Futures and Options Trading

1. Futures and Options Trading Futures and options (F&O) are financial contracts that fall into the derivatives category. The value of a derivative product is derived from an underlying asset, which in the case of equity derivatives could be a stock or an index such as the Nifty. As the underlying asset's value fluctuates, so does the futures or options contract. Two parties are involved in F&O contracts: one buying and one selling. Both parties agree to buy or sell the underlying asset at a mutually agreed-upon price on a specified date and price. What exactly are futures? Both parties in a futures contract are required to complete the transaction when the contract expires. The buyer of the futures contract must purchase the underlying asset, and the seller of the contract must deliver the underlying asset at the predetermined futures price on the expiration date. Therefore, buying futures contracts is suitable for those who anticipate a rise in the price of a particular asset. If you believe the price will fall, you could sell the futures contract. However, trading in the futures market is different from the cash market, as one trades in lots, which contain multiple units of the asset. To trade a futures contract, a margin amount, which is a small portion of the total amount, must be maintained, and both

2. parties must maintain a margin amount with their broker. However, this margin amount can be quite significant. What are options? Options contracts, on the other hand, give the buyer the right but not the obligation to complete the transaction when the contract expires. In other words, depending on the type of contract, the buyer of an options contract can buy or sell the underlying asset at a predetermined price known as the strike price when the contract expires. Options contracts are classified as either call options or put options, and they can be traded based on whether the underlying asset's price is expected to rise or fall. When buying calls, an options trader can demand delivery of the underlying asset at expiry. The trader who buys puts, on the other hand, has the option to deliver the underlying asset at the predetermined strike price. Unlike futures, options trading requires a premium that is lower than the margin required for futures. The premium, however, loses value over time and may become worthless. Conclusion To summarise, F&O trading is a complex subject that necessitates stock market experience. Consider reading Kotak Securities' derivatives chapter to learn more. To know about F&O trading visit here:- https://jonesangela.livejournal.com/1164.html