- What are Futures & Options and how they work
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- List of F&O Stocks with Lot Size - F&O Stock
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What are Futures & Options and how they work
Futures and options are the major types of stock derivatives traded in a share market. These are contracts signed by two parties for trading a stock asset at a predetermined price on a later date. Such contracts try to hedge market risks involved in stock market trading by locking in the price beforehand.
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Future and options in the share market are contracts which derive their price from an underlying asset known as underlying , such as shares, stock market indices, commodities , ETFs , and more. Futures and options basics provide individuals to reduce future risk with their investment through pre-determined prices. However, since a direction of price movements cannot be predicted, it can cause substantial profits or losses if a market prediction is inaccurate. Typically, individuals well versed with the operations of a stock market primarily participate in such trades. Future and option trading are different in terms of obligations imposed on individuals.
While futures contract holds the same rules for both buyers and sellers of a contract, an options derivative can be divided into two types. Individuals entering an options contract to sell a particular asset at a pre-asserted price on a future date can do so by signing a put option contract.
Similarly, individuals aiming to purchase a particular asset in the future can enter into a call option to lock in the price for future exchange. Traders engaging in future and option trading can be classified into the following types. Such individuals enter into futures and options contracts in the share market to reduce investment volatility concerning price changes. Locking in a price for transaction at a future date helps individuals realise relative gains if the price moves adversely with respect to a trading position assumed by a buyer.
However, in case of a favourable fluctuation, individuals entering into a futures contract can incur significant losses. Such risk is mitigated in an options contract, as an investor can pull out of a deal in case of favourable price swings. Hedgers aim to secure their gains or expenditures in the future by entering into a derivative contract. Such traders are popular in the commodity market, wherein individuals try to secure an expected price of a particular item for a successful exchange.
Understand it with the help of a future and option trading example. A farmer can enter into a futures contract with a wholesaler to sell 50 kg of potato for Rs. On the day of maturity, if the price of potatoes falls below that level, the farmer successfully hedged his position to minimise the overall risk associated with trading in the future. However, in case of a price rise in the potato market, a farmer stands to lose out on profits. Such losses can be offset through a put option contract, which gives the farmer a right but not an obligation to meet the conditions of a contract.
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These aspects have been thoroughly examined by the author and have been presented in a detailed manner. From the eighth chapter onwards, the book discusses options. This part of Futures And Options: Concepts And Applications concentrates on the various fundamentals such as common terms related to options, call and put options, and notation. Restrictions in arbitrage, profit diagrams, and option strategies, option valuation, options regarding stock indexes and volatility indexes, exotic options, and options regarding terms and valuation of interest rates are also discussed in detail.
The two chapters dealing with Indian derivative markets and swaps deal with currency forwards, currency futures, margining and interest rate swaps and their valuation, termination of a swap, and currency swaps respectively. The author completed his schooling and college from Mayo College, Ajmer, and St. He completed his post graduation from IIM-Bengaluru.
Explore Plus. Economics, Business and Management Books. Finance and Accounting Books. Parameswaran S. Summary Of The Book Integration of economies on a global scale is allowing markets in developing countries to boom. About Sunil K. Rate Product. As a second year management student i found this book really good to clear concepts in Options , Futures and Swaps. This book can not only help beginners clear fundamental concepts but i am sure will be very helpful to professionals working in finance domain in this field.
List of F&O Stocks with Lot Size - F&O Stock
Debabrata Pruseth Certified Buyer. It is a complete book with all concepts regarding Derivatives. The best part of this book is the simplicity of explanation and many illustrations which are provided along with each formula. All the relevant concepts are provided to prevent overburdening of concepts.
One interesting feature of this book is its coverage on Futures, as most books on Derivatives focus mainly on Options and futures r A very good book, brilliantly written, this book discusses all the concepts with high clarity and helps to imbibe readers with the required concepts quite lucidly with the help of a large and a varied number of examples.
You need not be a "hardcore" fin guy to understand the concepts discussed in the book. The book encapsulates all of the areas that one need to touch upon with regards to options, future and derivatives and helps to explain the mathematical theories and deductions in a step by The book is very well written and anyone seeking clarity in concepts regarding futures and options would find it extremely useful.
I'm a second year MBA student and have found this book to be self explanatory. Its a great help to students like me, who wish to pursue a career in Finance, as it helps build a strong foundation in the subject. Its a great book to understand futures and options. It starts from basics and goes deeper into the subject. I highly recommend this book. Each and every line in the book has its meaning and its definitely a good read for derivative enthusiastic person.