Basic Things In Stock Futures and Stock Options

A stock market in a layman term is a place where anyone can earn high profits on low Investments and vice versa. But for a beginner, it is tough to understand the whole process of stock market like how the stock market works? What are futures and what are options? How does these work? Who are technical analysts? What is fundamental analysis? And the list goes on. The newbies can trade on the basis of accurate F&O Tips, Stock Future Tips, Stock Option Tips, Option Trading Tips, Call Put Option Tips and Stock Cash Tips provided by expert advisory firms like TradeNexa.

This article will help all the beginners who want to trade in the stock market or in the commodity market. Let's start with basics of the stock market- Stock futures and Stock options.

Stock Futures-
Stock futures are financial contracts where the underlying asset is an individual stock. It is an agreement to buy or sell a definite quantity of underlining equity share for a future date and at a particular price agreed upon between the buyer and the seller. The contracts have some standard specifications like expiry date, a unit of price quotation, a method of settlement, tick size etc, which one has to follow.

How are stock futures priced?
A future contract is a sum of the current spot price and cost of carry. However, the actual price of a future contract is dependent upon the demand and supply of the underlying stock. Generally it is seen that future prices are higher than the spot prices of the underlying stocks. The cost of carry refers to the cost of holding the asset in the future contracts matured.
Futures Price = Spot Price + Cost of Carry

Example:

Spot Price of Wipro = 1600, Interest Rate = 6% p.a. Futures Price of 1 month contract=1600 + 1600*0.07*30/365 = 1607.8816

Stock Options:
Options are the contracts that give the right but not the obligation to buy or sell in underlining asset at a particular price on or before a certain date. Options are bounded with time limits which mean the rights and obligation will expire on a certain date.
There are two types of options call option and put option.

Call Option (buy):
A call option gives the option of buying at a certain price so that the buyer wants the stock to go up. A call option is basically an agreement that gives an investor the right but not the obligation to buy a stock commodity or bond or any other instrument at a specific price within a specific time.

Put Option (sell):
A put option gives the option to sell at a certain price which means the buyer wants the stock to go down. For example, a put option buyer is bearish on the underlining stock and predicts that the market price will fall below the specific strike price on or before the specified date. On the other hand, an option writer who takes a put option believes the underlining stock price will increase about a specified price on or before the expiration date.

Futures may be best for index and commodity market but options are used for the securities and equities. Thus on can trade in the futures and options market based on the F&O Tips, Stock Future Tips, Stock Option Tips, Call Put Option Tips, Option Trading Tips and Stock Cash Tips from reputed analysts.

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