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Futures and Options Markets

Posted By On 6/05/2008 12:21:00 AM Under
1. Futures and options has enabled the investors to hedge their investments. It has further enabled them to have limited risk positions and as a net result higher returns in percentage terms is made available to them . Moreover they can even leverage their positions by paying a margin towards the purchase of the stocks they have bought.

2. Futures contracts expire monthly on the last Thursday of every month. However one is obligated to trade in minimum lot sizes which is determined by the stock exchange i.e. NSE. Presently this facility is not available in all the stocks and is limited to select Indian stocks.

4. If an individual is bullish on a stock and have a price target for a month and in that scenario one can buy an option instead of buying the underlying stock in the cash market and as a result the risk is limited. Now consider the scenario where the markets crash and as a result one will be losing maximum and same is restricted to premium paid for the option. However if one was holding the stocks than the loss would have had got magnified.

5. Similarly one can consider when the situation is bullish or bearish on the market as a whole, and one can pick the index as a whole i.e. buy or sell the NSE Index (NIFTY) for a small margin payment and hold the position for a month at a time with the option of exiting at any time up to the expiry and same strategy is better than than picking individual stocks. However this strategy pays only if the trend of the market is clear.

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