Futures and options are two types of stock derivatives traded in a share market. These are contracts signed by buyer and sellers for trading a stock at a predetermined price on a later date
- : Spot/Cash market is nothing but delivery of assets against cash.
- : The role of exchange in derivative instruments is to manage the trades.
- : Margin: The deposit amount paid to exchange by both buyer and seller to sign the future contract, which is refundable. MTM – Mark to Market: Day to day leveling of price movement. Profit/loss will be realized on daily basis. Premium – The money paid to seller of the contract for signing the option contract. Strike Price- The agreed price printed in the option contract. Expiry Date- The maturity date/ the validity date mentioned in the contract. Lot size – Number of shared covered in the contract.
- : Future contract is based on Right to buy and Right to sell but in option A buyer have Right to buy or sell but no obligations.
- : If price expects to go up then the buyer will go for call option. If the price expects to go down or low the buyer will go for put option. Buyers and sellers who sign the contract decide the premium price.
- : Contract taking place today and the settlement taking place at a future date is called future contract.
- : 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 be paid.
- : You can trade in Nifty in 2 ways. 1. Either buying or selling Nifty LOTS in "Futures segment", or 2. Buying or selling CALLS or PUTS in "Options segment".
- : Physical settlement is said to be settlement of contract by giving shares and cash settlement is said to be settlement of contract by giving cash.