Futures And Options

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'forward contract' , 'futures contract', options

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Forward contract-It is an agreement to deliver a financial instrument.It is very specific in terms of parties involved,date of delivery and the quantatity.No claring corporation is involved.There is high risk of both parties deffering the contract Futures contract- Itis very standardised contact,transaction occurs through exchanges,parties are not directly involved,no risk of party deffering contract since clearing corporatins take care of payments Options-It is right to buy(or sell) a stock at a particular price For examples if you think that price of sharesof Tata steel go upwards (current price Rs 700) ,you can buy Tata steel call option with a strike price of 700. when stock goes up (to Rs 720),you can exercise your right(option) to buy at 700.This means that you are buying a stock at lower price than the market price and to that extent you will be profited

Hi All, Can anyone please tell me a best spread strategy in options and options+ futures. Also any good web links to know more about options and strategies. Aneesh.

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I'm tracking share market for quite some time(3 yrs actually) but only concentrated on cash segment. Can you let me know about futures and options trading. I don't want to know advantages or drawbacks, but what does it means and how to do it (preferable on 5Paisa.com). If you have any study material on it please mail me at alok_chem@yahoo.com

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Quickly and briefly - the easiest way to think about futures and options are with a commodity, such as wheat, but you can do the same thing with busines stocks. So image you want to buy some wheat. But you don't need the wheat today, you need it in 6 months. You can buy an "option" to purchase wheat in 6 months, at a fixed price. So, you purchase the option, then in 6 months you can excercise your option to purchase the wheat, at the price you purchased the option at. But, the kicker is you agreed to purchase a defined quantity of wheat at a defined price. Let's say your option that you purchased for wheat cost $5.67. 6 months from now, if wheat is $8.00, you have a very good and valuable option; since the price of wheat is currently $8.00 and you purchased it for $5.67. However, if wheat is $5.25, your option is essentially worthless. Because of this, the options can be traded just like the commodity would be traded. You can buy and sell the options up to the point when they expire (all options expire). To further complicate the issue, you can buy /selloptions to agree to sell or buy a fixed quantity of wheat. Options to buy a product are called a "Call", and option sell a product are caleld a "Put". Then both put and calls can be traded just like stocks or anything else. Hope that helps a little. Then, you can get into fancy stuff called straddles and strangles and all kinds of good stuff. Remember a few years ago when the British Bank -- Bearings, I believe, went under due to a trader in Singapore? That trade was trading (I believe) strangle options agreeing to buy/sell the index of the Japanese stock market.

How does the trading in Futures and Options takes place???

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Almost all Options and Futures in the U.S. are traded through the following exchanges. Chicago Board Options Exchange - CBOE Chicago Board Of Trade - CBOT Chicago Mercantile Exchange - CME Here is the Definition of an Option from investorpedia.com A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date. Definition of Futures An auction market in which participants buy and sell commodity/future contracts for delivery on a specified future date. Trading is carried on through open yelling and hand signals in a trading pit.