Abstract
M.Com. (Financial Management)
During the last decade, options, which are financial instruments used for trading
and hedging, have shown greater development than any other financial
instrument over the same period of time. Because option dealing is perceived in
the market-place as an instrument which is technically advanced, innovative and,
complex, many potential option players do not take part in trading. This process'
of withdrawal is fuelled by constant negative publicity given to option trading, but
very seldom are reports written on success stories relating to option trading.
Current option-trading participants are also constantly reminded by the press;
other companies, senior management, board members and shareholders that
they run the risk of losing vast sums of money and could take the company down
with one reckless transaction. What is unfortunate is that they will not be able to
prevent or detect transactions that could lead to such losses. Trading risk is
further increased by the fact that quality risk management staff are also very
difficult to acquire as this function is perceived to be not as glamorous as being
an option dealer.
Given the above scenario of what is really happening out there in the world of
option trading, the question arises whether option trading activities should be
embarked upon by Institutions who have never dealt in options and whether
current option trading participants should continue trading or should discontinue
trading activities as soon as possible.