All about Derivatives Market

Options contract are which give the holder the right to buy or sell the underlying asset at a predetermined price. An Option can be a Call or a Put Option. While the Call Option gives the buyer the right buy the underlying asset at a predetermined price also known as Strike Price. If you have a Call option you have the right to demand the sale of the underlying asset from the seller, while the seller only has the obligations and not the right. The right here lies with the buyer while the seller only has the obligation for which he gets paid a price called Premium. Thus, the buyer of a Call option will not exercise his option, in a case on expiry, the price of the asset is lesser in the spot market than that of the Strike price of the call. Similarly, the buyer of a Put Option will not exercise his option, in a case on expiry, the price of the asset is greater than that of the Strike price of the call. A futures contract is a contract between two parties where both agree to buy and sell a particular asset of a specific quantity and at a predetermined price, at a specified date in future. In the beginning, both the parties are required by the exchange to put beforehand a nominal account as part of a contract known as the margin. Since the futures prices are bound to change every day, the differences in prices are settled on a daily basis. If the margin is used up, the contractee has to replenish the margin back in the account. On the day of delivery, it is only the spot price that is used to decide the difference as all other differences had been previously settled.