Many people have this confusion what to trade in options or futures?
The answer is very simpe, its personel choice..Let see some merits and demerits of both.
Options gives the choice to the customer Whether you want buy call (when we are bullish) and buy put when we are bearish. There is no obligation at all..
Your investment is less .. Ofcourse the returns will be equally less
Your loss is restricted to the premium what has paid to get into the contract
No matter where the markets goes the premium amount is what you are going to loose. Before expiration if you decide to exit then the loss will be even less
Premium: It is the amount you pay to get into the contract
Example: Say for an example I am bullish on United sprit.. Which is crrently trading at 2370 .. 2370 is the underlying value.I am assuming that it will cross 2400 in the week... So what I do is will buy Call optin of the strike price 2400.. The Call value is 50 .This 50 is called the premium. So my total investmtn is 250 * 50 = 12500
Futures: In order to trade in the Future you need to pay more to get into contract ... Which is called Margin
Same as opitons the Future has an expiration of 30 days
Futures are directly connected to the actual underlying value
profit or loss associated with the trade is very high.. This is basic meant for big guns..
Future can be traded for 3 months target in mind.. Which is not possible in opitons ..
As long as you are making profit in the contract it fine otherwise you need to put more money to safe the contract otherwise it will be auto executed..
There is no time decay concept in futures..Which means even on the expiry day raise can make your trade positive
Let's understand with an example
i will take united sprit
I am bullish on this stock and my target Rs 2400
Invest on Options is 12500, however the margin requried on Future is more than 1 lakh again depends on the broker firm you trading with/
Lets see if if hit 2400 or reaches near in a day..
Option value will spike like fire can goes upto 75 which gives a return of 25 * 250 =7500 but if goes to 2400 after a 4 days then value might dip and get only a return as 10 * 250 =2500 And if reaches after a week or near to expiry then you might even incure the loss..
However, with future if I will buy at 2350 and penny gain or loss will effect my bal right from the word go.
If the stock reaches 2400 no matter when with in expiry every single penny is counted..50 gain makes my profit to 50 * 250 = 12500... No time contrain
Summary:: The big guns can invest in Futures who are ready to take risk ..Options are meant for small investor who investing power is less ..As market may not go in the our direction always options protect your money and makes your investment safe or as it restrict your loss to premium amount..
The answer is very simpe, its personel choice..Let see some merits and demerits of both.
Options gives the choice to the customer Whether you want buy call (when we are bullish) and buy put when we are bearish. There is no obligation at all..
Your investment is less .. Ofcourse the returns will be equally less
Your loss is restricted to the premium what has paid to get into the contract
No matter where the markets goes the premium amount is what you are going to loose. Before expiration if you decide to exit then the loss will be even less
Premium: It is the amount you pay to get into the contract
Example: Say for an example I am bullish on United sprit.. Which is crrently trading at 2370 .. 2370 is the underlying value.I am assuming that it will cross 2400 in the week... So what I do is will buy Call optin of the strike price 2400.. The Call value is 50 .This 50 is called the premium. So my total investmtn is 250 * 50 = 12500
Futures: In order to trade in the Future you need to pay more to get into contract ... Which is called Margin
Same as opitons the Future has an expiration of 30 days
Futures are directly connected to the actual underlying value
profit or loss associated with the trade is very high.. This is basic meant for big guns..
Future can be traded for 3 months target in mind.. Which is not possible in opitons ..
As long as you are making profit in the contract it fine otherwise you need to put more money to safe the contract otherwise it will be auto executed..
There is no time decay concept in futures..Which means even on the expiry day raise can make your trade positive
Let's understand with an example
i will take united sprit
I am bullish on this stock and my target Rs 2400
Invest on Options is 12500, however the margin requried on Future is more than 1 lakh again depends on the broker firm you trading with/
Lets see if if hit 2400 or reaches near in a day..
Option value will spike like fire can goes upto 75 which gives a return of 25 * 250 =7500 but if goes to 2400 after a 4 days then value might dip and get only a return as 10 * 250 =2500 And if reaches after a week or near to expiry then you might even incure the loss..
However, with future if I will buy at 2350 and penny gain or loss will effect my bal right from the word go.
If the stock reaches 2400 no matter when with in expiry every single penny is counted..50 gain makes my profit to 50 * 250 = 12500... No time contrain
Summary:: The big guns can invest in Futures who are ready to take risk ..Options are meant for small investor who investing power is less ..As market may not go in the our direction always options protect your money and makes your investment safe or as it restrict your loss to premium amount..
