What are Futures & Options in Trading Market?
Future and Options are two most important derivatives of that are financial instruments deriving their value from an ‘underlying’. Underlying denotes stocks issued by a particular company. Futures and Options both are very common names in stock market circles. As the very name suggests Future is a contract for buying and selling of an underlying asset at a predetermined point of time for getting a specific price. Future contracts can be often heard of in the market scenarios and in the economy terminologies. To buy a future contract means you are promising someone through a written document the payment of the amount decided by both the parties at a certain point of time in future for that particular asset. Likewise in case of selling a future contract it generates the idea that you are ready to transfer the ownership of the asset in question to the other party involved at a certain point of time in near future in return for some payment which is generally in cash. The prices that are going to be charged in future are always higher than those of the ones charged now at the spot markets. It is natural because as day passes prices of every product or service always tends to rise up. What the price is today gets doubled in the coming days. All future contracts are marked with the presence of the features like a Buyer, Seller, Price and Expiry. The difference between the price of the underlying asset in the spot market (price value of the asset on immediate delivery) and future market is called basis. In order to be able to get sufficiently profited by huge returns, assets are held to be sold in distant future. Under options a seller is not witnessed to enjoy much flexibility with his or her choices and is obliged to follow the intentions of the buyers only Options contracts are instruments that empower the holders of these the right to buy or sell the underlying assets at predetermined prices. An Option in trading markets can be either a call option or put option. The former allows the buyer to buy an asset at the given price and the later permits the buyer to sell it at strike price. A call option means giving the buyer the right to purchase the asset at a given price which is also known as the strike price. If the buyer wants to buy the seller will have no option but to listen to the buyers wishes. Whereas in case of put options a seller has the right to buy and the buyer has the right to sell the assets in question. In either cases the seller has very little to earn considerably for himself and the sellers are usually not benefited much from this kind of Option trading that always favors the buyers under any given condition. In case of options trading strategies followed in markets the buyers are always in a favorable condition.