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Rupee Weakness:

If you are observing Dollar-Rupee trend,Rupee is continuously weakening since few sessions.Its currently trading around 56.72 and few of the research houses have predicted that it will touch level of 60..(its only prediction in reality it may not happen).

Rupee weakening is not related only for traders trading Dollar -Rupee but have direct impact on the life of any individual.

Prices of number of goods / services which are imported are directly affected due to rupee weakness.

 

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Brent crude oil/Gas/Gasoline/Coal: Crude oil prices are backbones of any economy as it has cascading effect on other goods/services.India is importer of crude oil and mostly crude oil is imported from middle east.Crude oil prices have direct correlation with the  currency factor.

Though there is abundant thermal coal available in India,its depend on the imports.

Precious metals: India’s Gold production is very minimal in comparison with the demand.India is among top gold importing countries.With weak rupee its inevitable for gold and silver prices to rise though they are stable in the international market.Same thing is true about silver and platinum.

Books /Other  Imported Commodities: Currency fluctuation have direct impact on the prices of imported foreign books.

But remember that there is other side of the story as well.Rupee weakness is beneficial for Indian exporters.Exporters should have offer services based on corrective currency prices and so if in actual if the rate is higher Indian exporters in the areas of software , commodities like turmeric,wheat ,castor seeds etc should gain ..of course if this factor is not hedged.

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:

 

Introduction Of Currency Options At MCX-SX:

Currency Options at mcx-sx:

MCX-SX, which is in operation of Currency Derivatives Segment launched much awaited Currency Options for Dollar-Rupee pair  today.

Exchange have recently get nod from SEBI and RBI for introduction of currency options.Exchange conducted mock trading in last week.

Currency future contracts in USD-INR,EUR-INR,JPY-INR and GBP-INR are already being traded at MCX-SX plateform.

Currency Options are the contracts that grant the buyer of the option the right ,but not the obligation to buy or sell the underlying currency at the specified exchange rate during a specific period.For this right,the buyer pays premium to the seller of the option.

Important Specifications of Currency Options:

Symbol USDINR
Unit of Trading 1.[1 unit denotes 1000 USDs.]
Underlying asset USD-INR Spot Rate
Tick Size 0.10 Paisa / INR 0.0010.
Expiry / Last trading day Two working days prior to the last day of expiry month at 12:15 pm.
Mode of settlement Cash – Indian Rupees

Following are the screenshots for first day trading for strike price of 55.50.

 

Introduction of currency options will ensure better price discovery, Cost effective risk management and increased hedge effectiveness.

Also Read: How Option Prices Are Calculated:

 

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Information provided on this blog is for general purpose only & not investment advice.Please take advice of SEBI Registered Investment Advisors before taking any investment decision.
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