Future: A Future is contract between two parties to buy or sell an underlying asset on a future date on a future price.
Future contract does not have its own value, its value is derived from the underlying assets, and assets may be the Stocks or Index.
A future contract is standardized n terms of quantity, quality and in terms of delivery etc.
The future contracts are traded in an organized exchange, where a large part of the process is regulated.
Quantity: in respect of stocks all futures are traded in a fixed quantity decided by exchange, depending upon its underlying assets spot price. The quantity in future is termed as “Lot Size”.
Expiry: Every future gets expired on the last Thursday of every month. At any point of time there are always three contracts available for trades called, Near (current Month future), Mid (Next month future), Far (Third month future).
On the expiry the contracts are automatically expired by the exchange, but at any point of time the investor can square off his/her position by taking the opposite position of the same future contract. In India 95% of future contracts are squared off.
Margin: Margin System in India was designed by JR Verma committee. To enter in a future contract every one is required to pay an Initial margin, decided by the exchange, depending upon the daily volatility of the respective stock.
And every investor is required to maintain a minimum margin at every point of time during the trading sessions.
Mark-to-Market: To avoid hefty losses and any discrepancies in settlement the every open position is monitored by the exchange by an automated system which calculates the required minimum margin as per the current prevailing price in the market, failing to which the positions automatically gets squared off by the exchange.
Generally Initial margin collected by the exchange is sufficient enough to cover the losses which can be incurred by any investor on any 99% of the days, excluding some exceptions.
Settlement:In future EOD MTM is run on daily basis and the contract are settled on T+1 day depending upon the pay-in or pay-out obligation, and so on the margin is calculated every day depending upon the previous day closing.
Terminologies:
In-the-Money: If any contract is being traded above its underlying spot price, its called In-the-Money contract (at premium).
At-the-Money: If any contract is being traded at the same as its underlying spot price, its called At-the-Money contact (at par).
Out-of-Money: If any contract is being traded below its underlying spot price, its called Out-of-Money contract (at discount).
Buying future: If you are bullish and expect the price to appreciate, you will be buying the future contract.
Selling Future: If you are Bearish and expect the price to depreciate, you will be selling the future contract.
Index Future: There are also some index futures which does have Index as an underlying assets instead of individual stocks ,e.g. NIFTY , CNXNIFTY , NIFTYBANK , NIFTYIT , NIFTYMIDCAP, etc.
Stock futures: There are approx 190 stock futures, which are having individual stocks as its underlying assets. E.g. INFOSYS, ICICIBANK, HDFCBANK, etc.
Wednesday, November 26, 2008
Tuesday, November 25, 2008
Market today and tomorrow
Hi,
Today on 25/11/2008 market opened strong but going ahead it slipped down with the nigetive sentiments from broader market, but still the market was firm with a -%2 at closing.
As far as Derivative is concerned, it witnessed rollover of 29.73% in Open interest December Nifty Contract, while the Put-Call Ratio in whole F&O segment is 0.63.
Investors are in Bearish mode, Nifty can test further lows. We can expect some buying from FII and Indian Mutual fund houses in December,hopefully it can be a positive news for the market.
Tommorow market can see a rally at opening but it totally depends upon the broader market as of Now the US market is firm with NASDAQ down by 21.22 and is at 1450.66 and Dowjones is down by 27.56 and is at 8419.65, it may hold this label with the positive news about Citibank (bailout plan). So as it seems now, the US market may be firm today and we can see 50 to 100 points upside in Nifty tomorrow.
Nify today - 2654 (Closing)
Support label for Nifty:2690 to 2630
Resistance:2770 to 2835
Recommendation:Go for Nifty call December at 2750 and 2600 december put.
Stratgies: Do not go for naked position always try to have covered call or put options.
Today on 25/11/2008 market opened strong but going ahead it slipped down with the nigetive sentiments from broader market, but still the market was firm with a -%2 at closing.
As far as Derivative is concerned, it witnessed rollover of 29.73% in Open interest December Nifty Contract, while the Put-Call Ratio in whole F&O segment is 0.63.
Investors are in Bearish mode, Nifty can test further lows. We can expect some buying from FII and Indian Mutual fund houses in December,hopefully it can be a positive news for the market.
Tommorow market can see a rally at opening but it totally depends upon the broader market as of Now the US market is firm with NASDAQ down by 21.22 and is at 1450.66 and Dowjones is down by 27.56 and is at 8419.65, it may hold this label with the positive news about Citibank (bailout plan). So as it seems now, the US market may be firm today and we can see 50 to 100 points upside in Nifty tomorrow.
Nify today - 2654 (Closing)
Support label for Nifty:2690 to 2630
Resistance:2770 to 2835
Recommendation:Go for Nifty call December at 2750 and 2600 december put.
Stratgies: Do not go for naked position always try to have covered call or put options.
Participants in the Derivative markets:
Mainly there are three types of participants in Derivative market.
1. Hedgers
2. Speculators
3. Arbitragers
1.Hedgers: Hedgers are the participants who enter in the Derivative market to minimize their risk against the position they have in the spot market (Equity Market). Hedging can be done by taking a opposite position in the Future market.
For Example: Suppose a portfolio manager/ Individual is having a position of Rs. 1 crore in the Spot Market and he expects the market to decline (Bearish) and consequently value of his portfolio will decline. In this situation he can take the opposite position in the future market of equivalent value (Sell futures).
Let us assume in fact market fell down and he makes loss in the Cash Market against his position, but if market declines the price of the future which he sold will appreciate, this profit will compensate his loss in the cash market.
2.Speculators: Speculators are the participants who have a view on the market (Bullish or Bearish), on the base of their view they buy or sell a position in the derivative market. A speculator does not have any risk to hedge.
3.Arbitragers: Arbitragers are those market players who try to gain from the discrepancy between prices on two different markets.
For example: Suppose shares of ICICI Bank are quoting at Rs. 350 on NSE and Rs. 352 at BSE. Arbitragers quickly try to gain from this price difference.
This involves a simultaneous buying of ICICI Bank on NSE and selling at BSE.
This activity is termed as Arbitration.
In context of Derivative market, this trading has a special term “Spread trading”.
1. Hedgers
2. Speculators
3. Arbitragers
1.Hedgers: Hedgers are the participants who enter in the Derivative market to minimize their risk against the position they have in the spot market (Equity Market). Hedging can be done by taking a opposite position in the Future market.
For Example: Suppose a portfolio manager/ Individual is having a position of Rs. 1 crore in the Spot Market and he expects the market to decline (Bearish) and consequently value of his portfolio will decline. In this situation he can take the opposite position in the future market of equivalent value (Sell futures).
Let us assume in fact market fell down and he makes loss in the Cash Market against his position, but if market declines the price of the future which he sold will appreciate, this profit will compensate his loss in the cash market.
2.Speculators: Speculators are the participants who have a view on the market (Bullish or Bearish), on the base of their view they buy or sell a position in the derivative market. A speculator does not have any risk to hedge.
3.Arbitragers: Arbitragers are those market players who try to gain from the discrepancy between prices on two different markets.
For example: Suppose shares of ICICI Bank are quoting at Rs. 350 on NSE and Rs. 352 at BSE. Arbitragers quickly try to gain from this price difference.
This involves a simultaneous buying of ICICI Bank on NSE and selling at BSE.
This activity is termed as Arbitration.
In context of Derivative market, this trading has a special term “Spread trading”.
Derivatives - Introduction
Hi,
In this world of globalization, every where we are witnessing innovations, and financial market is also a part of these innovations, and it came up with a new product "Derivatives" in Banking and Finance Industry.
In 1974,Chicago Mercantile exchange (CME) launched worlds first exchange-traded currency futures (Currency derivatives).
And since then the Derivative Markets has evolved as one of the most extraordinary and important features of the financial market place. In the starting it was mainly used as a hedging tool(risk Minimizing), but soon it became very famous and actively traded products on various exchanges all over the world.
In this world of globalization, every where we are witnessing innovations, and financial market is also a part of these innovations, and it came up with a new product "Derivatives" in Banking and Finance Industry.
In 1974,Chicago Mercantile exchange (CME) launched worlds first exchange-traded currency futures (Currency derivatives).
And since then the Derivative Markets has evolved as one of the most extraordinary and important features of the financial market place. In the starting it was mainly used as a hedging tool(risk Minimizing), but soon it became very famous and actively traded products on various exchanges all over the world.
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