FRM L1 Live Session - Exotic Options | Full Topic Covered

[@rahul__sharma__]

Thanks, The concepts are well explained.

[@nikhilsoni2289]

Very well explained sir

[@Fintelligents]

You're welcome! I'm glad I could help. If you have any more questions or need further clarification on any topic, feel free to ask. I'm here to assist you!

[@nikhilsoni2289]

@@Fintelligents can you share some tips to clear level 1 exam i am giving my exam in may 24 it would be helpful if you could give some tips to clear

[@Ash-lq9cr]

So well explained

[@tejasgajjar1062]

Very well Explained.. Kindly make some more videos on Book 2 Quants Analysis.

[@Fintelligents]

Thanks for the feedback

[@AnjaliA-dl6jr]

Well explained👍.... Kindly also make video on Reading 37 (Properties of Options)

[@Fintelligents]

Thanks for the Feedback we will try to create a video on the same

[@gangadharanmani1116]

Mr Ganesh Nayak, in the Barrier option Portfolio example of a combination of down and out call & down and in call (with same barrier and same strike), you said the option gets knocked out once the stock price touches 100 but gets knocked in because of the same condition..here you have assumed that the knock out happens first. My question is what if the knock in happens first and then the knock out happens later, the entire portfolio gets knocked out - isn't it? Could you pls explain. I am a late Latif !!! I just now watched your video

[@Fintelligents]

In the scenario with a down-and-out call and a down-and-in call on the same underlying stock, with the same barrier level and strike price, the sequence of events indeed matters in understanding how these options behave. Quick Recap of Barrier Options: Down-and-out call: This option becomes worthless (knocked out) if the underlying asset’s price touches or goes below the barrier level (in your example, USD 100). Down-and-in call: This option only comes into existence (knocked in) if the underlying asset’s price touches or goes below the barrier. In your example: Barrier level = USD 100 Strike price = Some higher level, say USD 120 Sequence of Events: Now, the interesting part is about the sequence of knocking in and knocking out. The key point here is: Once the down-and-out call gets knocked out (i.e., once the stock price touches the barrier of USD 100), the option becomes worthless, and it can’t be revived. On the other hand, the down-and-in call only starts existing after the barrier of USD 100 is breached (knocked in). Scenario 1: Knock-out Happens First If the down-and-out call gets knocked out first (i.e., the stock price touches USD 100), that option becomes worthless. Simultaneously, the down-and-in call gets activated (knocked in), and if the stock price then goes up and reaches the strike price (say USD 120), this in-the-money option can be exercised. Scenario 2: Knock-in Happens First, then Knock-out In this scenario, if the stock price touches USD 100, the down-and-in call is activated (knocked in) first. However, since the down-and-out call is also present, if the stock price continues to stay at or below USD 100, the down-and-out call will get knocked out, and the entire portfolio will become effectively worthless. In other words, if the stock price touches the barrier and stays at or below the barrier, both the options become worthless, as the down-and-out gets knocked out and the down-and-in will never have the chance to rise above the strike. Why Does the Knock-out Have the Final Say? Even if the down-and-in call gets knocked in first, the existence of the down-and-out call limits the overall portfolio because the down-and-out call gets knocked out as soon as the stock price hits the barrier, nullifying the entire portfolio’s value. Conclusion: Yes, you're correct in saying that if the knock-in happens first but the knock-out happens later, the entire portfolio becomes worthless. Essentially, the down-and-out call's knock-out mechanism dominates, and once it's knocked out, the portfolio ceases to have value, regardless of whether the down-and-in call has been knocked in or not.

[@sandeeptripurana4496]

Very clearly explained Sir

[@Fintelligents]

Thanks for liking