“Futures and options” is a segment in the financial markets, in which the risks and rewards are high.

A futures contract is an agreement between two sides to buy or sell an underlying instrument at a pre-determined price in the future. Futures and options are applicable to stocks, indices as well as commodities.

Here, we will be discussing about commodities part. You should learn about futures and options before trading them. One of a good traded instrument in commodities market is “Gold”.

Learn gold futures and options in a clear and concise way, so that you could make yourself profitable. It is easy to learn gold futures and options, once you get an idea about how futures and options work and know about their terms.

Futures are risky when compared to equity markets and, so are options. There are some important terms that you need to learn before proceeding further. In futures, you will generally be coming across some of these terms:

1. Lot size – Lot size is the amount of shares that you would be transacting. Buying or selling must be done in multiples of lot size. Depending upon the price, the exchange will assign a specific lot size for a specific stock. So, if the lot size of a particular stock is 1000, then you would be buying or selling in multiples of the lot size which is 1000, 2000, 3000 and so on.

2. Expiry date – Every contract which has been bought or sold must be squared off. There is a specific date, by or on which the contract must be ended. This particular date is called ‘Expiry date’. Make sure that you square off all your positions before the expiry date.

These terms are used both for futures and options. ‘Options’ is rather difficult to understand because of the complex nature of it. An option is the right, not the obligation to buy or sell a contract at a specific strike price. There are some terms which are used or practiced only in options trading. These are:

1. Call option and put option – There are two types of options and these are call option and put option. A call option is the one which is bought by a person, hoping that the particular stock’s or commodity’s price would rise in the future and vice-versa. In the same way, a put option is bought hoping that the stock’s price would decline.

2. Strike price – ‘Strike price’ is a price at which you would be buying or selling an underlying instrument. There are many strike prices available for a particular stock or commodity. Let’s take an example. ABC is at 50 $ at present. The most active strike prices would be 45, 47.5, 50, 52.5, 55 etc. You will be finding that there is a clear interval between two strike prices.

3. Premium – This is the amount that you need to pay to buy a certain call or put. A call or a put’s premium is associated with a strike price of the commodity. Different strike prices will have different premiums.

With all these things in place, you will learn gold futures and options quite easily.

Tags: Bears, Bulls, Commodities, Finance, futures, Futures and options, gold, Markets, Options, Technical Analysis

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