Speculutive transaction

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21 July 2012 in derivative transaction, Option is a speculutive transaction??

CA. Sunil Kumar

CA. Sunil Kumar (Expert)
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22 July 2012 Derivative Transaction are used either for Hedge or for speculative purposes.

Both future and Options are covered part of Derivative segment.

Derivatives can be used to acquire risk, rather than to hedge against risk. Thus, some individuals and institutions will enter into a derivative contract to speculate on the value of the underlying asset, betting that the party seeking insurance will be wrong about the future value of the underlying asset. Speculators look to buy an asset in the future at a low price according to a derivative contract when the future market price is high, or to sell an asset in the future at a high price according to a derivative contract when the future market price is low.

Individuals and institutions may also look for arbitrage opportunities, as when the current buying price of an asset falls below the price specified in a futures contract to sell the asset.

Hence its depend upon the transaction executed and the person execute it with what objective in his mind

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