difference between options and futures ?
- Thread starter Piratetrader
- Start date
Nifty Options and Nifty Futures are the derivatives products which derive its value from its underlying. that is an index which is CNX NIFTY popularly known as Nifty.
basic difference between them is what you said in your question i.e. one is an Option and the other is a Future. just google it theres a great deal of information out there.
Options:
in simple terms, when you are buying nifty options you are buying and selling the right to buy or sell the nifty index at a agreed price known as Strike price on or before expiry date. please note you have the right but not the obligation. so you have choice whether you exercise your right or not depending upon moneyness of your position.
amount you pay for option is called premium and it consists of time value and Intrinsic value. time value decreases as it approaches the expiry and intrinsic value changes depending upon underlying price know as spot price.
Example : Nifty 6800 CE @ Rs. 30 * 1 Lot(50 units) = Rs. 1500 (premium to be paid)
Explanation : Nifty Call option at Strike price of 6800
Futures :
Future are binding contract between two parties to buy or sell an underlying asset at an agreed date. therefore both the parties have obligation.
when you buy future it similar to buying a stock or index.
Nifty is an index hence it is just a number and it changes. therefore people like to trade it, but how can they trade it if it is merely a number. the answer is through futures market. this way you can bet on it via entering into contract and settling the profit and loss in cash without having to hold the underlying.
hope this helps. :thumb:
basic difference between them is what you said in your question i.e. one is an Option and the other is a Future. just google it theres a great deal of information out there.
Options:
in simple terms, when you are buying nifty options you are buying and selling the right to buy or sell the nifty index at a agreed price known as Strike price on or before expiry date. please note you have the right but not the obligation. so you have choice whether you exercise your right or not depending upon moneyness of your position.
amount you pay for option is called premium and it consists of time value and Intrinsic value. time value decreases as it approaches the expiry and intrinsic value changes depending upon underlying price know as spot price.
Example : Nifty 6800 CE @ Rs. 30 * 1 Lot(50 units) = Rs. 1500 (premium to be paid)
Explanation : Nifty Call option at Strike price of 6800
Futures :
Future are binding contract between two parties to buy or sell an underlying asset at an agreed date. therefore both the parties have obligation.
when you buy future it similar to buying a stock or index.
Nifty is an index hence it is just a number and it changes. therefore people like to trade it, but how can they trade it if it is merely a number. the answer is through futures market. this way you can bet on it via entering into contract and settling the profit and loss in cash without having to hold the underlying.
hope this helps. :thumb:
also regarding your example above : Buying Nifty 1 lot @ 50
I does not give any clear idea as to whether they are options or futures
and you will not find such thing in any terminal.
option will always be accompanied by strike price
option example : Nifty March-2014 Call strike price 6800 1 Lot @ 50
and nifty future will not have such small price such as Rs. 50
Future example : Nifty March-2014 Future 1 lot @ 6744.5
please note the future price will usully be slightly higher than the Nifty(underlying) as it also contains the cost of carry.
:thumb:
I does not give any clear idea as to whether they are options or futures
and you will not find such thing in any terminal.
option will always be accompanied by strike price
option example : Nifty March-2014 Call strike price 6800 1 Lot @ 50
and nifty future will not have such small price such as Rs. 50
Future example : Nifty March-2014 Future 1 lot @ 6744.5
please note the future price will usully be slightly higher than the Nifty(underlying) as it also contains the cost of carry.
:thumb:
Hi PirateTrader, I have been going through your threads. I have some info to ask about Options Trading as i am new in Options. I have gone through your posts about forex, RBI guidelines, FEMA etc. I am looking for the loopholes as you mentioned on a thread. I am using IQ option platform and Neteller for deposits and withdrawals. Now as per the law its illegal to convert INR to USD and use foreign Forex brokers. What is the safest way for me in terms of deposits and withdrawals. I want to know regarding the taxation as i dont have a personal CA. In case if my Govt asks in future where did these money come from, what do i have to what? How is it done safely with the loopholes. I have read in one of your posts that many indians are using these platforms. What will be safe for me?
Hope you help me with this ..
Thanks in Advance, Good day
Hope you help me with this ..
Thanks in Advance, Good day
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