Go For Big Bucks Exercise Your Futures and Options India Judiciously and Grow

The security trading is not confined to physical buying and selling of equities. There are other means to earn. You can play with futures and options india, but it is better to know what it is. The options are a kind of contract to sell or buy an asset at a given price on or before a given date. It is a right to the buyer but not an obligation. The asset can be a security, or it can also be an index. To understand the game, you must know short and long positions.

Short and long position

In a short position, you sell a security in the market on a day expecting its price fall. Suppose you marked a security and you are expecting its price to fall below a certain price band. You are speculating that the security price will come down sometime in the day and on that understanding you are selling the security, but you don’t have a single script of that security. So, your position is short. During the day you find that the price has came down now you purchase at the lower price and book the profit. The long position is just the opposite. You are purchasing in the hope that the market will rise.

Call and put option

In India, you cannot keep your position open. You have to close your position on the day itself. If the price of the script shoots up instead of coming down, you will lose the game. You have to buy the amount you sold to square off the position. Same will happen to a long position where your speculation is that price will go up, and you are purchasing notionally. In the case of options, there are two types of options puts and calls. The put option gives it holder to sell an asset at a given price on or before a given day. It is same as the short position. And in the call option the holder to buy an asset at a given price on or before a given day.

Buyers and sellers

There are four distinct parties in the game; the buyers of calls and buyers of puts, the sellers of calls and sellers of puts. The buyers are called holders and sellers are writers. The holder of an option has no obligation to buy or sell, but the writers have the obligation to buy or sell if the holder exercises his option. The price at which the deal is stuck is called the strike price. The difference between the strike price and the market price is the stake. Since there are minimum lots, the holder is risking the difference per unit multiplied the units in the lot. He can at best lose that amount. Just imagine how much put option holder can gain if the price of the security or the index on which he speculated starts tumbling. So, for a holder the loss is quantified and cannot exceed the contracted limit, but, the gain can be anything if the security price starts tumbling. For more information visit us : http://www.plindia.com/f_and_o.aspx

How to make the deal

The deals can be made through authorized entities. The futures trading brokers are authorized to deal with the options and futures. It is a high-risk transaction and need a deep understanding of the market by individual investors. It is where fortunes are made and lost. Playing on derivatives and hedging the investment is not a part time job. There are examples of high net worth firms with the best brains of economics and analysts to file bankruptcy so it is better you should fathom your knowledge and then play with options with your risk funds.