Online Financial Trading Advice by Adviser Street is a leading Research House which provides expert Recommendations for Stock live demo, Cash, Stock Futures trading tips, Stock Option traded in NSE& BSE Our Expertise also lies in Trading in all form of Commodities (MCX & NCDEX) and Forex Segments.
Every Trader's Dilemma-Trade Futures or options
Big choice selection for every trader, What’s better to trade — Nifty futures or options?
It
totally depends on a trader’s risk appetite and what kind of trader wants or
whether he is speculator or hedger, and also on the volatility of the market.
The person with the lower risk capacity should go for call or put option as it
is cheaper and it do not depend on daily market.
1. How
does it work?
Let’s say a trading firm adviser street has a view on
market that Nifty will rise above 11,000
by January 31,and he is ready to take risk . He could simply buy futures at the
Friday closing of 10,937 or buy an 11,000 call option for Rs 79 a share (75
shares make one Nifty contract). The trader could also write a Nifty put option
as he is bullish . He will lose only if the Nifty falls from the current level
of 10,937 for futures and stays below 11,000 for options by expiry. The gross
profit on futures is Rs 12,225 at contract level — difference between 11,100
and 10,937 multiplied by 75. The 11,000 call expires Rs 100 ‘in the money’. On
that you make gross profit of Rs 1,575 as you had invested Rs 5,925 (79×75) in the options contract. (don’t go on
figures it’s for example but see the concept behind it). 
2. So, What does it
means is the profit bigger from trading futures?
From some
aspect we can say yes, but on a relative basis, return on investment is very
much greater in options. To buy the 11,000 option the trader just paid the mere
amount of Rs 79 a share or Rs 5,925 a contract.The gain was Rs 21 a share or Rs 1,575. The return was a large 27 per cent. On
futures he puts up a 15 per cent margin just to buy one single contract (10,937×75)
or Rs 1.23 lakh. The return of Rs 12,225 is just 9.9 per cent,and the funds are
blocked and traders looses on, and if you have right advisor like adviser street than
you can get good returns in options.
3. So is it means that
options are better choice than futures?
The thing is that tradingan out-of-the-money (OTM) option is cheaper than a futures contract as one is not subjected to mark-to market losses as in the case of a futures contract or an options seller. The maximum loss for an option buyer is just his premium or the price he pays to buy the option from a seller. It’s not like that in futures there is no profit, in future there can be huge profits but so as the losses will be. On the contrary, time reduces the value of an option, but this doesn’t apply for a futures contract. Also the profit earned in futures is much higher than the options. Option buyers make smaller profits as compared to futures traders but the risk is lesser for option buyers as compared future buyers. So it’s like lower the risk lower the gain, higher the risk higher the gain, it totally depends on the trader that how much he can take risk, advisors like adviser street can help in managing the risks and in making profit.
4.
How to avoid losses?
By trading with strict stop losses and by proper money management.
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