Future&Options In Stock Market For Beginners.

 Future and Options :

 Futures and Options are derivatives. What is Derivative? It is a financial instrument such as bonds, shares, etc. Derivatives is a financial instrument which derives its value from underlying assets.



For example, stock derivative future  TCS  derived from its underlying asset TCS stocks in the cash market. Stock derivative TCS future increases  when its current stock value of TCS increases and vice versa. So stock of TCS is the underlying assets and stock of TCS future is  its derivative. So derivative is increased when underlying stock value increases and derivative is decreased when underlying stock value is decreased.

So derivative would be index derivative such as nifty, bank nifty; commodity derivative such as gold, silver, wheat, etc; currency derivative such as INR, USD, etc.

 Types of Derivatives :

 There are four types of derivatives

  1. Future

  2. Options

  3. Forward

  4. Swaps.

            In stock market forward and swaps are not part of market trading, so we can trade in futures and options.


  Why Derivatives ?

 Derivatives are used for two purposes: one is "hedging" and another is "speculation".

Primary intention of speculation is to earn profit. Speculation means prediction if i feel the market will go up then i will buy the future of the index or stocks or if i feel the market goes down i will short sell the future of index or stock. Short selling means selling the future of a stock or index first then buying it when it comes down. For example if I sell nifty at 11000 and I feel that it goes down to 9500, when the nifty comes to 9500 I will buy it and book my profit.

Primary intention of Hedging is to reduce loss.For example i bought 500 quantities of Reliance stocks at 1000RS. But the market is going down because of some reasons. I get panic so in this case I can sell the future of reliance stock at current rate and hedge the position means if the market comes down i have loss in 500 stocks in reliance but at same time i have profit in RELIANCE future. So, my loss gets reduced.


  Futures :

 Futures are derivative financial contract which are

  •      Obligate the parties => compulsion to owner the contract who is buyer or seller when enter in contract 

 

  • To transact an asset => buy or sell asset which is stock, index, commodity or currency


  • At predetermined future date and price => every future has an expiry (only future has expiry, stocks doesn't have expiry). We have three expiries of futures asset such as near month expiry, next month expiry and far month expiry. For example this is a september month so we have september month expiry, october month expiry and november month expiry. So if september month expiry finishes then we will have december month expiry. It means coming next month added as expiry. Future expires on the last Thursday of the month. If Thursday is a holiday it will expire on Wednesday.

  If you wish to buy any future you should buy a lot. Every future index or stock has a lot size.
 Image shows the stock market window for TCS future stock. Its type is stock future, symbol (stock name) TCS, expiry date 24DEC2014. Lot size is 125 and trading price is 2519.15. It means you have to buy a minimum 125 shares of nTCS future that is 1lot. 


 Image shows the market window for the nifty index future. Its type is Index futures, symbol nifty, expiry date 30AUG2018. Lot size is 75 and market rate is 11,484.90. It means you have to buy a minimum 75 shares of nifty that is 1lot. 

One more example,  if nifty is trading now at 12000Rs and i bought 1 lot (75 shares) of nifty, if nifty goes to 12005 Rs means i got profit of  375 Rs ((12005-12000)*75). Now in this case if the seller of nifty is not ready to buy this contract becayse he is suffering from loss,but he cannot do this because it is an obligation to buy a future contract. 

   Hope this information helps you for understanding the concept of the future, about options we discuss in the next blog on stock market. Thanks.

Comments

Post a Comment

Popular posts from this blog

Secrets Of Black Tea.

Image
  Black Tea or Milk tea, Which is better?    Hey friends with a very good afternoon and yes this is my first blog ,i want to say something not only good  but also important  for you. Everybody  starts the day with refreshing tea. I also drink  tea which is healthy, makes me  refreshed and energetic.       As we know almost everyone in india or any other country starts their day with milk tea, coffee, lemon tea, green tea, etc. Mostly in India people from a long time start their day with milk tea. Most of the people consume tea 3-4 times daily. My family, friends, even in my office people are crazy for it. I only drink black tea, not any other tea. First I will tell you the recipe. After that we will see the benefits of it.   Black Tea:      Recipe:         1. Boil some quantity of water. Add very less quantity of tea leaves or tea powder.        2 . Add sugar or jaggery.       3 .Add ginger or cloves to enhance taste.       4 . After boiling, filter it.                 It has a stro
Read more

What Can I Do For Self Improvement?

Image
  Self Improvement Ideas : Hello friends !!!!  I think many of us feel lazy, feeling alone and don't want to do anything sometimes. So in such a  time we can do many things to improve ourselves. There are a lot of things that we can do to get self motivated. Self motivation means increasing knowledge, decision making, overcoming weakness and increasing strengths and confidence. Self improvement means learning constantly. Continuous learning is good for our mental growth and increases productivity. Here are some ideas that I share with you to improve ourselves. Reading Books : Books are always good friends of ours. Reading is a very good habit, you should read a book daily. When you are reading you feed your brain with knowledge. Read biography of great persons, motivational stories and  novels, good articles, etc. You can learn many things by reading the biography of great persons and inherit some good qualities from them wh
Read more

5 Must Have Medicinal Plants For Your Home Garden :

Image
  Medicinal Plants : Hello Friends !!! Hope you all are doing well. Many of you love gardening, people growing plants at their home for different purposes. Some plants are decorative and some plants are medicinal. In India, we worship plants as god .Our mother nature blessed us with a lot of beautiful plants. Plants play a very very important role in our lives. Long time ago our ancestors also used plants as medicine, at that time there were no chemical drugs, so all medicines were herbal medicine. In Ayurveda plants are used as medicine, some medicinal plants available in forests and some are in our nearby areas and gardens. Today we are discussing some plants which we can easily grow in our garden and which are medicinal. Basil : Basil is an Indian herb commonly known as “Tulsi” normally found everywhere in India. It is generally of two different types one is “Green Basil” other is “Black Basil” . Green basil leaf and steam are m
Read more