Futures are the most common type of derivatives. In a futures contract, the investor agrees to buy or sell an asset at a predetermined price on a particular date in the future. The investor gets profit or loss from that derivative based on the difference between the bought price and actual price of the underlying commodity on the actual date of contract. For example, assume, on July 1st the spot price of gold is $1000. A three month gold future expiring October 1st is trading at $1050. Assume an investor buys long futures contract at the current futures price of US$ 1050/oz. If on 1st October if the gold spot price hikes say to US$1100, the investor who agreed to buy the gold on this date at $1050 will get profit of $50. Likewise, he might incur loss if the price drops below $1050.
The theoretical value of an option is evaluated according to any of several mathematical models. These models, which are developed by quantitative analysts, attempt to predict how the value of an option changes in response to changing conditions. For example how the price changes with respect to changes in time to expiration or how an increase in volatility would have an impact on the value. Hence, the risks associated with granting, owning, or trading options may be quantified and managed with a greater degree of precision, perhaps, than with some other investments. Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. stock tips is a advisor in stock market who follows a set of investment strategies in stock exchanges. stock tips operates predominantly in stock markets and also provide best stock tips.
An option contract gives the investor the right (but not the obligation) to buy or sell a particular asset on a particular date. There are two types of options - Call options and Put options. Call options give you the right to buy, and put options give you the right to sell.
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