The spot / cash market is a place where stock buy/sale on spot price

The role of exchange is derivative instruments is very important
Exchange take margin for trading from traders, make rules and regulations for contract. Etc

Margin : margin is fixed amount for trade in any stock at future market.

Mtm:: Mark to market, which is levelling the strike price to the market price by compensating the benefited party.

PREMIUM: premium time value for holding the stock / is the amount paid by the buyer/ seller (over the current price) when signing a call/put option contract.

Strike price: strike price is agreed price between seller and buyer.

Expiry date: expiry date is expiry of contract

Lot size: lot size is minium fixed quantity to be traded for any derivative instruments

In the future contract the buyers has the right to buy and seller has the right to sell. But in the option contract the buyer have the right to buy or sell, where as the seller received the premium rights with no obligation

Call option : call options provide the holder the right to purchase an asset at a specified price for a certain period of time.

Put option : put option give the holder the right to sell an underlying asset at a specified price. The seller of put option is obligated to buy the stock at the stock price.
Investoer buy put if he think the share price of the underlying stock will fall.

And premium decide by buyer and seller

Futures / call/put are all options for a trader to make trading happen during the current time and make the settlement in a future date . Also there is minimum payment required margin / premium. With proper analysis the risk is minimum.

Cash settlement: under this method the contract

1 Comment
  1. vignesh 6 years ago

    Hi sir,
    your answers are brief and appropriate.

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