Basics of Futures and Options

  • : Spot market is the equity trading where the settlement is done on the same day.
  • : The stock exhanges is reponsible for settling the contract, it takes up a caution deposit and also makes the buyer and seller settle the daily differences in market to the contact share value.
  • : Margin-Derivative trading requires you to keep a specific percentage of the value of your outstanding derivative position (total value of your holdings) as cash in your trading account. This specific percentage is commonly referred to as ‘margin money’. You are required to hold this margin money to help minimise the risk exposure for the stock exchanges you’re trading on. Mark to Market (MTM) in a futures contract is the process of daily settlement of profit and losses arising due to the change in the security's market value until it is held Premium is the price paid by the option seller or buy to have the rights of selling and buting in options contract. Strike Price is the price limit mentioned is the options or futures at which the rights can be claimed. Expiry Date-contract end period is reffered as expiry date. A lot size in futures is a minimum ticket size of shares that you can trade in futures.
  • : n future contract there is obligation to excise the contract at the end of contract. In optionsthere is no obligation to excise the contract hence the option buyer or seller has to pay a premium.
  • : WHen the option buyer has the rights to buy its called call option, if he has rights to sell then its called put options. The premium is based on the current market price, period of the contract and market volatility.
  • : In futures the deal is agreed today to purhase the shares from seller on agreed price irrespective of the market price at the end of contract. The future contracts holders can excise cash or physical settlement.
  • : The traders requires a option to purchase the required stock at fixed price to prevent the rise of the share price. An obligation is involved while purchasing the futures whereas the option trading does not have an obligation just the rights to buy or sell shares at given price instead the option seller gets a premium.
  • : Options and futures can be used to purchase nifty share, the same can be bought individually in equity but purchasing through options or futures is more efficient when considering brokerage, tax and other charges.
  • : 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
  • : How is the premium calculated?
1 Comment
  1. Naresh 1 month ago

    Hi,
    In response to your question

    Your Question 1 :: How is the premium calculated?
    Demand and supply ultimately determine the price of options, several factors have a significant impact on option premiums, which are the spot price, exercise price, volatility, time remaining to expiration, rate of interest and so on…

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