Futures and options are similar trading products that provide investors with the chance to make money and hedge current investments. An option gives the buyer the right ,but not the obligation, to buy ( or sell) an asset at a specific price at any time during the life of the contract.

  • It is the market where financial instrument or commodities are traded for immediate delivery. Here ownership of the asset is transferred immediately.

  • The exchange acts as a middleman in derivative market making.It collects a caution deposit and make sure trades are happening in a fairer manner.

  • MARGIN is the amount paid by the buyer and seller at the of signing the contract.
    MTM is mark to market, which is done at the end of the day for all future contracts based on the closing market price of the share in the future contract.
    PREMIUM is the amount paid by the buyer to seller when signing a call/put option contract.
    STRICK PRICE is the share price mentioned in future and option contracts.The settlement should be made at this price on the final day whatever the market price may be.
    EXPIRY DATE is the date when settlement should happen for future and option contracts.The contract is no more valid beyond this date and a new new contract need to be signed for future trading.
    LOT SIZE is the number of shares that is being traded.

  • The fundamental difference between option and future lies in the obligation they put on their buyers and sellers.An option gives the right, but not the obligation to buy(or sell) a certain asset at a specific price at any time during the life of the contract.

  • CALL OPTION - When buyer have got the right but no obligation to buy whereas the seller has no right but obligation to sell on a specified price or more. In simple words when buyer exercises the option of the contract it is call option.
    PUT OPTION is when seller has the right but no obligation to sell, whereas the buyer has obligation but no right to buy. in simple words when a seller exercises the option in the contract, it is put option contract.Both the buyer and seller together decides the premium.

  • A futures contract is a contract between two parties where both parties agree to buy and sell a particular asset of specified quantity and at a predetermined price, at a specified date in future.

  • Futures/call/put are required for traders to customize the trading.In the derivative market, the entire stock price is not required and only margin needs to paid. And derivative markets reflects the price fluctuation on daily basis but in equity market, it can be realized only when the stock are sold. Here, the percentage of profit/loss is much higher compared to Equity market.

  • Yes, it is possible to trade NIFTY. Suppose trader A feels Nifty will rise from 10700, she can buy one lot( 75 shares) of Nifty futures by putting a margin at a fraction of the contract cost. Her counterparty trader B sells her Nifty at that level. If Nifty rises to, say, 10800 A has the right to buy the index at 10700 from the counterparty and see it to him at 10800, gaining Rs 7500(100*75).If the Nifty futures fall to 10600, B sells the futures to A for 10700 even though Nifty traders at 10600,which means the buyer faces a Rs 100 a share loss.

  • PHYSICAL SETTLEMENT is a term in option or futures contract which requires the actual underlying asset to be delivered upon the specified delivery date, rather than being traded without offsetting contracts.
    CASH SETTLEMENT is a method used in certain futures and option contracts where, upon expiration or exercise, the seller of the financial instrument does not deliver the actual( physical) underlying asset but instead transfers the associated cash position.

1 Comment
  1. Naresh 3 years ago

    Hi,
    You did an excellent job

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