subject: Stock Options Vs Future options: a quick analysis [print this page] Options are derivatives of the investment instruments of several share markets. Option trading is considered one of the alternate to the different trades done using different investment instruments. Options can be traded in the share market, futures market, mutual funds markets, Forex markets, bonds and so on.
In a general perception, options are considered the most complex trading instruments that involve huge risks. But in reality options are the instruments that are used by the sophisticated investors and expert traders and options are really helpful in minimizing the risk factor. Options give you an opportunity to adjust your moves according to the share market conditions. They are actually a gateway to buy a certain underlying asset, but within a period of time and at a specified fixed amount. Options become the perfect choice for expert traders especially when the associated financial market is facing a slowdown. Stock brokers sell these stock options in exchange for equities like stocks, mutual funds, Exchange traded fund, Forex, etc.
But future options are totally a new concept for most of the investors, and active traders. In reality the basics of the options remain the same for futures market or share market. Future options are not the direct securities unlike the stock options, Forex options or any other kind of options. In the market trends, option trading is considered a bad practice, but if seen with a practical approach, then we will come to know that selling options close to their expiry can be extremely beneficial if the options market is going good. Options are sometimes also called as the backup plans that can help its owner to have more purchasing power and good profits at the time of the options expiry.
Option trading has relatively higher risk associated with it. On the other hand, the risk that comes with future options is very less. High risk level means higher margin levels. Also, the premium that comes with the stock options and the future options are different. The return on investment, i.e. the ROI in the future options is much higher than the stock options. This clearly tells the better alternate. The reason because of which the ROI is higher in future options is that the margin required in selling them is more than that of the stock options. And this margin is decided on the premium collected on the options.
Another consideration, which investors or traders should give before deciding on option trading or the future options, is the strike price. In future options, a seller can sell off the future out of the money options, i.e. the OTM option and still he can make good premium out of this deal. But on the different side, stock options trading cannot be done on strike price of OTM stock options since it is not worth taking risk.
The options are the financial instruments that do expire after a time frame. Futures come with the contract dates and after which they mature and ultimately expire, but stock options can be held up on the fixation of the date of expiry.
Options are the good alternate to the main stream financial instruments available in the share market. These derivatives remain the same in all the financial markets, but their trading rules may differ market to market.
