16 January 2008
IF YOU ARE A LONG TERM INVESTOR WITH ATLEAST SOME BASIC KNOWLEDGE ON STOCKS AND SHARES, YOU ARE WELCOME TO THE OCEAN OF CAPITAL MARKETS. IF ONE TRIES DAY TRADING IN STOCKS,ONE IS NOT ADVISED WITHOUT ANY CONSTANT AND EXPERT GUIDANCE / KNOWLEDGE. YOUR QUERY REFERS TO DERIVATIVES TRADING IN STOCK MARKETS. OPTIONS REFER TO HOLDING A STOCK OPTION BUYING( CALL OPTION) OR SELLING(PUT OPTION)AND SQUARING OFF OR TAKING AN OPPOSITE POSITION OR SIMPLY CALLED CANCELLING THE OPTION ON THE LAST DAY OF SETTLEMENT ( LAST THURSDAY EACH MONTH).YOU WONT BE ABLE TO CARRY AN OPTION TO NEXT MONTH AND MUST WIND UP ON LAST SETTLEMENT DAY AS SAID ABOVE EACH MONTH. IF YOU BUY OR SELL FUTURES , YOU NEED TO INVEST SOME MARGIN SAY ABOUT 25% OF TOTAL BUY COST OR SELL COST OF YOUR POSITIONS WHICH YOU TAKE IN THE MARKET. FUTURES ALSO YOU MAY BUY OR SELL(LIKE OPTIONS) AND YOU ARE ALLOWED TO CARRY THE TRADE TO NEXT MONTH BY PAYING A CERTAIN MARGIN EACH MONTH ON YOUR OUTSTANDING POSITIONS. OPTION PREMIUM ( RATE AT WHICH YOU BUY AN OPTION ) IS LOW COMPARED TO FUTURES MARGIN INVESTMENT. OPTIONS AND FUTURES ARE CALLED DERIVATIVES BECAUSE THEY ARE DERIVED FROM THE STOCKS WHICH THEY REPRESENT. CASH MARKETS ARE DIFFERENT FROM OPTIONS AND FUTURES BECAUSE IN CASH MARKETS , IF YOU BUY SHARES AND TAKE DELIVERY YOU WILL TRANSER SHARES TO YOUR DEMAT ACCOUNT AND SELL THE SAME AFTER SOME GAIN IN SHARE PRICES. YOU NEED TO HAVE A DEMAT ACCOUNT FOR TRADING AND TRANSFER YOUR SHARES. YOU SHOULD EVEN HAVE A TRADING ACCOUNT FOR ALL THESE SHARE TRADING TRANSACTIONS . I OBSERVED THAT OPTIONS USUALLY EVAPORATE (FALL IN PRICES) GRADUALLY AS THE SETTLEMENT DATE ( LAST THURSDAY EACH MONTH) COMES NEARER. THERE IS ANOTHER METHOD BUY TODAY SELL TOMORROW OR LATER(BTST) OR SELL TODAY AND BUY TOMORROW OR LATER( STBT). EVEN HERE YOU BETTER TAKE DELIVERY IN CASE OF A BUY. YOU NEVER SELL WITHOUT HOLDING STOCK IN YOUR POSSESSION.STOCK MARKETS ARE DANGEROUS AND FATALLY ATTRACTIVE AND DECEPTIVELY GLAMOROUS. BEST IS TO WAIT FOR A STOCK IN A GROUP SHARES( A LEADER IN THAT SECTOR LIKE DR. REDDY OR INFOSYS OR RELIANCE ETC...)TO REACH ITS 52 WEEKS LOW AND THEN BUY , TAKE DELIVERY AND KEEP IN YOUR DEMAT ACCOUNT. THEN SELL WHEN IT REACHES AN APPRECIABLE LEVEL AS PER YOUR EXPECTATIONS. BE AN INVESTOR NOT A TRADER UNLESS YOU KNOW STOCK MARKETS TIPSY ZERKS. OVER A 3 YEAR PERIOD GOOD INDIAN STOCKS HAVE GIVEN DECENT RETURNS.HISTORY PROVED THIS MANY TIMES. GOOD LUCK. R.V.RAO
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