The Basics of Futures Options

Future and option trading tutorial india

Future and option trading tutorial india

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Futures Contracts vs. Options—Which Are Better?

In March, a speculator bullish on soybeans purchased one May Soybeans futures at $ per bushel. Each Soybeans futures contract represents 5555 bushels and requires an initial margin of $8555. To open the futures position, $8555 is debited from his trading account and held by the exchange clearinghouse.

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Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date.. [Read on.]

Options vs. Futures: What’s the Difference?

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So we know that futures trading is a contract for investing in a derivative. When such a contract is initiated, the investor need not pay the full amount for a contract, only a small upfront payment is required. It’s an initial margin of the total value that is required to initiate the contract. The margin and maintenance value are set by the exchanges. This is one of the most important aspects that distinguish futures market from other financial instruments.

When you buy a stock, it represents equity in a company and can be held for a long time, whereas futures contracts have a fixed time period. This is why the market direction and timing are vital while considering futures trading. Perhaps the most important difference between futures trading and other financial instruments would be in the use of leverage.

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results.. [Read on.]

A futures contract is a standardized contract that calls for the delivery of a specific quantity of a specific product at some time in the future at a predetermined price. Futures contracts are derivative instruments very similar to forward contracts but they differ in some aspects.

Let’s take for instance, a major food processor who cans corn. If corn prices go up. he must pay the farmer or corn dealer more. For protection against higher corn prices, the processor can "hedge" his risk exposure by buying enough corn futures contracts to cover the amount of corn he expects to buy. Since cash and futures prices do tend to move in a parallel direction, the futures position will profit if corn prices rise enough to offset cash corn losses.

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