Often we listen to the term of option derivatives with future derivatives, and most of the people think that future derivatives and options derivatives are the same terms. But let me remind you that these have completely a different perspective. And here we will talk about the option derivatives.
Option derivatives are the most popular term in the trading world nowadays. Because here you can get a complete future lot in low investment. In the option instrument, you have to pay some money and then you will be the owner of a large asset in profit perspective. But the main fact is the loss margin remains limited whatever you invest. This means your loss will be measured by whatever you invest during buying that particular stock.
Is option derivatives cure the risk:
in the option derivatives we give some premium for any kind of insurance. Let me explain this in a simple manner. Suppose you buy a 100 share lot in the future now you will be the owner of that future lot. And you have the responsibility of that lot’s profit and loss. But if you buy these 100 shares in option derivative you just have to pay a little amount of premium and you will be the owner of 100 shares.
So you can understand that instead of buying a full 100 shares in the case you can go with a call option with a premium amount. And the share price increase your margin will be on the complete 100 shares. But if you have to go through with loss in that situation your loss will be on your premium amount. It is just like an insurance company.
Who will be the most profitable in options derivatives
Most often you have seen this in the insurance companies when you buy some kind of security with your premium payment. You just pay your premium amount for a certain period of time. and if you need some security the insurance company will be responsible for providing you the security with a certain amount of interest.
But if you do not need any security on your premium then there is a loss will be yours. Now try to understand this fact suppose you pay 10,000 rupees for 1 lakhs of rupees insurance and after some time you want to claim your insurance amount then the insurance company will be in the loss of 90,000 rupees. But if you do not claim your insurance amount then they get 10,000 rupees profit and at that time you will be in loss.
Now here you can understand that if you buy something in option derivatives that could be beneficial for you but in case of selling is not a wise decision. Because at the time of buying you can get more profit and your loss will be limited with your premium amount.
Selling or buying:
Here you noticed one thing that selling not a good idea because the loss is unlimited. But have you ever noticed that insurance companies are not loss-making most often? Why? Because most of the cases you would never claim your insurance amount that is why this is a high-risk but profit-making game.
In various cases, traders are taking this risk by selling the options instruments. We can say if you sell the options you will be profitable more than a buyer. Because a buyer thinks about play the safe game and the trading market is not a safe place.
We can conclude this topic with some final words and that is, you can some option derivatives with very low premium amount buy if want to sell the options you have to pay at the complete future amount.
The main thing is you need to clear your mind. That where you want to go either you want to go with a safe route or take a risk.Some most important points which you need to aware of before investing in options derivatives
Before investing in any stocks or indexes by options you need to understand the market trend. Knowing and predict the market trend is one of the most important intellectual assets of every trader. The main duty of a wise trader should find their profit at any cost. No matter you are selling or buying options. Your profit does matter most.
To check the current trend you can take the help of call and put option. Call option means market up and puts option means market down. This up and down is a market trend you need to depend on this method most of the cases. If you want to buy options with the help of a market trend then find your profit first.
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