Basics of future trading

[findvikas]

Futures give more return in Intraday, while Options are little longer, basically they are tool to hedge your positions. Feel free to correct me...

 

[AW10]

Thnz AW10 , nice answer, yes i wont interview the girls mom n dad or relative!

rightly said by u.


But why do people trade futures when options give much more ease and flexibility with higher returns than futures.


Can u explain this?

Sameer,

I am explaining my reasoning below as I understand it (don't know if that is correct or not.. but atleast it seems logical to me),

Most of the people start with stocks.. where pricing is straight forward, no complexity.
Charts of stock follow Technical analysis very well.

Futures is logical transition from stock. Where pricing is not very complicated. Just need interest rate as input to get cost of carry for future based on spot price.
Charts follow the TA pretty well. Gives leverage what traders need.

Option pricing is lot more complex (believe me, it is not straight forward though u can trade without knowing it..but u can trade more profitably if you know it). It needs different mindset then a regular traders (lot more probabilty and statistics starts coming into option pricing). You are becoming a casino owner or insurance company as real option trader.

There are way too much flexibility which makes decision making difficult.
Hence not it is last choice for many people. And even if they enter here, they just buy call/ buy put option.. like they used to buy stock. In my view, that is one of the most risky option strategy (i.e. just buying option).
Most of the people don't realise the flexbility that options trading provides in managing risk (which is the underlying truth of trading business).
You can use options to hedge, to trade, to speculate, to get regular monthly income, to place holiday trades.. that needs no monitoring cause you can define your exact risks.

So it is individuals choice. Some people are comfortable with complex decision making process, and some like it simple. In my view, it is the fear of choices that options world gives to people, keeps them away.

Happy Trading

 

[sameer999]

THNKZ AW10 , i wnt to ask if i buy nifty AUG futures , can i carry it to next month (september) if my position is in loss by the expiry?

and if i can carry the futures to next month, how mny times can i do that?

also want to know what does roll over means?



thanks in advance

 

[AW10]

Sameer, why would u like to carry your loss making position to next month.
Cut your losses.. Let profit run.. Not the other way.
Market is not the place to fall in love with your loosing position.

To do this, you will have to sell Aug contract and Buy Sept contract before the close of trading on day of expiry. Generally people start rolling over their position 1 or 2 days in advance.

So it is almost similar to closing one trade and opening another trade.
If I have a loosing position, then I will think afresh if I should buy NF at that time or not.
If answer is YES then I will go long on Sept contract else stay aside and come back later when I have next opportunity to trade.

AUG contract is no more tradable instrument after expiry date.
You can rollover in this way as many times as u want. I don't know why people call it rollover (maybe people who use NF for hedging have given this name), but as a trader to me it is like next trade.

By the way, have u read the NSE material on F&O ?

Happy Trading

 

[sameer999]

THNKZ AW10 sir, my teacher.

And yes i red f&o material at nse but wht u told about the education/certification section , i couldnt found that.

 

[AW10]

On NSE site, go down to following path.

Home > NCFM > Curriculum & Study Material

There is a Derivatives Market (Dealers) Module: Study Material : English |
which explains a lot about Futures trading.
There is another module on options strategies where u can find more about Options trading

Happy Trading

 

[sameer999]

On NSE site, go down to following path.

Home > NCFM > Curriculum & Study Material

There is a Derivatives Market (Dealers) Module: Study Material : English |
which explains a lot about Futures trading.
There is another module on options strategies where u can find more about Options trading

Happy Trading

Thanks alot AW10 , u rullzzzzz.

 

[praveen taneja]

Actually most of small investor with less capital go for option thinking it would at least limit there loss n in that process in there hand remain only less n limit with the broker

 

[Old Monk]

On NSE site, go down to following path.

Home > NCFM > Curriculum & Study Material
There is a Derivatives Market (Dealers) Module: Study Material : English |
which explains a lot about Futures trading.

Thanks a lot AW10. Can you please explain what Open interest are and how are they significant.

I am trying to understand this - http://www.thehindubusinessline.com/2009/08/18/stories/2009081851431000.htm

But I can't understand why an insturment should trade at permium or discount - does this present an opportunity for arbitrage.

-Monk

 

[AW10]

Thanks a lot AW10. Can you please explain what Open interest are and how are they significant.

I am trying to understand this - http://www.thehindubusinessline.com/2009/08/18/stories/2009081851431000.htm

But I can't understand why an insturment should trade at permium or discount - does this present an opportunity for arbitrage.

-Monk

Hi Monk, Plz don't get me wrong.. but you can search the forum / internet to get the basic info about OI and what that means.
Article on business line site is lists some facts from real market on change in OI.

Personally I don't use OI because in isolation, these numbers make no sense to me. Professionals use lot more complex strategies where
futures / options leg is just part of there trade. So while OI might give indication that trend is bullish, but when it is considered with OI of options and stock trading volume then it might
be a bearish position.

In case of options, trader might buy current month option (indicating increase in OI.. but can sell 2 far month contract, The combined position is bearish but if someone is just looking
at current month OI then might feel that it is bullish.

Monitoring OI can help in getting bigger picture but for trading decision, it might not be very reliable indicator.
Thats my view, probably I might be limited in my exposure to OI trading. Have no comment of arbitrage as I have not read or practiced that.

Happy Trading.