future trading strategy

Jun 28th, 2015
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Options Stock markets by their very nature are fickle. While fortunes can be made in a jiffy more often than not the scenario is the reverse. Investing in stocks has two sides to it –a) Unlimited profit potential from any upside (remember Infosys, HFCL etc) or b) a downside which could make you a pauper. Derivative products are structured precisely for this reason -- to curtail the risk exposure of an investor. Index futures and stock options are instruments that enable you to hedge your portfolio or open positions in the market. Option contracts allow you to run your profits while restricting your downside risk.

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OPTIONS.OptionsStock markets by their very nature are fickle. While fortunes can be made in a jiffy more often than not thescenario is the reverse. Investing in stocks has two sides to it a) Unlimited profit potential from anyupside (remember Infosys, HFCL etc) or b) a downside which could make you a pauper.Derivative products are structured precisely for this reason -- to curtail the risk exposure of an investor.Index futures and stock options are instruments that enable you to hedge your portfolio or open positionsin the market. Option contracts allow you to run your profits while restricting your downside risk.Apart from risk containment, options can be used for speculation and investors can create a wide rangeof potential profit scenarios.We have seen in the Derivatives School how index futures can be used to protect oneself from volatility ormarket risk. Here we will try and understand some basic concepts of options.What are options?Some people remain puzzled by options. The truth is that most people have been using options for sometime, because options are built into everything from mortgages to insurance.An option is a contract, which gives the buyer the right, but not the obligation to buy or sell shares of theunderlying security at a specific price on or before a specific date.Option, as the word suggests, is a choice given to the investor to either honour the contract; or if hechooses not to walk away from the contract.To begin, there

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