Stock Options and Futures

When you own stock, you can give other investors the right to BUY those stocks from you by selling CALL OPTIONS, not put options. This is what is known as a Covered Call options trading strategy.

When you sell put options, you are giving investors the right to sell to you stocks at a fixed price. In this case, it will have nothing to do if whether you already own those stocks.

Forwards Contract:

A forward contract is the simplest of the Derivative products. It is a mutual agreement between two parties, in which the buyer agrees to buy a quantity of an asset at a specific price from the seller at a future date. The Price of the contract does not change before delivery. These type of contracts are binding, which means both the buyer and seller must stay committed to the contract. This means they are bound to deliver or take delivery of the product on which the forward contract was agreed upon. Forwards contracts are very useful in hedging

Futures Contract:

A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values.

Difference:

Futures are traded in Organized Exchanges while Forwards are Over-The-Counter (OTC) traded

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what are the functions of future exchange?

You hedge a call you sold by purchasing a put in usually the same security.

Open interest indicates the number of open contracts in futures trading. An open futures contract consists of a long and a short trading a single contract. Some exchanges treat that as 1 open interest while some exchanges treat that as 2 since two parties are involved in the trade. In general, the more open interest a futures contract has, the more liquid it is.

it covers the expected loss in situations that go beyond those envisaged in the 99% value at risk estimates used in the VAR ( value at risk margin ) margin .

SGX Nifty is nothing but Indian Nifty(visit nseindia.com) traded in Singapore Stock Exchange. It moves with respect to Indian Nifty.

SGX Nifty is opened at 8.00 am Indian standard time (IST) on all working days and mostly it becomes initial direction to the Indian Market.

Such situations are normally dealt with using the ratio method. As 2 shares of the underlying stock now becomes 1 share with twice the value, so will 2 contracts of your call options become 1 contract at twice the strike price. In this case, you will end up with 100000 call options at twice the strike price and most probably twice the bid/ask too depending on whether the call options are in the money or out of the money.

When an investor trades stocks of corporations that are known to be risky investments due to any variety of reasons, such as company with an earnings record that is unpredictable and whose stock price is volatile, this is often termed "speculation". Generally speaking the trader buys and sells these stocks very frequently and frequently can be as much as multiple times in one day. For the most part the stocks or bonds of the company have high price to earnings multiples. They will not be found in major indexes such as the Dow Industrial Average.

What happens is the put writer gets hosed.

If a company goes into Chapter 7 bankruptcy, all its stock becomes worthless. Unfortunately for the people who wrote put options on the company's stock, those do NOT become worthless. If the put buyer decides to exercise the option - and he will - the writer has to buy all those shares of worthless stock at the strike price.

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The Payoff i.e. profit for a Call Option is St-X where St is the market price at time t and X is the exercise price. Assuming that it is an American Style option where it can be exercised at any time, If St is significantly greater than the exercise price,X, (the agreed price to buy an option at) then if the option holder exercises it immediately they will be 'in-the-money.' This means it has a high intrinsic value which causes a rise in value for the option.

The Payoff for a Put Option is X-St where X=exercise price and St equals market price at time t. If the market price increases the gap between X and St (Payoff or Profit) reduces or if X<St then they will be making a loss. This will mean it will have a low intrinsic value (value if exercised immediately) therefore the value of the option will fall.

Then you end up holding it over night, however some brokers have regulations on how much stock you can hold overnight in a day trading account. Check out the free videos below to learn more about this: http://www.tradingapples.com/beginning-trader-training-seri/

If the price of an underlying commodity or security drops, the value of call options will decline as well. If you are long the calls this would be bad. If you are short the calls this would be good.

Long Call - Risk Limited to Option Premium Paid, Profit Unlimited. Hoping for Market Rise.

Short Call - Risk Unlimited, Profit limited to the premium received for the option. Hoping for Market Decline, or stay the same.

Long Put - Risk Limited to Option Premium Paid, Profit Unlimited. Hoping for Market Decline.

Short Put - Risk Unlimited, Profit limited to the premium received for the option. Hoping for Market Rise, or stay the same.

Before the white house any U.S. president was just another person. Once they have become President, they're still allowed to invest in the stockmarket as any other person would.

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Delta is the measurement of the sensitivity of the price of an option to the price movement of the underlying stock.

Delta can be useful in predicting profits, having a feel of the probability of the option ending up in the money by expiration under normal conditions and for hedging.

In predicting profits, an option with 0.5 delta would move $0.50 when the underlying stock moves $1. By summing up the delta of your options, you would know how much profit you would make with a predicted move on the underlying stock. For instance, if the underlying stock is expected to move by $5, an option with 0.5 delta would move $2.50.

Delta is also a measure of the probability that an option would end up in the money by expiration. An at the money option has 0.5 delta has a 50% chance of ending up in the money. The deeper in the money the option goes, the bigger the delta and hence the higher the chance it will end up in the money. Options with delta of 1 would almost definitely end up in the money by expiration under normal conditions.

Delta is perhaps most important for hedging in the area of delta neutral hedging. Read the related links below for more info.

According to Wikipedia:

The first futures exchange market was the Dōjima Rice Exchange in Japan in the 1730s, to meet the needs of samurai who - being paid in rice, and after a series of bad harvests - needed a stable conversion to coin.

There are many ways to trade call options and many ways to make a profit with it. This versatility is what makes options trading the most versatile trading method in the world today.

For example, if you own the underlying stock and if the underlying stock is trading at $90 or lesser, you could actually write those call options as both a hedge as well as for residual income in a Covered Call.

If you do not own the underlying stock and you are of the opinion that the stock is going to make an explosive breakout of more than $4, then you could simply execute a Long Call by buying and holding those call options.

Alternatively, if you are of the opinion that the underlying stock is going to go down instead, you could write those call options and wait for it to expire as in a Naked Call Write.

There are more than 1 way to make money in options trading and a good background and education in options trading before trying anything is critical.

Retail managed futures companies often exceed market performance targets. According to a February 2, 2009 press release, "Superfund, L.P. - Series B, up 46.56%, was the second highest performing public futures fund in 2008." http://www.superfund.com

Basically, you buy (go Long) on a futures contract when you think the underlying asset is going to go up and you go short on a futures contract when you think the underlying asset is going to go down.

When you go long or short on a futures contract, you only need to pay a small deposit (typically about 10% of the price of the underlying asset) known as the "Initial Margin".

Winnings are added to your margin daily and losses taken from it. When your margin drops to a level known as a "Maintenance Margin" due to losses, you will receive a "Margin Call" to top up your account back to the initial margin level.

You can close off (offset) your futures position at anytime in order to cut loss or take profit.

For more details on how futures trading works, please refer to the link below.

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Why shouldn't COVERED shorting be legal? (Naked shorting--selling stock you don't plan to deliver--is illegal for one very good reason: it completely hoses the market. If you sell Acme to me but don't deliver it, and then I sell the Acme I bought to Joe but I can't deliver it because you won't, and Joe sells Acme to Frank but can't deliver it because it never existed in the first place, Joe, Frank and I all get hurt; you laugh all the way to the bank.)

A covered short is a risky way to capitalize on market downturns. I couldn't ever bring myself to do it, but it's okay.