2007-02-19 21:05:51 · 3 answers · asked by viji 2 in Business & Finance ➔ Investing
It is very difficult to explain the whole mechanics of futures and options short. Any way I shall try.
Futures:Contract to buy or sell and underlying asset at a future date at a future price.
Eg: I enter into a contract or buy futures of gold or stock at a specified price say x dollars at a future date say next month 21st.
On the expiration day if the price has gone up you can claim the asset at a price you contracted for. If it has gone down you loose the premium paid.
Options:It is again a contract to buy or sell an asset like stocks at a future date called the expiration date at a price called the strike price. If you contract to buy it is called Call option and if you contract to sell it is called Put option. You can buy or sell each options. Selling an option is also called Option writing.
Eg: 150 IBM 4.40 March 22
This is a typical quote for an option which is IBM option with a strike price of 150 expiring on March 22nd, priced at $4.40. This ia typical call.
Put will be similarly quoted under Put.
If today is March 22nd and if the price is 160 for IBM stock then you will make a profit of 160 - (150+4.40)=$5.60 on each option.
An option contract consists of 100 options. So your profit above will be $560 less brokerages. Typical trading is slightly different since you have to follow brokers criteria.
Now when the stock is at 160 it is called the option is 'in the money'. Suppose it was less than 150 on expiration then it is called out of the money. Whenever the price goes beyond strike it is called the option is in the money otherwise out of the money.
This typically sums up futures and options though the entire subject is little esoteric for the beginer which I suppose you are. If you want to gain further detailed understanding please visit www.hoadely.com or www.888options.com or www.optionstradingpedia.com or www.optionspedia.com. The last two I believe is right with spelling check it out. You can also go to the Chicago Board of Options Exchange website www.cboe.com which has details for options beginer.
2007-02-19 22:31:44 · answer #1 · answered by Mathew C 5 · 0⤊ 0⤋
visit icicidirect, HDFCsec, sharekhan site
goood def with example
more on my blog
2007-02-20 15:36:23 · answer #2 · answered by dinu_pawar 5 · 0⤊ 0⤋
pl join ww.traderji.com forum, it's free and worth.
senior members in this forum will guide you.
all the best.
2007-02-20 02:09:08 · answer #3 · answered by Anonymous · 0⤊ 0⤋