Derivative contract is a contract whose value is determined by changes in the value of the underlying assets. A derivative includes three types of participants: hedgers, speculators and referees. Derivatives include forwards, futures, options and swaps.
Forward contract is a non-standard between the two parties to buy or sell an asset for a specified price and time agreed upon today. The future is best to set the standard for buying or selling a standard product quality at any given time in the future, and describes future developments in prices. Swap the average of the exchange of an asset or liability in respect of the same type of other activity or responsibility for the change in maturity and raising or lowering coupon rates.
The election is the most refined products, where you can go to buy or sell positions and that trade is the premium, because we pay a premium and buy a right, but there is no obligation for the buyer to buy or sell, but have the right to buy and the right to sell.
Option, which gives the holder the right to buy an asset at a fixed price over a given period, called an option to purchase, but the option gives the holder the right to sell at a fixed price option put. The investor can trade after the various options for options traded, stock option, bond option, the option of over the counter, index options, etc.
The options have limited risk for investors. Earning potential is also limited to the premium, but the potential loss is unlimited. However, they are among the most flexible of investment choices. The options can protect or improve the portfolio of different types of investors in different market situations. The options are a tool for effective risk management, as it acts as a tool against falling stock prices.
As the holder of the options, you risk the entire amount of the premium you pay for. But the writer of options, you will have a much higher risk. How smart option (calls and put the works) explained by the following example: -
Call 5700 for smart trading at a premium of Rs60, if we buy the call option, the maximum loss to the buyer of the call option Rs 60 (premium), the zero point will be (5700 60), 5760, now so clever passes under the 5760 level, the maximum loss of the buyer’s premium will be equal to only (Rs60 for example), but the gains are unlimited, if nifty breaks 5760 level.
if we’re talking about a put option 6000 puts (strike price) and the prize RS150 BEP in 5850 (6000-150), which now goes to an elegant 6200 levels, the biggest loss in this case is the purchase price (i.e. , RS150 only), but gains are unlimited, if it goes below the nifty 5850.
Sumit Singh, Technical
Analyst with Nifty Direct recommends a great understanding of marketing techniques and focus on the risk-reward ratio. Nifty Stock Futures Direct.com offers, stock tips for Indian stock market, much more.
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