Futures and Options contract provides option to trader to make money with minimal margin amount. Minimal margin is required only to avoid counter party risk. Future contract gives “rights to buy” for a buyer and “rights to sell” for a seller. Option contract gives “Rights to Buy” for a call option buyer, but not the obligation (it is not necessary and it is an option), similarly “Rights to Sell” for a put option buyer, but not the obligation (again it is an option).

  • : Spot market is where people buy product with cash. And they can keep the product as long as they wish to have it. In stock market equities are purchased with cash it is called as equities market.
  • : In derivative market people trade with margins not with full cash. So exchange plays a major role in settlement process between buyers and sellers. In futures market they do a adjustment process called Mark-To-Market - this is a feature, wherein gains and losses on every derivative contract are calculated on a daily basis and applied to their account. This almost eliminates the counter party risk in derivative transactions.
  • : Margin: It is a minimum deposit amount required to trade in derivatives market. MTM - It is an abbreviation for Mark-To-Mark a feature to determine daily profit and loss in the positions carried by traders. Premium: It is a premium amount over a future price given to a Options contract. Options buyer has to pay this premium to Options seller. Strike Price: A future price expected by put or call Options buyers is termed as Strike Price. This is the price at which they enter into a options contract with a premium amount. Expiry Date: It is a date futures and options contract comes to an end. It is the last Thursday of a month. Lot Size: It is total number of contract units to be purchased in one derivative transaction.
  • : Option contract gives an trader the right, but not the obligation, to buy or sell a stock at a specific price at any time. Seller takes responsibility to sell or buy the stock if buyer opts to do so. In future contract trader on the buy side has "rights to buy" and trader on the sell side has "rights to sell" This is the main difference between option contract and future contract.
  • : Call option gives right to buy but not the obligation to buy (not necessary to buy). Put option gives right to sell not the obligation to sell (not necessary to sell). In both the case seller takes responsibility to buy or sell the underlying stocks. Premium is decided by the buyer and seller of the option contract. Example: Share A is trading at 100 spot market then option contracts are created at various prices like 70, 80, 90, 100, 110, 120, 130 etc. Call Option buyer thinks that the price would go up and he chooses appropriate price to by a contract which is called his strike price say 120. Seller takes a risk to sell the underlying stock at the price of 120, so, he asks for premium from the buyer. Premium is a combination of price + time value put together into an amount.
  • : Future contract is an agreement to buy or sell stocks at a predetermined price at a specified time in the future. Example: 2019 July future contracts expires at 25th July 2019. Buyer of the this July contract of any derivative product has Rights to Buy the underlying stock on 25th July 2019. And seller of the contract has Rights to sell the underlying stock on 25th July 2019. Future price is determined by these buyer and seller periodically (even every second).
  • : Traders do not carry full cash to buy stocks, they prefer to have margin, a deposit amount, to buy contracts in futures and options. This gives them a very good risk to reward ratio, which makes them to earn smart money with minimum capital. So they go for futures and options contract over spot market shares.
  • : Yes, only in futures and options. It cannot be traded in spot market because there is no stock asset called NIFTY for delivery. So traders can trade the NIFTY and settle the amount as per their contract at the end of contract or on the expiry date.
  • : Physical settlement is delivering the underlying stock against a contract. Buyer and seller have to exchange the stock. Cash settlement deals only with amount not the underlying stock. Buyer and Seller knows how much they have to settle in cash to exit the contract on before expiry day. In case profit they get amount in cash or in the case of loss they have to pay the amount in cash.
  • : Can mutualfund NAV be traded in F&O like NIFTY?
1 Comment
  1. Naresh 3 years ago

    Hi,
    Your Question 1 :: Can mutual fund NAV be traded in F&O like NIFTY?
    NO

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