subject: Hows Stock Futures and Options Market Works? [print this page] Hows Stock Futures and Options Market Works?
Apart from Stock Cash and Commodity Market Stock Futures and Options are good place where you can make profit easier than cash market. Stock Futures and Options gives you facility to trade with in a lot size( lot size decided by exchange, it is the bunch of shares) so you can trade in lot instead in single share. Trader can also trade in the Futures and Options of an Index which requires less capital with the same profit margin.
Let me explain one by one what is Stock Futures and Stock options.
Stock Futures
The National Stock Exchange of India Limited (NSE) start trading in derivatives with the support of index futures on June 12, 2000.Indian Stock exchanges introduced stock futures just before Diwali(Indian Festival) on November 9, 2001. Single-Stock futures are the contracts with underlying asset being on stock. In Futures you can take yourplace for three months, that is applicable for both sell and buy, to take a position in futures an initial margin is required to paid. Contract value always calculated by multiplying the price at which stock buy /sell with lot size. Stock Futures just like future index, generally the futures price are higher than spot prices of the underlying stocks. Stock Futures give you permission to take longpositions against less capital such as paying 20% initial margin one can takes place for 100.
Stock Option
The Exchange(NSE) introduced trading in index Option on 4,June 2001 that is also based on Nifty Futures. NSE also became the first exchange which introduced trading in option on individual securities. Option contracts give an opportunity to the share holder to buy or sell their stock at predefined price. In Option market you can trade either in call or put, both terms used in option market for trading. When market is bullish then buyer use call option in this investor can buys the assets at a given price has known as strike price and cannot decide whether he wants to sell it or not. On the other hand when market is bearish then you can use put option in this situation buyer gets the right to sell his assets at the given price (strike price).
Difference AmongFutures and Option
The main Difference is that In Stock Futures both buyer and seller has the right to obligate buy/sell the underlying share, but in Option market the option buyer has the right and not the obligation, to buy or sell the underlying share.
In both futures and Option all contract goes on paper work or you can say that in this no trade on actual commodities all trade considered as paper business. You can square up your position with in a day otherwise it will settled on expire day of contracts. In Stock F&O investor can gets huge profit against less capital.
Generally exchanges give the F&O facility and you can trade in this with less amount, but before trading you have to readout whole document related to terms and condition of exchanges. You can take free Stock tips and whole knowledge about Stock Futures and Option from many resources.
