Futures options trading examples. How to make money trading Call and Put Options. Simple examples of why option trading can be more profitable than trading stocks.

Futures options trading examples

How to do an options trading in India.

Futures options trading examples. Profit from sideways markets by selling options and generating income. Example: You own shares of General Electric (GE). With the stock at 34, you sell one 35 call for $ If the stock is still at 34 at expiration, the option will expire worthless, and you made a 3% return on your holdings in a flat market.

Futures options trading examples


Between Options and Futures — I would say that Futures are a lot easier to understand than Options since they pretty much work in the same manner as shares. A Future is a contract between two people that has to be settled sometime in the future and with respect to the Indian stock market, here are the important things that you need to consider. Not all stocks have Futures: There are only a handful of shares that have Futures traded on them and you can buy or sell Futures only on those shares.

You can look at the list that your broker offers to see if you can trade Futures in a particular stock or index or not. Futures have an expiry date: All Futures have an expiry date, and in India you can buy Futures of three durations — one that expire in the current month, one that expire in the coming month, and a third one that expires in the third month.

All Futures contract expire on the last Thursday of the month. So, while in April you can buy an April contract that will expire on 26th April , the May Future will expire on 31st May and the June Future will expire on June 28th Futures are traded in lots: You can buy or sell one share of Infosys but Futures have predetermined lots and you have to buy or sell in those many multiples of shares.

For example, an Infosys Future has a lot of so when you buy one Future contract of Infosys — it is like buying shares at a go. Volatile stocks need more margin and less volatile shares need lesser margins. You pay or get only the difference in value in Futures trading: Say you buy Nifty Futures on April 17 when they were trading at Rs. If the exchange or broker finds that the money in your account is less than the margin then it will automatically square your position they will sell it if you bought the Future and buy it if you sold the future.

You can sell your Future at any time before the expiry and on the day of expiry your Future will be cash settled which means that you will either pay the difference if you are in a loss or you will be paid the difference if you are in profit. You can sell a Future without owning it first: Since a Future transaction is settled on a upcoming date, it is possible to sell a Future without actually owning it.

For example, you could sell a June Future today without owning it first, and you have till June 28th to buy back your Future and square your transaction.

In this case you make profit when the price of the share goes down because you have already sold the share and are hoping to buy it back at a lower price. Theoretically, this is more dangerous than buying a Future because there is no limit to how high a share can go. Practically, the limit is as much money as is present in your account and allocated for margin. Once your margin is triggered — the broker will square your transaction by buying back the share, and I think you should only buy or sell a Future if you are sure you can track it very closely throughout the day and if you can handle the volatility and price difference.

In fact, it might just be better to buy Options instead of Futures because then your loss is defined. I would like to add one more thing here which is very rarely known about futures and that is the fact that in India the value of 1 Lot of a Future is Rs. I think these changes takes place after heavy correction in stocks in Before,there was a fixed lot system independant of the future price.. Changing the lot size occurs only when there is a huge deviation in stock prices which affects the total value of the contract and the contract Sizes of almost all contracts were changed after the Fall.

I was doing my internship in a stock-broking firm in when the market crashed, so I have a fair idea of how the stock market works and all developments that took place during that time.

Yes, your article is very much informative and it may clear many doubts in the mind of investor. By going through serial No: So nifty future trading can make you earn big money in single trading day.

But I must suggest investor to keep away from future trading as it may even wipe out all your wealth on one bad day. Unless you have money , have courage to withstand point volatility of Nifty which may need lakh roughly ,better avoid it. Sir you could have said about hedging technique. I am not sure whether this method is helpful or not but definately it may reduce your loss.

Sir , would you give your guidance regarding stoploss. Whether Stoploss should be applied or not. In most case stop losses are triggered. Sir can you also clear my doubt that how price of contract of two different months moves in tandom lets trading activites are going in April contract but no trading is going on may contracti. In such case if April contract moves up then May contract also moves up by the almost same points though trading is not taking placein May contract.

The far month contract is usually priced higher than the near one because it has more time to expire. Actually my doubt is related to commodity future. Two contract of two different months always maintain a constant difference.

In case of Zinc,Aluminium or lead, the difference is almost Rs. How this diffference is maintained if trade is not taking palce or with less volume in contract of one month.

As far I think,there is always less volume in next contract and results in larger difference in Buy-Sell values only.. Tick size for zinc is 5 paisa. But Most of the times in next Zinc contract one can find that Buy Price: Under abnormal situations where number of traders get trapped in the wrong trade,chances becomes quite higher that hedging positions are added abnormally in next contract and difference gets higher or lower than the normal situations..

This kind of scenario frequently being seen in commodities like Natural gas where difference in two contact is always abnormal….. Finally Commodities are global assets…Value of Zinc whether in two contracts or at two different nations should have uniform trends…. Otherwise it will be simple arbitrage opportunity for traders.

I remember,few years back one of the exchange conduct commodity trading awareness seminar in our city and one of member of FMC was the speaker…After seminar,number of people asked their doubts…I have also one: You are true that there are lot of intricacies to be solved… Just I was sharing my thoughts about commodity market.

Irrespective of whether there is volume in a share or not, the price of the far month always moves in correlation with the price of the near month.

Both the buyer and the seller of the far month have a fair idea of the prices of the near month and expect a higher price in the far month. That is just commonsense that the price increases with passage of time. As the time to expiry is more for the far contract than the near contract the prices of far contract will always remain higher in most of the cases.

Farther we move, the more uncertain it is, the more premium is demanded. As far as stop-loss is concerned, it is a good practice to put a stop-loss trigger price and technical experts always suggest a stop-loss. You are right in saying that stop-loss price usually get triggered but all experts suggest that you should put a stop-loss.

I personally dont put a stop-loss price and prefer to monitor the screen and prefer to sell it when I expect prices to be falling down rather than putting it to auto-sell. Can you please write a few lines on, how to trade in options and how call and put options are used as hedge for future trading. If possible please explain citing nifty as example. I think that stop loss orders attracts prices towards self as similar to the lightening is attracted by fewer of the objects.

Sometimes trader is thrown out of trade as similar to bus conductor kick off the extra passenger…. I searched for the third part of this series, but could not be able to locate. Can you please post the link. OR I am missing something, you have not posted the third part yet. I will try to write about Options shortly. Wow, thius paragraph is good, my sister is analyzing such things, therefore I am goiong to let know her. Sir, How to square off value of stock.

Can you please explain me. Thank you in advance. When i buy it the price is I am new to future and option. And one more question is that nifty is upgrade but the price is Notify me of followup comments via e-mail. Contra Mutual Funds in India.

Futures and Options — How do Futures work? More from my site Part 3: Futures and Options — How do Options work? Of Brokerages and Sensex Targets Part 1: Introduction to Futures and Options How is the Sensex calculated?

Thanks for the informative article Manshu I would like to add one more thing here which is very rarely known about futures and that is the fact that in India the value of 1 Lot of a Future is Rs. Yes Paresh — you are right Changing the lot size occurs only when there is a huge deviation in stock prices which affects the total value of the contract and the contract Sizes of almost all contracts were changed after the Fall Reply.

Thanks for adding that Karan. In such case if April contract moves up then May contract also moves up by the almost same points though trading is not taking placein May contract Reply. How this diffference is maintained if trade is not taking palce or with less volume in contract of one month Reply. Thanks , still there are lot of intricacies to be solved Reply. Santonu Irrespective of whether there is volume in a share or not, the price of the far month always moves in correlation with the price of the near month Both the buyer and the seller of the far month have a fair idea of the prices of the near month and expect a higher price in the far month.

As the time to expiry is more for the far contract than the near contract the prices of far contract will always remain higher in most of the cases Reply. You are right in saying that stop-loss price usually get triggered but all experts suggest that you should put a stop-loss PS: I personally dont put a stop-loss price and prefer to monitor the screen and prefer to sell it when I expect prices to be falling down rather than putting it to auto-sell Reply.

Hi Karan Can you please write a few lines on, how to trade in options and how call and put options are used as hedge for future trading. If possible please explain citing nifty as example BTW, I know future trading and trade in nifty future. Hi Manshu I searched for the third part of this series, but could not be able to locate.


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