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Future & options, derivatives

CA Akshay Joshi (CA) (386 Points)

13 January 2010

plz help me,

wat r F & O and derivatives in stock market? and wat r put & call options

and how it work

can any one explain in detail in easy language

plz dont told to read ca sfm module

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SAYYED ANWAR (Practising as a Registered Sales Tax Practitioner) (80 Points)
Replied 14 January 2010

Hi
future means the contract between 2 parties which will be complited in future but the price is decided now .

It is like forward contrat where future contract is done thru som exchange ( BSE or d lik) and forward is between 2 individuals or other but does not done thru stock exchange

option means option

i.e. the seller gives u the optin to buy or to sell some commodities/sh/etc and quote the premium as well as the price

in option the seller has only obligation and buyer has only rights

call means the buyer has the right to pur. n seller has the obligation to sell

on the contrary put means buyr has right to sell and seller has obligation to pur.

confussed ........................

let me tell u one example

1 day u go to nokia showroom and ask E85 model they told u that they hv only 1 piece left n the price is say rs. 10,000/- u hv given the token amount of rs. 500 saying that i am ready to pur it if i dont get more better model with in 2 days .

therefore in between 2 days u hv right to pur the model as u hv paid the premium (i.e. Rs. 500/-) and seller has olbigation to sell at rs. 10,000/- to u . This is a case of Call Option

now in put option u pur. som goods and the seller is redy to re-pur. it on an agreed price. Therefore u hv right to sell but seller hv obligation to buy.

got it

hope so

gud nit. Happy Sankranti.