives market, providing depth to the market. Hedgers will not be able to hedge if traders were not present in the system. Therefore, for futures market to click, presence of both hedgers and traders is a must.
For instance, assume, a farmer expects the price of wheat to fall in near future. Accordingly, farmer can sell futures contracts on the expected quantity of produce. In order to sell this futures contract, he needs a buyer. This buyer may be someone who needs wheat after three months, may be a flour mill or a bakery.
However, most of the times, there is a demand supply mismatch in the market and the trader fills the gap between demand and supply. Here trader, counterparty to the farmer, is thinking in contrary i. Further, the profit of trader would depend upon actual wheat price being more than the contracted futures price at the maturity of futures contract. If it is so, trader would make money otherwise he would lose money. In addition to hedgers and traders, to establish a link between various markets like spot and derivatives, we need a third party called arbitragers.
These arbitragers continuously hunt for the profit opportunities across the markets and products and seize those by executing trades in different markets and products simultaneously. Importantly, arbitragers generally lock in their profits unlike traders who trade naked contracts.
For example at the end of day 1st March : Market price of underlying asset in Rs. On the expiration date, suppose price in Rs. Suppose price in Rs. In real life, the transaction cost has to be considered like the brokerage, service Tax, Securities Service Tax etc.
Here, it may be interesting to look at the risks these arbitragers carry. Even if the systems are seamless and electronic and both the legs of transaction are liquid, there is a possibility of some gap between the executions of both the orders. If either leg of the transaction is illiquid then the risk on the arbitrage deal is huge as only one leg may get executed and another may not, which would open the arbitrager to the naked exposure of a position.
Similarly, if contracts are cash settled in both or one of the markets, it would need reversal of trades in the respective markets, which would result in additional risk on unwinding position with regard to simultaneous execution of the trades. These profit focused traders and arbitrageurs fetch enormous liquidity to the products traded on the exchanges. This liquidity in turn results in better price discovery, lesser cost of transaction and lesser manipulation in the market.
Uses of Index futures Equity derivatives instruments facilitate trading of a component of price risk, which is inherent to investment in securities. Price risk is nothing but change in the price movement of asset, held by a market participant, in an unfavourable direction. This risk broadly divided into two components - specific risk or unsystematic risk and market risk or systematic risk.
This risk is inseparable from investing in the securities. This risk could be reduced to a certain extent by diversifying the portfolio. Systematic Risk An investor can diversify his portfolio and eliminate major part of price risk i. Thus, every portfolio is exposed to market risk. This risk is separable from investment and tradable in the market with the help of index-based derivatives. When this particular risk is hedged perfectly with the help of index-based derivatives, only specific risk of the portfolio remains.
Therefore, we may say that total price risk in investment in securities is the sum of systematic risk or market risk and unsystematic risk or specific risk.
Before we get to management of systematic risk with index futures, we need to understand Beta - a measure of systematic risk of a security that cannot be avoided through diversification. Suppose a stock has a beta equal to 2. In order to calculate beta of a portfolio, betas of individual stocks are used. It is calculated as weighted average of betas of individual stocks in the portfolio based on their investment proportion. For example, if there are four stocks in a portfolio with betas 0.
Information on beta of individual stocks is readily available in various financial newspapers, magazines and information vending networks like Bloomberg, Reuters etc. Now, let us get to management of systematic risk. Assume you are having a portfolio worth Rs. You see the market may be volatile due to some reasons.
You are not comfortable with the market movement in the short run. At this point of time, you have two options: 1 sell the entire portfolio and buy later and 2 hedge by the use of Index futures to protect the value of this portfolio from the expected fall in the market.
As an investor you are comfortable with the second option. If the prices fall, you make loss in cash market but make profits in futures market.
If prices rise, you make profits in cash market but losses in futures market. Now, the question arises how many contracts you have to sell to make a perfect hedge?
Perfect hedge means if you make Rs. Readers may note that for simplification purpose, beta of futures index vis-a- vis cash index is taken as one.
Let us assume, Beta of your portfolio is 1. Assume one Futures contract has a lot size of You will have to hedge using Since you cannot hedge 2. You have to pay the broker initial margin in order to take a position in futures. A portfolio has different relationships with different indices used for hedge hence the hedge ratio would change with the change in the index. This may result in some difference between actual and expected numbers.
Similarly, we can use single stock futures to manage the risk of the equity investment in cash market. For instance, use of single stock futures would hedge the market participant against the whole risk in the equity investment because these futures are comparable with underlying positions.
Only difference between an underlying position and single stock futures is on settlement front; in case of cash transactions, settlement takes place immediately and in case of single stock futures contracts, settlement is deferred. Important terms in hedging Long hedge: Long hedge is the transaction when we hedge our position in cash market by going long in futures market. For example, we expect to receive some funds in future and want to invest the same amount in the securities market.
We expect the market to go up in near future and bear a risk of acquiring the securities at a higher price. We can hedge by going long index futures today. On receipt of money, we may invest in the cash market and simultaneously unwind corresponding index futures positions. Any loss due to acquisition of securities at higher price, resulting from the upward movement in the market over intermediate period, would be partially or fully compensated by the profit made on our position in index futures.
Further, while investing, suitable securities at reasonable prices may not be immediately available in sufficient quantity. Rushing to invest all money is likely to drive up the prices to our disadvantage. This situation can also be taken care of by using the futures. We may buy futures today; gradually invest money in the cash market and unwind corresponding futures positions. Similarly, we can take an example from the commodity market, if there is a flour mill and it is expecting the price of wheat to go up in near future.
This would also be an example of long hedge. Short hedge: Short Hedge is a transaction when the hedge is accomplished by going short in futures market. For instance, assume, we have a portfolio and want to liquidate in near future but we expect the prices to go down in near future.
This may go against our plan and may result in reduction in the portfolio value. The amount of loss made in cash market will be partly or fully compensated by the profits on our futures positions. Assume Company C is into export and import business. Company expects some dollars to flow in after say 6 months. Director Finance of the company is expecting the depreciation in dollar vis-a-vis local currency over this period of time.
This selling would protect company against any fall of dollar against the local currency. Cross hedge: When futures contract on an asset is not available, market participants look forward to an asset that is closely associated with their underlying and trades in the futures market of that closely associated asset, for hedging purpose. They may trade in futures in this asset to protect the value of their asset in cash market.
This is called cross hedge. For instance, if futures contracts on jet fuel are not available in the international markets then hedgers may use contracts available on other energy products like crude oil, heating oil or gasoline due to their close association with jet fuel for hedging purpose. This is an example of cross hedge. Indeed, in a crude sense, we may say that when we are using index futures to hedge against the market risk on a portfolio, we are essentially establishing a cross hedge because we are not using the exact underlying to hedge the risk against.
Hedge contract month: Hedge contract month is the maturity month of the contract through which we hedge our position. Similarly, if we hedge say risk on crude oil price with the help of Mar. Trading in futures market Traders are risk takers in the derivatives market. And they take positions in the futures market without having position in the underlying cash market. These positions are based upon their expectations on price movement of underlying asset. Traders either take naked positions or spread positions.
A trader takes a naked long position when he expects the market to go up. Money comes by reversing the position at higher price later. Similarly, he takes a short position when he expects the market to go down to book profit by reversing his position at lower price in the future. For instance, if one month Sensex futures contract is trading at and trader expects the cash index at the maturity of the one month contract should settle at a level higher than this, he would take a long position in index futures at a level of When they expect the market to go up, they may take long position in these futures and when they expect the market to go down, they may take short position in single stock futures.
If market moves in the expected direction, trader would end up making profit. Here, it may be noted that if market does not move in the expected direction, trader may also incur a loss. Because, a position is as exposed to loss as profit, it is called the speculative position. Naked position is long or short in any of the futures contracts but in case of a spread, two opposite positions one long and one short are taken either in two contracts with same maturity Mathematics Formula Upto 10th Annota on different products or in two contracts with different maturities on the same product.
Exchanges need to provide the required inputs to the system for it to recognize any kind of spread. At present, in equity market, the system recognizes only calendar spreads. In commodities market, system recognizes inter-commodity spread between specific commodities like Gold and Silver; Soybean, Soybean meal and Soybean oil, etc. Calendar spread position is always computed with respect to the near month series. A has say 3 contacts short in one month futures contract, 2 contracts long in two months futures contract and 3 contracts long in three months futures contract, he would be said to have 2 calendar spreads between first and second months and 1 calendar spread between first and third month.
Further, his position in remaining 2 three months contracts would be treated as naked. As spread positions are hedged to a large extent because they are combinations of two opposite positions, they are treated as conservatively speculative positions. Arbitrage opportunities in futures market Arbitrage is simultaneous purchase and sale of an asset or replicating asset in the market in an attempt to profit from discrepancies in their prices.
Important point to understand is that in an efficient market, arbitrage opportunities may exist only for shorter period or none at all. The moment an arbitrager spots an arbitrage opportunity, he would initiate the arbitrage to eliminate the arbitrage opportunity.
Arbitrage occupies a prominent position in the futures world as a mechanism that keeps the prices of futures contracts aligned properly with prices of the underlying assets.
The objective of arbitragers is to make profits without taking risk, but the complexity of activity is such that it may result in losses as well. Well-informed and experienced professional traders, equipped with powerful calculating and data processing tools, normally undertake arbitrage. These three positions are elaborated with the help of examples.
To simplify the calculations, it is assumed that there is no resistance like transaction costs, impact cost, taxes etc. In a simplified world of the kind described by our assumptions, actual futures prices are assumed to be exactly equal to the fair price or theoretical price, which is spot price plus cost of carry.
Thus, unless there are obstacles to such arbitrage the activities of the arbitrageurs would cause spot-futures price relationships to conform to that described by the cost of carry formula. On rare occasions, however, there is an arbitrage opportunity that exists for some time.
Practically, an arbitrage is feasible and will be undertaken only if it provides net cash inflow after transaction costs, brokerage, margin deposits etc. Illustrations: Cash and carry arbitrage The following data is available on stock A as on August 1, Cash market price Rs.
Going by the theoretical price, we may say that December futures on stock A are overvalued. To take advantage of the mispricing, an arbitrageur may buy shares of stock A and sell 1 futures contract on that at given prices. This would result in the arbitrage profit of Rs. Let us look at the following data on stock A as on December 1. Otherwise, also, if the trader carries his position till the expiry, it will yield him an arbitrage profit. The assumption in implementing this arbitrage opportunity is that the arbitrager has got the stock to sell in the cash market, which will be bought back at the time of reversing the position.
If stock is not available, arbitrager needs to borrow the stock to implement the arbitrage. In that case, while analyzing the profitability from the transaction, cost of borrowing of stock would also be taken into account. Assuming the contract multiplier for futures contract on stock A is shares.
To execute the reverse cost and carry, arbitrager would buy one December futures at Rs. Position of the arbitrager in various scenarios of stock price would be as follows: Case I: Stock rises to Rs. Our assumption in the above example is that both the positions i. Let us understand this point with the help of an example.
If in the above example of reverse cost and carry, on any day in December before the maturity date, spot price of stock A is Rs. Inter-market arbitrage This arbitrage opportunity arises because of some price differences existing in same underlying at two different exchanges. If August futures on stock Z are trading at Rs. The positions could be reversed over a period of time when difference between futures prices squeeze.
This would be profitable to an arbitrageur. It is important to note that the cost of transaction and other incidental costs involved in the deal must be analyzed properly by the arbitragers before entering into the transaction. In the light of above, we may conclude that futures provide market participants with a quick and less expensive mode to alter their portfolio composition to arrive at the desired level of risk. As they could be used to either add risk to the existing portfolios or reduce risk of the existing portfolios, they are essentially risk management and portfolio restructuring tool.
Some market participants desired to ride upside and restrict the losses. Accordingly, options emerged as a financial instrument, which restricted the losses with a provision of unlimited profits on buy or sell of underlying asset. The party taking a long position i. The option buyer has the right but no obligation with regards to buying or selling the underlying asset, while the option writer has the obligation in the contract.
Option terminology There are several terms used in the options market. Let us comprehend on each of them with the help of the following price: Quote for Nifty Call option as on September 30, 1.
Instrument type : Option Index 2. Expiry date : October 28, 4. Option type : Call European 5. Strike Price : 6. Open price : High price : 8. Low price : Close price : Traded Quantity : No of Contracts : Open Interest : Underlying value : Option type : Put European 5.
Low price : 84 9. For example options on Nifty, Sensex, etc. Stock option: These options have individual stocks as the underlying asset. Buyer of an option: The buyer of an option is one who has a right but not the obligation in the contract. In India, Index options are European. In our examples, option price for call option is Rs. Premium traded is for single unit of nifty and to arrive at the total premium in a contract, we need to multiply this premium with the lot size.
Lot size: Lot size is the number of units of underlying asset in a contract. Lot size of Nifty option contracts is Accordingly, in our examples, total premium for call option contract would be Rs. In our example, the expiration day of contracts is the last Thursday of October month i. Spot price S : It is the price at which the underlying asset trades in the spot market. In our examples, it is the value of underlying viz.
In our examples, strike price for both call and put options is In the money ITM option: This option would give holder a positive cash flow, if it were exercised immediately. A call option is said to be ITM, when spot price is higher than strike price. And, a put option is said to be ITM when spot price is lower than strike price. In our examples, call option is in the money. At the money ATM option: At the money option would lead to zero cash flow if it were exercised immediately.
Therefore, for both call and put ATM options, strike price is equal to spot price. Out of the money OTM option: Out of the money option is one with strike price worse than the spot price for the holder of option.
In other words, this option would give the holder a negative cash flow if it were exercised immediately. A call option is said to be OTM, when spot price is lower than strike price. And a put option is said to be OTM when spot price is higher than strike price.
In our examples, put option is out of the money. Intrinsic value: Option premium, defined above, consists of two components - intrinsic value and time value. For an option, intrinsic value refers to the amount by which option is in the money i. Therefore, only in-the-money options have intrinsic value whereas at-the-money and out-of-the-money options have zero intrinsic value.
The intrinsic value of an option can never be negative. Thus, for call option which is in-the-money, intrinsic value is the excess of spot price S over the exercise price X. Thus, intrinsic value of call option can be calculated as S-X, with minimum value possible as zero because no one would like to exercise his right under no advantage condition. Similarly, for put option which is in-the-money, intrinsic value is the excess of exercise price X over the spot price S.
Thus, intrinsic value of put option can be calculated as X-S, with minimum value possible as zero. Time value: It is the difference between premium and intrinsic value, if any, of an option. Open Interest: As discussed in futures section, open interest is the total number of option contracts outstanding for an underlying asset.
Exercise of Options In case of American option, buyers can exercise their option any time before the maturity of contract. The issue of assignment of options arises only in case of American options because a buyer can exercise his options at any point of time. When you are short i. All option writers should be aware that assignment is a distinct possibility. Now, let us understand each of these positions in detail: Long Call On October 1, , Nifty is at You buy a call option with strike price of at a premium of Rs.
A Call option gives the buyer the right, but not the obligation to buy the underlying at the strike price. So in this example, you have the right to buy Nifty at You may buy or you may not buy, there is no compulsion. If Nifty closes above at expiry, you will exercise the option, else you will let it expire. If Nifty closes at , you will NOT exercise the right to buy the underlying which you have got by buying the call option as Nifty is available in the market at a price lower than your strike price.
Why will you buy something at when you can have the same thing at ? So you will forego the right. In such a situation, your loss will be equal to the premium paid, which in this case is Rs. In this transaction you will make a profit of Rs. So If Nifty were to close at , you will exercise the option and buy Nifty at and sell it in the market at , thereby making a profit of Rs. But since you have already paid Rs. This table is used to draw the pay off chart given in the next page.
Strike Price X Premium The maximum loss for such an option buyer would be equal to But as seen from table and chart you can reduce your losses as soon as nifty goes above Long call position helps you to protect your loss to a maximum of Rs.
Short Call Whenever someone buys a call option, there has to be a counterparty, who has sold that call option. If the maximum loss for a long call position is equal to the premium paid, it automatically means that the maximum gain for the short call position will be equal to the premium received. Similarly, if maximum gain for long call position is unlimited, then even maximum loss for the short call position has to be unlimited.
Lastly, whenever, the long call position is making losses, the short call position will make profits and vice versa.
Hence, if we have understood long call pay off, short call pay off chart will be just the water image of the long call pay off. Thus at Nifty, When long call position makes a loss of Rs. Similarly for , when long call makes a profit of As Nifty starts rising, short call position will go deeper into losses.
Maximum gain for an option seller, as explained earlier, will be equal to the premium received as long as Nifty stays below strike price whereas maximum loss can be unlimited when Nifty starts moving above BEP.
BEP is independent of position long or short , it is instrument specific call option. Premium is received by the seller of the option. However he has to pay the margin. This is because the option seller has an obligation and since his losses can be unlimited, he can be a potential risk for the stability of the system. Long Put On October 1, , Nifty is at You buy a put option with strike price of at a premium of Rs.
A put option gives the buyer of the option the right, but not the obligation, to sell the underlying at the strike price. In this example, you can sell Nifty at When will you do so? You will do so only when Nifty is at a level lower than the strike price. So if Nifty goes below at expiry, you will buy Nifty from market at lower price and sell at strike price. If Nifty stays above , you will let the option expire. The maximum loss in this case as well like in long call position will be equal to the premium paid; i.
What can be the maximum profit? Theoretically, Nifty can fall only till zero. So maximum profit will be when you buy Nifty at zero and sell it at strike price of The profit in this case will be Rs. Breakeven point in this case will be equal to strike price � premium X � P. In our example breakeven point will be equal to � Thus when Nifty starts moving below The pay off chart for long put position is drawn using the below table.
A put option buyer need not pay any margin. This is because he has already paid the premium and there is no more risk that he can cause to the system. A margin is paid only if there is any obligation.
An option buyer either buyer of a call option or a put option has no obligation. Just the opposite of that of the put option buyer. When long put makes profit, short put will make loss. If maximum loss for long put is the premium paid, then maximum profit for the short put has to be equal to the premium received. If maximum profit for long put is when price of underlying falls to zero at expiry, then that also will be the time when short put position makes maximum loss.
An extra column is added to the above table to show positions for short put. The pay off chart is drawn using this table. As can be seen above, options are products with asymmetric risk exposure i. For example, under a call option, when a stock price goes down, the loss incurred by the buyer of this option is limited to the purchase price of the option. In contrast to this, futures have symmetric risk exposures symmetric pay off.
Opening a Position An opening transaction is one that adds to, or creates a new trading position. It can be either a purchase or a sale. Closing a position A closing transaction is one that reduces or eliminates an existing position by an appropriate offsetting purchase or sale. Note: A trader does not close out a long call position by purchasing a put or any other similar transaction. A closing transaction for an option involves the purchase or sale of an option contract with the same terms.
Leverage An option buyer pays a relatively small premium for market exposure in relation to the contract value. This is known as leverage.
In our examples above long call and long put , we have seen that the premium paid Rs. A trader can see large percentage gains from comparatively small, favourable percentage moves in the underlying equity. Leverage also has downside implications. Options offer their owners a predetermined, set risk. A short option position has unlimited downside risk, but limited upside potential to the extent of premium received 4.
The question is from where did we get these values? On what basis did market participants come to these values of the premiums? What are the parameters that affect these values? Are these fixed by the stock exchanges or by SEBI? The answer lies in understanding what affects options? Prices are never fixed by stock exchanges or SEBI or anybody for that matter. In fact price discovery is a very critical and basic component of markets.
Each variable has its impact on an option. The impact can be same or different for a call and put option. As explained in the earlier section, option premium is the sum of intrinsic value and time value.
As long as the option is not expired, there will always be some time value. Time value of the option in turn depends upon how much time is remaining for the option to expire and how volatile is the underlying. Spot price of the underlying asset The option premium is affected by the price movements in the underlying instrument.
If price of the underlying asset goes up the value of the call option increases while the value of the put option decreases. Similarly if the price of the underlying asset falls, the value of the call option decreases while the value of the put option increases. On the other hand, with all the other factors remaining constant, increase in strike price of option increases the intrinsic value of the put option which in turn increases its option value.
It affects both call and put options in the same way. Higher the volatility of the underlying stock, higher the premium because there is a greater possibility that the option will move in-the-money during the life of the contract.
Time to expiration The effect of time to expiration on both call and put options is similar to that of volatility on option premiums. Generally, longer the maturity of the option greater is the uncertainty and hence the higher premiums. This is also known as time decay. It is also interesting to note that of the two component of option pricing time value and intrinsic value , one component is inherently biased towards reducing in value; i.
So if all things remain constant throughout the contract period, the option price will always fall in price by expiry. Thus option sellers are at a fundamental advantage as compared to option buyers as there is an inherent tendency in the price to go down.
Interest Rates Interest rates are slightly complicated because they affect different options, differently. For example, interest rates have a greater impact on options with individual stocks and indices compared to options on futures.
To put it in simpler way high interest rates will result in an increase in the value of a call option and a decrease in the value of a put option. Options Pricing Models There are various option pricing models which traders use to arrive at the right value of the option.
Some of the most popular models are briefly discussed below: The Binomial Pricing Model The binomial option pricing model was developed by William Sharpe in It has proved over time to be the most flexible, intuitive and popular Mathematics Formula Upto 10th Uniform approach to option pricing. It is one of the most popular, relative simple and fast modes of calculation. Unlike the binomial model, it does not rely on calculation by iteration. This measures the sensitivity of the option value to a given small change in the price of the underlying asset.
It may also be seen as the speed with which an option moves with respect to price of the underlying asset. Delta for call option buyer is positive. This means that the value of the contract increases as the share price rises.
Delta for call option seller will be same in magnitude but with the opposite sign negative. The value of the contract increases as the share price falls. Delta for put option seller will be same in magnitude but with the opposite sign positive. Therefore, delta is the degree to which an option price will move given a change in the underlying stock or index price, all else being equal. The knowledge of delta is of vital importance for option traders because this parameter is heavily used in margining and risk management strategies.
The delta is often called the hedge ratio, e. This is called a second derivative option with regard to price of the underlying asset. It is calculated as the ratio of change in delta for a unit change in market price of the underlying asset. Theta is the change in option price given a one-day decrease in time to expiration. It is a measure of time decay. Theta is generally used to gain an idea of how time decay is affecting your option positions.
Other things being equal, options tend to lose time value each day throughout their life. This is due to the fact that the uncertainty element in the price decreases. An increase in the assumed volatility of the underlying increases the expected payout from a buy option, whether it is a call or a put. Among other things, a trader must also consider the premium of these three options in order to make an educated decision.
As discussed earlier there are two components in the option premium � intrinsic value and time value. In case of at-the-money or out-of-the-money options there is no intrinsic value but only time value.
Hence, these options remain cheaper compared to in-the-money options. Therefore, option buyer pays higher premium for in-the-money option compared to at-the-money or out-of-the-money options and thus, the cost factor largely influences the decision of an option buyer. Let us consider call options with strike prices of , , and A call option buyer will buy the option and pay the premium upfront. The premiums for various strike prices are as follows: Strike Price Premium Hence the option premium will always be at least equal to this value.
The remaining portion of the premium is the time value There is no intrinsic value here. The entire option premium is attributed to risk associated with time, i. The greatest loss will be for option with strike price Rs. The choice of option would be better understood with return on investment ROI. In each case, ROI is defined as net profit as a percentage of premium paid by the option buyer. Pay offs for call options with different strikes and premiums X Nifty Closing P A person bearish on the Nifty can buy a put option of any strike available.
The premiums for each of these are given below: Strike Price Premium 69 98 In case of the strike option, the intrinsic value is � For the other two options, the entire premium is the time value Pay offs for put options with different strikes and premiums X Nifty Closing P 69 98 Similarly strike price is out of the money and so the contract is selling at low premium of Rs.
In terms of return on investment criterion, buyer of deep out of the money option will gain the maximum return, if price of the Nifty falls drastically. On the other hand, selling deep out of the money put options is less risky but they come with low premium. Depending upon his analysis of the then existing market conditions and his risk appetite, he can devise various strategies, which we will see in the next chapter. As long as the trader can think of innovative combinations of various options, newer strategies will keep coming to the market.
In this section, we will see some of the most commonly used strategies. These are limited profit and limited loss positions. Further, these can be created either using calls as combination or puts as combination.
So he takes one long call position with lower strike and sells a call option with higher strike. As lower strike call will cost more than the premium earned by selling a higher strike call, although the cost of position reduces, the position is still a net cash outflow position to begin with.
Secondly, as higher strike call is shorted, all gains on long call beyond the strike price of short call would get negated by losses of the short call. To take more profits from his long call, trader can short as high strike call as possible, but this will result in his cost coming down only marginally, as higher strike call will fetch lesser and lesser premium.
Say, for example, a trader is bullish on market, so he decides to go long on strike call option by paying a premium of and he expects market to go not above , so he shorts a call option and receives a premium of Long Call Short Call Net Flow As can be seen from the above pay off chart, it is a limited profit and limited loss position. Maximum profit in this position is and maximum loss is These are interesting fields too. Interior design does not involve much of Math and is not as expensive as the course of Architecture is.
Hello Benzulk, Read all your post� Interesting and since your answering every Qs. I got 1more! My Qs. The field for it would be: � aerospace:-designing field. I like architect the same way I do for aerospace since my childhood. Maybe you could help. Us you no more about the outside and about art�. Sorry for the long info. In advance, if could really help me out this situation� Much appreciate it. I m lukin 4frwd towards Architecture as i want to do something different n intresting.. I m nt afraid from working hard bt would i get a decent job??
Hello Neha, If you are really good at what you are doing then you will definitely find a decent job with a decent salary. Focus on being the best, money will follow. Hello Shikha, You should good at two major subjects namely Math and Drawing.
Thats all you need to be a good Architect. Pelease Pray for me and tell all of your friend and family and all friend to pray cause i need. If you really have a strong desire to win, you will.
Here are some of the good institutions for Architecture in India: J. My only concern is that do you think it is a good idea for me to go into interior designing with little talent on drawing?!
But I am a commerce student and recently finished 12th. As well I am a little bit good in maths as I have studied in 10th.
So please suggest me that what should i do before going for architect. And is there any scope for an architecture??. And how many years will it take. Hello Rubina, Please refer to the comments in the article� Comment 1 Comment 2. Hi, Benzulk. Hello, It is good to know that you are working hard on the subjects that are difficult for you. After you are done with the course, you would not need much of Math to be a successful Architect. Focus more on the design subjects at the Architecture school.
Hello, I am very passionate about architecture. And have decided to take up architecture. So, in the current market prospect of India which is the best option in M. Hello Tejas, You could go for March in Advanced construction. I am sure that will be useful. I guess you are yet to pursue Architecture. Let me tell you that while you are studying Architecture at college, you will get to deal with various subjects.
You do not know yet what you would get interested in. So, I sincerely feel that you must wait for the right time to come that is when you would be completely aware of your right and wrong choices.
Why do you want to change your stream? Hello Benzulk I am 23 years old. I have just graduated with civil construction engineering bachelor degree in Vietnam with the highest score in my school. I know I am so carzy about architecture. I want to study architecture in USA. The problem is the course needs 7 years to get a legally license to work as an architect. This is really so long, when I get it, I will be 30 years old to star a career without experiences.
You can help me find the course which offers the shortest time to study. I am so confused about my future. Waiting for your replay every seconds pasts. Hello Ngo Tan Trung, The course is genuinely long. But I see that you have already done your graduation in Civil construction which means you are already a Civil Engineer. I have a better choice for you. I think that would be an awesome option for you. You will finish your masters degree in maximum of 2 years.
This will enable you to work in better structural firms anywhere abroad. As far as Architecture goes, if you want to do a shorter course in Architecture, many universities offer courses in Architectural technology or design. But you will not get a license to work as an Architect.
You can become a designer. So, I sincerely feel that you should pursue Structural Engineering in a good reputed university. This will put your career on the fast track. I wish you all the best for your career. Try to have a broader perspective towards how life could be. Well Hritu, the question is not about taking risks.
You take risk if you are not sure whether you will like it in the long run or not. When it comes to choosing your profession, you have to be completely aware of what you would want from it. Choosing a profession is a personal choice and not always based on how much money you would make. If you really love your job, then you will always be happy and try and find ways you could make the best of your God gifted skill.
So, think for yourselves, what do you really want to be in life? Do you really want to see yourself as an Architect? Would you be happy pursuing Architecture? Does designing buildings, surroundings give you a sense of happiness? Hello Zaki, Architecture course does include some Civil engineering subjects that involve mathematical calculations.
You will have a lot theory subjects too.. I must make it clear that Architecture is a field that requires tremendous amount of hard work and dedication. It is no FUN field. Generally, students make a mistake while choosing Architecture. They have a huge misconception that this field does not require hard work and then are unable to clear the subjects.
This fills their heart with frustration and hatred for the profession. If you are ready to work hard and are creative enough, you should definitely consider taking up Architecture. And if you are more interested in the technical part of designing structures, then you should for Civil Engineering. There are different options in Architecture. Since, you want to be an interior designer, you should consider taking up B. Hello, i read all the comments above and i liked you..
And I have passed my Nata exam.. More than counting on the eligibility, I think you should count as to how much interest you possess in the field.
I have got marks in Aieee B. And m ST category,, will i get any govt college with that marks? Hello, I have no idea about the marks requirement for people belonging to ST category. It would be better if you could go to the college you want to take admission into and inquire about the entry requirements for the course. I will not deny the fact that it requires lot of dedication and hard work.
If you are willing give your best to be the best, then nothing should pose a problem to you. And about the scope for Architecture, it has tremendous scope in a country like India. Let me give you an example. Maybe, this might help you convince your family. Population in India is continuously growing. This creates a need for housing. One thing is to be understood that no matter what kind of recession goes on, construction industry will not loose momentum.
Its simple to understood. People require a shelter to live in. That is never going to change. You are going to be designer who designs shelters for the people to live in. Need for housing gives rise to different types of houses depending on the economic condition of the people.
That would include lowcost housing, vernacular design, lavish villas for the rich etc� Its an exciting field. Loads and loads of opportunities Mathematics Formula Upto 10th Core will come. It all depends on how you take them.
You are the one who is going to live it. And choosing the right profession is the first step towards successful living. And about the course being expensive.
It does involve a lot of expenses since you have to spend a lot of money in taking printouts and making a presentable portfolio. So, you need to have the skill of money management which I am sure you will learn gradually.
Apart from creativity, Architecture teaches us two important skills namely time management and money management. Finally, all i would like to say is take decisions wisely without being influenced by anyone. If some person has had a bad experience in Architecture does not mean that there is no scope in the field. To be the best, you need to show the world that you are indeed the best. Hello Vasavi, You will surely make it up.
The best thing is that you have made an effort and have gone through the works of an Architect. So I guess you are quite aware of what your job is going to be like as an Architect.
Your motivation and passion will lead you towards true success. All the best of Luck! And do keep visiting the site. Let us know if we can assist you in any way. Is it better than a B. How to know whether one is suited for pursuing barch?? I am 25 years and i love architecture like crazy! Thank you:.
I love architecture field soo much. So is it good for me if I do it from there? Im a 12th year science student who is truly smitten by the charms of architecture and design. I already have basic knowledge on how to design structures and floor plans.
My love for art and drawing is immense. And sketching and creativity is what im good at since childhood. But at as im a science student im asked to take up engg just because it has a good pay. So I wanted to know if I could make it big and earn equally well if I take architecture as my profession. Please do tell me the pros and cons of the job opportunities of this field. I saw some in a blog say they could major both, and some say they could major in B.
Is this possible? Iam confused abt archtecture.. Wheather i shoulf take pcmb pcb aur pcm� And when is nata exam conducted. And which subjects does it hav and how many marks do i need to qualify�.. And finally wich subjcts are thr in architecture.. Im 15 and i have always had great grades thus far about a 3. I really have always wanted to be an architect and design houses.
By the time i would graduate would architecture still be a good option for a long term career? If so what classes should i continue to take in high school?
I did do gcse textiles and achieved a grade A so I do have some skills.. Someone is saying its impossible for me to study an art based subject which has put me down but hope it is possible for me to do it.. I just need some advice please? Thank you! Why would you want to join Architecture unless you have an extreme passion towards the subject? If you join University, you will have to begin with a foundation course in Architecture. GCSE textiles is far different from what is required in Architecture.
But ofcourse if you are a creative person and are passionate about design, you will be able to achieve your aim in the field of construction too. My primary goal is to become an architect in the US. Obviously, I have the burning passion and the creativity which makes me ideal to pursue architecture as a career.
Will I ever reach that goal or choose another career? Hello Manas, Mathematics is essential in Architecture. Architecture is a combination of technical engineering subjects, theortical subjects as well as design subjects.
You have to be good at Maths, drawing and have a good grasping capacity. You have around 14 subjects per year. NATA would be a good choice since it is applicable all over India. Some Universities and colleges have their own exams plus you are required to give NATA in order to qualify with Council of Architecture.
Hello Benju di, Currently m doin my 12th! Result still to b announced! Plz suggest me wat shuld i opt for.. Thank u! Hello Jinesh, It is always good to do a job and then opt for Masters. Doing a job gives you lot of exposure to the technicalities involved in design. Practical experience of designing and then executing the same on site is very important.
You would have a variety of options while considering M. So, you should very well be aware of which specific subject in Architecture would you want to specialize in and this is only possible after having gained practical experience. Is sketching so important to be a good architect??? Thanks for your advice! Hello, My daughter has just completed her O levels and started her A levels.
She wants to study Architecture in the future and is in a dilemma about what subjects to opt for before her study for Architecture. She has taken up Maths, Physics, Chemistry and still in the phase of deciding for a fourth subject. Which sub she should opt for, economics, sociology or Art and design. Art and design is not offered by her college. Can you just suggest what should she do? Please respond ASAP. It was at the end of high school that I started thinking about studying Architecture after having really good grades on my Architectural drawing courses.
Mainly it was management and technology. It has been 7 years since I finished high school and I am facing all this and deep in my heart I still feel like Architecture is what I should study. My question is, Is it worth it fighting for studying Architecture this long?? Will I be successful or will it be a waste of time and energy again if I try to study Architecture with the language I have learned in less than 2 years.
Last but not least, how is the work condition, is it promising because after all I need to at least get what i worked hard for and feel safe. Oh gash I am so sorry it became so long but you have no idea how it would help me to get an advice on this.
I am a first year student in architecture from Algeria, I want to study in the UK and want to know how and how much does it cost to study in the UK and my e-mail is : domino hotmail.
My name is Arcy, and I currently live in India. I have been interested in Architecture and Interior Designing ever since I was in 2nd grade and still do! I hope that you can answer some of questions! Is this true? Thank you very much for reading this! But i have some doubts about the jobs and stuff. I have been offered another course in my college by my principle and i am in a dilemma as to whether to drop and pursue architecture or stick with engineering.
My main concern is the future jobs! Please help! Hi, My son is very interested in persuing architecture for his future career. He is 16 yrs old and this year sitting for GEC O level. He is excellent in maths and physics. He is learning scetch-up in his own time and preparing art folio. Is there any foundation programme for BA. Hope you could help me. Hello, You will have to begin with taking up Math and Physics at your A levels, then join a University with professional accreditation.
Only then will you be able to become a qualified Architect. If you want to pursue architecture, you need to have Math as your main subject in 12th and preferably you should be from the science stream or atleast from the commerce field. A on October 19, - am.
Hi BenzulK, can i ask some question. Im 18year old, i already finish my 12year in school but im not in science stream im from art stream its that a problem for me to take a architecture couse?
Hello Kennex, The experience with architecture field is different for different people. It all depends how much passion you have for the subject. For me, architecture has been an amazing experience. Being able to transform the drawings on paper into a real structure on ground amazes me.
We are the creators of beautiful buildings and spaces that people live in. As far as scope is concerned, people are always going to need new homes to live in.
That is not going to change. With increasing population of the world, the scope for construction industry also increases. It is up to you as to how you make the best of what you get! Gd day ma! You have been doin great job tenkx 4 ur surpot. Am by name ismail nd am from Nigeria. I just graduate from secondry school this year am a science student but am nt that good in maths nd physics.
But am good in Mathematics Formula Upto 10th Indices drawin since my primary school days nd I love it nd wen I was in my last year I participate in paintin comptition for the first time out of 20 student I came out among the best 3. Nd know I av my nabteb result I only hav pass in physics can I apply for achi wit this I lov archi but some say it is had nw 2 earn job as an archi in Nigeria pls shuld I go for it am good in drawin nd lov doin tinz my own way pls I need ur advice shuld I realy follow my mind.
Pls help me out I want 2 apply next year in Federal uni of technology minna Nigeria. Tenx 4 ur good work may God lift u higher amen. Hello Isah, It is hard to earn in every field. It also depends on the country you live in. The scope for construction is on the rise.
Everyone is aiming at city extensions, new city designs since our population is booming. Take up a field which you think best suits you and you will be happy working all your life. It is a decision of a lifetime. Do not get swayed by what others have to say.
Decide on your own. Do a little bit of background study of the current developments in the construction industry. That will probably help you decide. You should join one of those. Sketching is not the only important thing to be a good Architect. It is just a part of it. You will gradually get a hang of it. I am glad that you are creative and good in Math. The rest you will learn. At this age, we tend to be insincere but once we are determined to do our best, we automatically strive towards it.
Sometimes not being able to focus is also because of the company you are in. Maybe your friends are not very interested in studying and you get carried with them. This is pretty common. Initial years in Architecture are very important. Only bookish knowledge acquired in colleges in not important. Follow two simple rules: Make a diary Learn or read two new things everyday and write them down I am sure this is no big deal.
Everyone can do this But believe me� at the end of your academic year, you will be way ahead of everyone else in your batch. On weekends, practice sketching. Make 5 sketches minimum. You can also practice one minute sketching � Put a timer and roughly sketch 10 different small things you see around.
It could include a pencil, pen, eraser, laptop, jug, book �. We used to have this in college. It works wonders. Sketching improves drastically. It takes sometime to develop. Just keep working hard on all that I told you to.
And if you do this passionately and honestly, noone can hold you back from being the best! Please tell me what do you think of this, may I fail in it? Hello, Pls can you tell me whether studying 5 yrs B. Also, what are the requirements to be an architect? I am presently in 11th and i wanna take up my career on architecture. Dou you think it a right choice to get a decent job without recession and will have good demand around ?
And i have a feeling that this may be a good career option with a really good income�.. So can u please give me ur views ��. What would you think about an architectural history and design class for high-schoolers? Do people have a good life when they choose arch. Can we spend time with our friends. I have graduated high school and am taking a gap year, now has come the time to apply to my choice of course through ucas and im contemplating careers between architecture and one other option of mine.
I personally am a very creative person, i paint and draw as well as explore countless medium in art and design. A part of this article mentioned how an aspect of architecture includes engineering so i was wondering if being able to do physics is important or not for an architect? I want to be an arch. It was my dream. So i did advanced level exam in combined maths,physics,chemistry. But unfortunately i failed combined maths subject. I really want to be an arch. But after i failed maths i have a fear of maths.
Are there lot of maths in arch.? Am sure about my career choice, i. Do you think I might have a problem in pursuing it?? Please also advice me what to do after my year 2 year 1 presently. Can I do two degrees at the same time as in B. Regular in construction and B.
I know architecture is a super awesome field and also that what others say should not influence me, but is architecture that difficult?? My family told me that i should try to take up this course because of my creative skills. Does architecture involves a lot of math problems? Is architecture a good carrier? I want my son to do B. Secondly Is this a good course. I am currently in 12th grade and studying in a coaching institute for JEE. I searched for admission in architecture colleges in India and found out that I have to appear in the entrance exam conducted by NATA, right?
But i want to know whether I can get admission by appearing in JEE new pattern, ?? And what is the syllabus of the entrance exam�.. This prasanth my sister completed 12�. Im really confused about my career and i thought of taking up architecture but im worried if ill be able to keep up to the pressure and whether ill be good at it..
As for architecture, I love arts and I hope I can apply it into something, like architecture. So, what is the basic things that I should know? Anyway, wish I had found your article sooner. I completed my 2nd puc I got 87 percent n I am planning to take architecture�. It is my greatest ambition to become an architect. I love architecture and I admire Architects.
I am pretty creative and I am good at Maths but my drawing is just average. First of all.. This is Taran. I have got rank in jee paper 2 for arch. Is there a way I can become an architect without taking physics? Hi im arlenne and im in usa right now i passed college algebra, trigonometry and precalculus and currently taking a calculus course, I am good at sketching if I take my sweet time but I dont draw often unless im bored or whatever, once I sketched a skull for my anatomy and physiology honors project and it looked the best out of the entire class to the point my teacher stole it from me : � I wonder if architecture is for me, I do find it more appealing than engineering, i know landing a job in architecture would be hard but in case of that i already have a regular job at the moment or since i come from a military family i can always land a job in the military if financial strains are too much lol, also how hard is it to juggle architecture classes with work?
I also want to know what sort of tools do architecture students use to do all the sketching, drawing designing, etc. All you need to keep in mind is that you have to work hard and concentrate only if you wish to stand out from the rest of your class. If there is any help you need while on your course, just back to us and we will see how we can help you.
If you love landscape designing and understand what trees and plants should go where, then landscape architecture is perfect for you. So, tell me what are your reasons for wanting to go for landscape architecture? Then I Had chose field of Architecture. It is right or wrong ���������������������������������. You have to completely aware of what you select and why you select. If you are so confused, go to the college and get a syllabus copy.
Go through the subjects mentioned and their description. That will give you a fair idea of the kind of subjects that are there in the course. Once you do this, get back to me and let me know what you think. I like bringing whats in my mind to life. I love engineering. I also love architecture. Im not sure what to choose between to go to college for. Is there any way you could persuade me? Engineering is more of a technical field and Architecture is creative and technical. IF you enjoy a lot of MAth and technical subjects, you should opt for Engineering whereas if you enjoy doing creative stuff, go for Architecture.
Architecture is a mixture of both creative and technical sides. The housing I have been building is government designed and even with my lack of architectural knowledge I have noticed that the constructions do not fit well with the needs and lifestyles of the aboriginal people.
I have a background in television production as I was a technical director for television and that encompassed set design and lighting design as well as camera layout and control. Many thanks, Jeff Field. Read design philosophies of various world renowned architects, read about the new ongoing projects across the globe.
Hello, i graduated from high school in june and i am still confussed about what to study. Arch if i study first a BFA in interior design? I am not sure if you would be allowed to pursue March after doing this course.
You should check with the university you are planning to apply and see what they say regarding your plans for Masters in Architecture.
Do you know about this, is it still a good field to work in, and are there reasonable employment possibilities? I live in the UK. But I am aware of the employment opportunities worldwide. You can definitely find a good job after having gotten through Architectural course. The scope for sustainable construction is on the rise. The opportunities for construction in the west is on the rise. Could you share any of your research that makes you feel that Architecture is not a viable field in the United States?
Do you have any suggestions, tips or advice for me? It is very difficult to tell if this is a hard course or not.
It definitely involves a lot of hard work and dedication. With regards to being successful as an architecture student and then as an architect depends entirely on the individuals hard work and passion towards the field. One question I would like to ask you is what got you interested in Architecture? What is it about Architecture that really makes you want to become an Architect?
What makes you feel interested in Architecture? I will be able to answer your question once you answer mine. Yes architecture to not viable in the US, UK or anywhere you need a qualification. As if you need a qualification to do it, it would not be art or science therefore architecture.
Which is why architecture is very interesting and confusing and low paid. If you are interested in art or science find something else to do in art or science. If you are interested in building design find a building design course instead. Either way you are more likely to find employment and get better paid as you will be doing what you are saying and people appreciate that more saying one thing and doing another because it is confusing.
I say this to save people a lot of wasted hard work. I think I could be really good at it because of my creativity�. Construction activity has slowed down. Computer programming and related tech careers are better in this day and age�. Think about what you really love to do, and pursue a career in that field. You will be successful. Hey I m studying in class 12th in India. I have been preparing for engineering entrances over 2 yrs�but past few months I m having an inclination towards architecture� I m very much confused what to do now N how to prepare for architecture entrance?
Please help out�. I would like to know the reason why you want to switch your career choice from engineering to Architecture. It would help me to guide you for taking the right decision. Or you could refer books available in the market. Hello there, Good to hear from you. I would be more than happy to help you decide if you should Architecture as your career.
So tell me, what would you like to discuss? We are open to discussions. But my drawing is not so great its average! So I thought about it as I even have a construction and architecture background..! Please reply. It is good to know that you have Architecture background. I am assuming that your father is an Architect or someone in your family is into Architecture. Good drawing makes a huge difference because you can express your thoughts on paper.
Although it may not be a compulsion, you still have to have good imagination. There is immense amount of work you need to put into Architecture. It is no fun field.
It requires a lot of hard work, dedication, passion and creativity. I am sure if you really think you can work hard and are passionate about design, you will make it. As far as strengths and weaknesses go, math, physics and the technical side of architecture should not pose too much of a problem for me, as I have always been strong in these fields.
Because of cuts to education where I am BC , subjects like drafting were cut, leaving the only artistic course as art, which I did not take.
In hindsight this was a mistake, but now other than taking courses at the art centre and sketching buildings, either from pictures or my imagination, is there anything I could do that would help with the creative aspect? Since you are strong with all these technical subjects means you would perform very well in almost all the subjects in Architecture degree. If you are worried about your drawing skills, you definitely need to work on that one.
Being able to sketch does not necessarily mean that you would become creative. But it is a skill that comes handy during Architectural design projects. This is one of the most important skills required to become an Architect but sometimes it is mistaken and considered as the only important skill which is not true. So, I would suggest that you should start practicing sketching. As far as creativity is concerned, it is inside you. Sketching is a tool that will help you draw on paper all that you are thinking.
And this is incredibly important. Most students do not know how to sketch when they join Architecture. It is not that they cannot design well. It is just that they can never express on paper what they are thinking. They end up drawing something that does not resemble their thoughts. I hope this was helpful.
Hello there�Im a practising architect in India�its been 6 years since ive passed out of college and now im getting married to a british guy and planning to settle abroad�. Hello, Im currently 15 and I want to pursue my career in architectural engineering.
I have a great interest in this field which involves both maths and art in some way or the other. I like to travel a lot and I heard that this field involves a lot of travel.
Also, do I have to take coaching classes for nata? When should I start with this coaching? And I must admit, I was wondering how much does an architect earn yearly? For a person aiming for a luxury living, is architectural engineering the right choice?
Yes, you do get to travel a lot. The more you see the better ideas you get for designing. About making money, if you can successfully become a good Architect with really good design skills, you will definitely make good money. Money does not come easy. You have to be exceptional. The Architectural Entrance Exam is not very difficult. If you doubt about passing the exam, I suggest that you should do something else you are interested in.
Architecture is a tough field. Apart from being creative, it requires a lot of hard work, passion and dedication. I hope this helps. You could opt for Interior Design or Fashion Design. They are creative courses as well. You will probably enjoy them. I want to do B. But after you are done with your board exams, you really need to focus on your work. Hello,I am in college in 1st year with civil engineering as my branch. But I dont find it ibteresting enough. I am planning to drop civil engineering and join architecture.
Should I do it? Please answer me in detail. Hello Karan, If you are passionate about Architecture and if you are confident about working hard to develop your creative side, then you should definitely go for it. Let me know if you have any specific questions regarding Architecture. All the best. Hi, I like photography and art. Would choosing a stream aiming for architecture be productive in India?
I m sahil.. I have a question or so about the career of architecture and the path you took to get there. I am currently working on my AA and plan on majoring in architecture. Then will transfer to a specific archiecture school to finish BA and possibly MA. During my BA I want to be in an internship with a company to start my practice in the field.
It is a clever idea to get into an internship when pursuing BA. I worked for two years in an Architectural Consultancy firm before opting for MA. The experience gained comes handy when pursuing Masters. It is an amazing experience! I hope that helps. I love architecture. But after m graduation will be scope of architect down??? I completed my 12th with science and maths.
I scored less in my 12th examination especially in maths. Otherwise i am good in maths. I studied on my own for 12th. I am very passionate about architecture. He says there is lot of hard work in it. But i prepared for the entrance exam of architecture in just 28 days and i passed out with very good marks!
I am creative, good in drawing, i just love to do artistic things! Please tell me what to do! I cannot think of pursuing any other career than architecture! Dear Fiza, Architecture is not just drawing and painting. It involves a lot of serious work. You definitely have to be good at Math if you want to be a good architect.
It does involve a lot of hard work. Most of the learning in architecture has to be done ourselves. Noone will spoonfeed you. Hence, if you score bad in your architecture exams, you will not be able to blame your teachers. You have to do it yourself. I would encourage you to get into architecture only if you are willing to work really hard and are determined to give your best. Sir, I am currently doing 3rd year B. I would like to know what are the options available after completing the course.
Currently i m studying in 12th grd n i really wan to become an architect bt many people say ppl choosing architecture dont have much scope in future.. I am really confused and i need help in taking decision. I am good at sketching and drawing even i love creativity but not that much good in Math. Dear Sharvari, IF you are really passionate about becoming an architect then you should go for it.
About having scope, people will always need houses to live in and with increasing population the need for new houses is on the rise. If you are good at what you do, you will either find a good job in a good company or establish your own. Although making a career in architecture is no joke. It is not a bed of roses. If they would have given me marks i would have scored very well. Now my father believes me that the teachers did not give me internal marks! Because the same thing happend with someone last year.
I am ready to do hard work, whatever it takes. And the college in which i am going to take admission is a very good college with excellent teaching staff for architecture! First i didnt want to study archi.
But my mom likes it a lot and my family thinks it is a good caarer so i applyed then i convinced myself that i like it cause being an architect is a good job but now that i have to choose if i want to apply again i dont now what to do. I want to study architecture, im not good at math but im very good at art skecthing,desaigning or everything that is art.
You should not be thinking of convincing them. It is important that you know why you took architecture in the first place. You are the one who is going to live with it for your entire life.
If you are not very sure why you are doing it then it will be worthwhile to think why you chose the career you did. Hi, i am considering going into architecture but i not verry gpod at math and i concerned that that will make my studies very hard, is math really verry important in architecture?
Math is very important in architecture. You will have complex engineering subjects in Architecture where you will need to do a lot of complex mathematical calculations. So be careful before you choose your career path. I wish to pursue architecture but do I really need these subjects? Mathematics background is very important in architecture. It will make your life easier if you opt for Science although it is not a compulsion.
You can also opt for commerce and then do architecture. That is possible as well. Is good or bad please tell me about interior architecture designing. Hey I am studying in 10th class. After this I want to be a architecture.
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