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Four Basic Differences Between Futures & Options:

Futures & Options are the most preferred Derivatives for trading purpose.As name indicates “Derivatives” – prices are derived from some basic asset.E.g.In case of stock future, future price of that stock will be derived from the stock price.

There are few basic differences between futures & options which can be listed below:

Why Futures are called “futures” & Options as “Options”:

Futures – because there is prediction of “Future Value” of the underline stock.

Options – because it offers option holder an “option” to buy or sell the underlying asset [known as Exercising the option.]Of course,most of the positions are speculative in nature,option exercising is not that much common in capital markets.

Suppose Comex Gold trader buy Gold future contract at $1650, suppose he don’t square of the position before contract expiry & allowed to expire the contract then its become obligation for him to buy underline asset i.e.Gold .This is not case for Gold option buyer.Option holder will not have any such obligation to buy Gold but he will have rights to do so.

Option exercising is much useful in commodity markets especially agricultural commodities.

Future Value Vs Option Premium :

As futures are correlated to the spot value,future value need to be around the spot value with some discount or premium.This difference creates due to huge buying or selling positions build up in the future market.E.g If there is some big negative news around then there will be huge build up of selling positions by big investors & it will make the particular stock future to trade in discount. Premium or discount may not be at much higher level as it can easy arbitrage opportunity between spot & futures market.

Option Prices are known as option premium where only premium is payable by the option holder.Option price depends upon number of factors.One can read following post about the same:How Option Prices are calculated:

 Risk :

Buying as well selling the futures carries the same risk.Any stock future can not become zero as basically such stock won’t be the part of  F&O series.

While option buyer carries limited & known risk & option seller carry unlimited risk.

But its not the case that option buyers always make money.In fact most of the professional option traders believe that more money can be made by selling the option due to Time-Decay phenomenon as described below.

Time Decay Phenomenon

Options are always subject to time decay  as option price is function of time remaining for expiry.Options always expire worthless while this is not the case for futures.Positions in future market can be roll over in next contract.

Futures & Options are the the great Risk management tools & provide hedging opportunities for big traders.But remember its more about speculation and one should understand the underlying risk.

More Information about futures & Options :

Gold Futures – Best tool for short term View

Futures market Positions & Mutual Funds Regulations

Launch Of Option Trading At MCX-Sx.

How Commodity Future market works in India: 

Silver Future Trading – What Beginners May Want To Know:

 

Gold Prices Prediction 2013 -Either Stable Or Sideways Up

Gold Prices in 2012 –

Gold ETFs returns From India in 2012 : Average  9%.

International Gold Returns :  7.5%.

This was the return scenario of Gold in the year 2012.After sharp run up since last decade Gold prices have still managed up direction.

Gold Prices – 2013 :

Its also important to have view on Gold prices in the year 2013 & which factors will affect Gold prices.

I think Gold Prices in 2013 will be either stable or sideways up.

Possibly No Rate Hike By Federal Reserve – Federal reserve – America have already declared that there won’t be any interest rate hike from current  till 2014 mid year and unemployment rate of at least 6.5% is achieved..Rate hike from Federal Reserve will be major indication of improving the economic conditions and bad news for precious metals..But it seems to be difficult to happen in 2013.

Currency factor – As far Indian Gold prices are concerned,currency factor is very much important.Stronger Rupee can drag down the Gold prices in India.But under current situation,there is no reason for Rupee to get stronger or US Dollar to get weaker trend.

International Prices are not at peak level – Currently International Gold prices are trading around $1650 per ounce,peaking out from level of $1920 in initial days of Sept year 2011.So its not the case either that Gold prices are trading at life time high levels.

Bottomline – Regular Up / Downs are part of the market.You may aware that since last few days Gold is trading down due to fiscal cliff worries but in general,Indian investors buy gold for ninth generation and buying Gold in systematic way will still prove fruitful in future also..and I think most of the Indian peoples are already doing this ..isn’t it????

Check / Compare Gold Coin Prices – Offered By Banks & Others Providers

Few months back , we have a post of Reliance My Gold Plan – Offered by Reliance Money Precious Metals Pvt limited in association with World Gold Council.Few investors may have doubt about Gold prices declared by Reliance MGP.

So We have provided links below so that one can check the prices of Gold Coins offered by banks and take the decision.

The rates are for 24 karat and 99.99% pure gold,Exclusive of VAT / Other taxes.

One may need to Refresh page as cached page may be served.

Links for few banks are not provided as they are either not in this business or we don’t find the link.

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