Futures And Options Trading

To further protect your online security, active links from Q&A has been disabled!

Best Answer

If you really want to start trading futures, check out my blog.

Best Answer

Futures trading is like commodities like Pork, corn, sugar.... Options trading is buying or selling a stock for only a limited amount of time at a 'discounted' price (you don't actually own the stock). Many use options to hedge their long or short positions

Best Answer

It depends on the volatility of the underlying asset prices. Futures are played with physical assets most of the time with hedges created with Futures. Options can be played Naked without physical underlying assets in hand. Index options are less riskier than individual options since they fluctuate with the market. Individual options with high betas fluctuate higher than index options. For futures it is the same. Individual options and futures wit beta less than 1 is less riskier. But then probably less trading take place in such instruments for lack of volatility to make it interesting worth trading for profits.

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

Best Answer

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.

i want to know how to buy options. i am new to trading options and futures, and i am a little confused. where do i set the strike price? and why would i buy out-the-money?? and how does options work? what is the difference between buying a PUT and selling a PUT and in the same trade you would buy a CALL and sell a CALL.. i have more questions BUT i am only allowed so many characters

Best Answer

www.cboe.com Also www.irs.gov. The IRS has very unusual rules for options and futures. You do not need to engage in a closing transaction for you to be taxed on your positions in quite a few cases. It is very important that you understand the tax rules before you engage in a transaction. They do not work like the rules for stocks. As a very very experienced investor, stay away from options and futures until you really understand them. Futures in particular are more dangerous than options. The laws governing futures permit and expect insider trading. That is the reason that when Hilary Clinton invested $1000 in pork bellies and walked out with $100,000 a year later no one could do anything about it. As a governor's wife she was not violating the law to have trades placed that were set up to win. If you are not rich, or the spouse of a governor, expect to be taken advantage of.