Futures and Options: Introduction
Below are the details of the ‘Futures and Options’ segment of our recommendation. We want you to understand what each column of the recommendation means. Please go through it very carefully. Trade in this segment only if you understand every bit of it and you have traded on the basis of our recommendations for at least 2 months. A brief training on Futures and Options can be found on our website under the “Training -> Futures and Options” section. Let us know in case you have any difficulties in understanding the same.
Below is a sample F&O recommendation. The description of the columns can be found in the paragraph below.
|CASH||1||View||This column indicates our view whether we are bullish or bearish. It indicates whether we have to BUY or SELL.|
|2||Period||The time frame in which we are likely to meet our target. Example: 13D would mean 13 trading days. 13W would mean 13 trading weeks.|
|3||Trades in F&O||This indicates if the underlying asset or stock trades in the F&O segment. (Y = YES. N = NO.)|
|F&O(COLUMNS COMMON TO BOTH F&O)||1||Which Month||This indicates the month of which you would buy the F/O contract.|
|2||Lot Size||The lot size which you would be buying.|
|FUTURE||1||Buy/Sell Price||This indicates the price of the stock in the Futures market. This would be your actual Buying/Selling price depending on the VIEW column.|
|2||%Margin Needed||This indicates the margin money in terms of percentage that you need to have to enter a Future Position. Example: The Future’s Buy price is 100 and lot size is 500. Suppose %Margin needed is 10. So the Total buy price would be 50,000 Rs and the actual amount you would need to enter into a position would be 10% of 50,000 which is 5000 Rs.|
|OPTION||1||What to buy||This column indicates whether you have to buy a PUT or a CALL. As per our strategy we would never ever sell a PUT or a CALL. Hence the column is named as what to BUY.|
|2||Strike Price||The option price at which you would enter a position.|
|3||BUY/SELL Premium||The Recommended premium that you have to pay to enter a position.|
|4||Maximum Affordable Premium||This would be the maximum premium that we can afford to enter a position. Example: Suppose the recommended premium is 5 Rs and Maximum affordable premium is 7 Rs. If tomorrow the premium is 8 Rs, we will not enter into a position. We would enter into a position only if the premium <=7 Rs.|
Points to remember:
- Since this is a high risk segment, follow us religiously. Please do not be creative!
- Never ever sell a PUT or a CALL.
- The Future/Option prices are mere shadow images of the stock price in the cash market. As the stock price moves in the cash market, the Future/Option price also moves. Hence stop loss for Futures/Options also should always be followed in the cash segment only. If stop loss is triggered in cash segment, exit your Future/Option position also.
- Options have liquidity problems. If you see profits and can square-off your position, go ahead!
- When a stock is moving up it takes time to run. But when it is falling, it falls very fast. Do not miss opportunities to SHORT.