Futures and options are the major types of stock derivatives trading in a share market. These are contracts signed by two parties for trading a stock asset at a predetermined price on a later date. Such contracts try to hedge market risks involved in stock market trading by locking in the price beforehand.
Future and options in the share market are contracts which derive their price from an underlying asset (known as underlying), such as shares, stock market indices, commodities, ETFs, and more. Futures and options basics provide individuals to reduce future risk with their investment through pre-determined prices. However, since a direction of price movements cannot be predicted, it can cause substantial profits or losses if a market prediction is inaccurate. Typically, individuals well versed with the operations of a stock market primarily participate in such trades.
- : The spot market or cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market, in which delivery is due at a later date. Spot markets can operate wherever the infrastructure exists to conduct the transaction
- : The exchange plays a major role in derivative instruments like futures and options. In futures exchange will maintain refundable margin from both the parties ,and manages the trade. In options it deals with the premium for the deal and executes it.
- : The deposit amount paid to exchange by both buyer and seller to sign the future contract, which is refundable/Mark to Market/The money paid to seller of the contract for signing the option contract/Strike price is the agreed price for the deal/Expiry date is the date where the contract becomes matured/Lot size is about the no. of shares going to be traded
- : A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Here, the buyer is obliged to buy the asset on the specified future date. An options contract gives the buyer the right to buy the asset at a fixed price. However, there is no obligation on the part of the buyer to go through with the purchase. Nevertheless, should the buyer choose to buy the asset, the seller is obliged to sell it.
- : Call option, Buyer gets Right to buy and in Put option, Buyer gets Right to sell. Seller gets the Premium amount so seller decide it
- : A futures contract gets its name from the fact that the buyer and seller of the contract are agreeing to a price today for some asset or security that is to be delivered in the future.
- : While the advantages of options over futures are well documented, futures also have a number of advantages over options such as their suitability for trading certain investments, fixed upfront trading costs, lack of time decay, liquidity and easier pricing model.
- : To trade directly in the Nifty index two kinds of derivatives are available- futures and options. Nifty Futures:In a future contract, the buyer and seller agree to buy or sell the nifty contract on a future date. During the period of the contract, you can sell it and make a profit if you see that the price has gone up.
- : Cash settlement is an arrangement under which the seller in a contract chooses to transfer the net cash position instead of delivering the underlying assets whereas physical settlement can be defined as a method, under which the seller opts to go for the actual delivery of an underlying asset and that too on a pre-determined date and at the same time rejects the idea of cash settlement for the transaction.