What are the Future and Options?
In an option contract, a person has a right to any share at a certain price. In these contracts, a person has to pay a certain amount of Premium to buy an Option contract.
In a future contract, a Buyer of the Future has to buy shares at the expiry of the Future Contract. In these contracts, a person has a certain quantity of shares with leverage of approx 5 Times.
5 Thing you have to understand before trade-in F&O
Highly Leveraged
Futures are highly leveraged products and it is a double-edged sword. In the future, a trader gets 5 times the margin for a certain quantity of stock. In a highly volatile market if the stock goes in the opposite direction then a trader can lose his/her whole capital. So the lesson is no one is to protect their capital by putting stop loss in every trade.
Options Buying and Options Selling
Probability of Making Money
As per data an option buyer has a probability of making money in the market is 33% and an option seller will make money 67% of the time. So if you want to become an Option Buyer you have to Follow the Risk to Reward which is a minimum of 1:3. In option selling it can be 1:1 also because the probability of making money in option selling is higher than in options buying.
Option Greeks
In Options, you must have to aware of option Greeks. Options Premiums are majorly dependent on the Greeks like Delta, Gamma, Theta, and Vega. There is a term called time decay. It is like melting ice cream your premium starts melting as you approach expiry. The benefit of time decay goes to the option seller.
Time Decay in Options Trading
In option buying, you have to capture a trend with momentum because of time decay. Which required high skill in capturing a trend in the market or expert guidance to capture a trend.
Conclusion:-
Beginners should avoid futures and options without any guidance because both are highly leveraged products. You must have at least two-year self-experience to handle it.
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