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"Before reading this article Kindly note i am not the Author of this article.It has been compiled from a Number of sources considered relevant". Over the past fortnight i had received a number of requests on options.Truly in The present state of affairs the options market is a safe haven for traders and more importantly long term investors.The rise in volatility in the stock market compiled with the frequent trading gap observed between opening and closing moves makes options far more attractive then it ever was. Before you jump in the wagon do read this mailer till the end to understand the basic risks that lies when someone enters into an options contract.Before i begin I would just like to mention that the largest number of Global financial institutions collapse have occurred due to large unhedged exposures to derivatives and specifically OPTIONS.Be it the 7.1 billion $ recent write down of SOCIETTE GENERAL ( European index derivatives) or the 6.5 billion$ collapse of Amaranth advisor's ( Gas futures).I strongly believe that Options as an instrument should be used for hedging and not trading.But In the present speculative world no trading instrument has been left untouched by the buzz named SPECULATION. we start with the explanation of some basic terms related with futures and Options.
Options Contract Options Contract is a type of Derivatives Contract, which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying security at a predetermined price within or at end of a specified period. The option contract that gives a right to buy is called a Call Option and the option contract that gives a right to sell is called a Put Option. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or before expiration, while buying a put option provides the right to sell. Upon the option holder's choice
to exercise the option, the party who sold, or wrote, the option must fulfill the terms of the contract. The theoretical value of an option can be determined by a variety of techniques. These models, which are developed by quantitative analysts, can also predict how the value of the option will change in the face of changing conditions. Hence, the risks associated with trading and owning options can be understood and managed with some degree of precision. Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. Over-the-counter options are traded between private parties, often well-capitalized institutions, that have negotiated separate trading and clearing arrangements with each other. TSR NOTES:Money is made in selling options.Its like selling an insurance premium.But selling unhedged options is suicidal.It is evident from the fact that even in Indian markets 90% of the options goes unexcerised.But the problem remains in the fact that the equation becomes one of unlimited risk and limited profits.With this equation the economic stability in long term is threatened.
Option Holder Option Holder means a Trading Member who is the buyer of the Options Contracts.
Option Writer Option Writer means a Trading Member who is the seller of the Options Contracts.
Options in Indian stance: Buy Open Means a buy transaction, which will have the effect of creating or increasing a long position.
Closing buy transaction Means a buy transaction, which will have the effect of partly or fully offsetting
a short position.
Closing sell transaction Means a sell transaction, which will have the effect of partly or fully offsetting a long position.
Contract Month Contract month means the month in which a contract is required to be finally settled.
Derivatives Contract A contract that derives its value from the prices of underlying securities.
Expiration Day The day on which the final settlement obligation are determined in a Derivatives Contract.
Futures Contract Means a firm contractual agreement to buy or sell the underlying security in the future.
Last Trading Day Means the day up to and on which a Derivatives Contract is available for trading.
Long Position Long Position in a Derivatives contract means outstanding purchase obligations in respect of a permitted derivatives contract at any point of time.
Open Position Open position means the sum of long and short positions of the Member and his constituent in any or all of the Derivatives Contracts outstanding with the Clearing Corporation.
Open Interest Open Interest means the total number of Derivatives Contracts of an underlying security that have not yet been offset and closed by an opposite Derivatives transaction nor fulfilled by delivery of the cash or underlying security or option exercise. For calculation of Open Interest only one side (either the long or the short) of the Derivatives Contract is counted.
Outstanding Obligation Means the obligation which has neither been closed out nor been settled.
Permitted Derivatives Contract Permitted Derivatives Contract is a derivative contract, which is permitted to be traded on the Futures & Options segment of the Exchange.
Regular lot / Market Lot Means the number of units that can be bought or sold in a specified derivatives contract and it is also termed as Contract Multiplier.
Risk Disclosure Document Refers to the document to be issued to all potential investors at the time of registration for disclosure of the risks inherent to derivatives.
Settlement Date Means the date on which the settlements of outstanding obligations in a permitted Derivatives contract are required to be settled.
Sell Open Means a sell transaction, which will have the effect of creating or increasing a short position.
Short Position
Short position in a derivatives contract means outstanding sell obligations in respect of a permitted derivatives contract at any point of time.
Trading cycle Trading cycle means the period during which the derivatives contract will be available for trading.
Trade Type Trade type is the type of trade as may be permitted by the F&O Segment of the Exchange from time to time for each Market Type.
Underlying Securities Means a security with reference to which a derivatives contract is permitted to be traded on the Futures & Options segment of the Exchange from time to time In Indian stock exchanges two types of Options Contract are traded Index options contract :The European style Stock options contract: The American style American Options In American Model of options,call or put contracts can be settled on any day that falls between the date of entry and the expiry date. European Options In the European Model of options,settlement on all open positions could be undertaken on the final settlement day alone.However,buying positions could be squarred up or selling positions could be covered by opposite transactions on a daily basis.
Option Premium Option premium is the price that has to be paid by the option buyer to the seller to acquire the right to buy or sell.To the buyer,this is the cost of buying options whereas this is the income to the option seller.
Settlement Price This is the price at which all outstanding positions are cleared by the Exchange on the settlement day(generally,the expiry day)and the price is arrived at on
the basis of the spot value of the asset on that day.
Types of Options Broadly,options can be classified into two namely call option and put option.
Call Option A call option gives the right,but no obligation to the contract buyer to purchase a specified quantity of the underlying asset subject to the contract terms such as strike price,exercise date etc. On the other side,the seller of a call option is bound to honor the rights of the buyer as per the contract terms. Limited Risk and Unlimited Profitability to the Buyer A call option is bought when the contract buyer is bullish(expects that the price would rise)about the underlying asset and expects that a profit could be made by exercising his right (to buy) at the strike price and selling the asset at a higher price which is decided by the spot value of the asset.If things are going as expected,the call buyer can make a handsome profit and this could be termed as unlimited. On the other side,his loss is limited only upto the premium paid if the value of the asset remained stagnant or even lower. For example,person A purchases a right to buy 100 shares of Infosys Technologies at a price of Rs.3500(strike price) per share on the last day of December,2001(expiry day) and the right is bought at a premium of Rs.100 per share.Also assume that Infosys share price has increased to Rs.3900 on the expiry day.The call buyer will purchase Infosys at Rs.3500/share(since this is the strike on the contract) from the call seller and the same will be sold at Rs.3900/share because it is the settlement value.His gain after deducting the premium is Rs.300 per share. Conversely,suppose that value of Infosys has come down to Rs.3000 on the expiry day.He can simply walk away from the contract and what he has to lose is the premium and nothing more.
Limited Profit and Unlimited loss to the Seller Unlike a call buyer,the writer of a call option is bearish on the underlying asset(expects that the price would fall) and the call is sold on expectation that a profit could be made to the extent of the premium received.So long as he is right, the seller makes a profit but this is limited to the premium.On the other side,the call writer may be a big loser if the value of the asset increases.In such an occasion, he has to buy it from the market at a higher price to fulfill his
obligation to sell to the call buyer and this loss may be unlimited.
Covered Call If a call is written on an asset on the backing of long position(buying) of the same asset in the cash market,it is known as a covered call.Since,the call seller has bought the required quantity of the asset in the cash market, losses due to a price increase of the asset could be eliminated.
Naked Calls A naked call is one where the seller of the call option does not have position in the underlying asset.
Put Option Put Option refers to a type of option contract which gives its buyer a right,but no obligation,to sell a specified quantity of the underlying asset on a future date at the agreed price(strike price) On the other side,the seller of the contract is obligated to buy the asset from the contract buyer as per the agreed terms. As stated earlier,the buyer enjoys unlimited profit and limited loss in the case of put option too while the seller has unlimited loss and limited profit. In the case of put option,the contract buyer is bearish on the asset(expects that the price would fall)and intents to make a profit by selling at a higher price(strike price) and settling the same by purchasing at a lower rate on the settlement day.The extent to which the strike price(that is his selling price) is higher to the settlement price(that is his buying price) is his profit and this can be termed as unlimited.On the other side,the maximum loss that may incur to the contract buyer is limited upto the premium paid in case his expectations proved wrong. As far as the seller of put option is concerned,his profit is limited to the premium received while the loss may go up to any level,subject to the difference between the strike price(at which he was forced to buy as per contract terms)and the settlement price on which he has to sell or settle the account. For example,a put option on Infosys is bought at a strike price of Rs.1300 and on payment of a premium of Rs.80 per share.In this case,the contract buyer starts to make profit when the price of Infosys falls to Rs.1220(strike price minus premium) and continues to gain to the extent of the price fall. On the
other side,his maximum loss is only upto the premium in case the price of Infosys is going up. From the above discussion,it is clear that the risk is much higher in option writing(selling) than in option buying.Option buyers also enjoy higher leverage to their funds in the sense that big positions of buying and selling could be maintained by payment of a small premium which is just a fraction of the value of the assets underlying.
Intrinsic Value The difference between strike price of a contract and the spot value of the underlying asset at any point of time is the intrinsic value.Based on this,option contracts are said to be in the money at the money and out of the money.
In the Money A contract is in the money when the contract is in favor of the buyer,that is,a profit could be made by trading or exercising his rights. In fact,it depends on the difference between the strike price and the exercise value and hence will differ in the case of call option and put option. A call option is in the money when the settlement value of the asset is higher than the strike price. A put option will be in the money when the settlement value is lower than the strike price.
At the Money An option contract is said to be in the money when there is no cash flow from exercising the contract.Such a situation arises when the strke price is equal to the exercise price and the case is the same in both call options and put options.
Out of the Money An option contract is out of the money when the contract is not in favour of the buyer,that is,a profit could not be generated by exercising the right or by trading. A call option is out of the money at times when the strke price is higher than the spot value of the asset.In such circumstances,a profit could not be made from the contract. A put option is out of the money when the strike price is lower than the spot value or settlement price of the asset.
When a contract is out of the money,the premium fetched by it may be lower as compared to other times.A contract which may be out of the money at a point of time may turn to be in the money at another time and vice versa. Settlement in option contracts As stated earlier,each option contract carries an expiry date beyond which,the contract does not have any value and all contracts have to be settled on the settlement date that may be either the expiry date itself or any day prior to that.On the day of settlement,all open positions(buying or selling of calls and put which are not covered by an opposite transaction) which are in the money are compulsorily settled by the Exchange at the settlement price which is the spot value of the asset in question on the settlement day and subsequently,the profit is handed over to buyers.All contracts at the money or out of the money on the settlement day will be allowed to expire as worthless.
Assignment When an option buyer comes forward to execute his right to buy or sell,the obligation to honor this right falls upon a seller and a notice may be served for this purpose.The process of vesting obligation on a seller is called assignment. Options trading in the Indian Equity Market Index Options Options on stock indices commenced on June,4,2001 in the Futures & Option (F&O) segment of the National Stock Exchange and subsequently in the Stock Exchange,Mumbai. Index Options can be defined as contracts on which the underlying asset is a stock index.These option contracts give us the right to buy or sell equity indices as per the contract terms such as strike price,expiry date etc and the transaction will be settled in cash because index can not be handed over from person to person. Currently,index options are available on the S&P CNX Nifty of the NSE and on the Sensex(BSE 30)of the Stock Exchange,Mumbai.
Equity Options Besides index options,equity options or stock options are also commenced on July,2,2001 and option trading is available on 31 individual stocks.The list is the same as those stocks on which Stock Futures are available and it has already been covered.
Salient Features
Market Lot As seen earlier in Futures,option contracts are standardized products as far as minimum value,market lot,expiry dates etc are concerned.Like Futures contracts,the minimum value per contract has been fixed at Rs.2 lakhs as recommended by SEBI and the market lots are designed so as to maintain the above stated minimum value.Hence,option contracts on Nifty are available in the lots of 50 units and its multiples while the Sensex is being traded in 25 units lots. As far as stocks options are concerned,market lot differs from scrip to scrip and this is decided so as to ensure the minimum value of Rs.2 lakhs per contract.
Expiry date
At any point of time,three varieties of option contracts are available when looked from the maturity angle, namely the near month,next month and far month contracts and the expiry dates are on the last Thursday of each month(near month refers to contracts that expire in the current and the other two are contracts having expiry dates in the next two subsequent months respectively)For example,in January,all January contracts are near month contracts,Februry and March contracts are next month and far month contracts respectively.
Trading and settlement Final settlement of option contracts is on the last Thursday of each month and all open positions on the settlement date will be closed out by the Exchange at the settlement price(spot value of the asset on the settlement date) if the contracts are in the money.Option contracts out of the money or at the money will be allowed to expire because they are worthless from the point of view of option buyers. Besides,final settlement of the contracts by the Exchanges concerned,buying or selling positions of option holders and writers could be traded on a daily basis and positions could be closed out at any time by entering into an opposite transaction.For example, a buying position in a type of contract could be closed out by effecting a sell and vice versa and profit can be booked without waiting for the final settlement day.Thus,options are giving profitable trading opportunities to the participants on a daily basis. If you want this newsletter to be delivered in your mailbox Please subscribe http://groups.google.com/group/STOCKRESEARCHER/subscribe If You like the StockLearners Blog kindly let others know about the same.invite people using
http://groups.google.com/group/STOCKRESEARCHER/members_inv ite Compiled By VINAYAK TEAM STOCKRESEARCHERS Your feedback is important to me :-). Please share your comments.
Options Contract Options Contract is a type of Derivatives Contract, which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying security at a predetermined price within or at end of a specified period. The option contract that gives a right to buy is called a Call Option and the option contract that gives a right to sell is called a Put Option. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or before expiration, while buying a put option provides the right to sell. Upon the option holder's choice
to exercise the option, the party who sold, or wrote, the option must fulfill the terms of the contract. The theoretical value of an option can be determined by a variety of techniques. These models, which are developed by quantitative analysts, can also predict how the value of the option will change in the face of changing conditions. Hence, the risks associated with trading and owning options can be understood and managed with some degree of precision. Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. Over-the-counter options are traded between private parties, often well-capitalized institutions, that have negotiated separate trading and clearing arrangements with each other. TSR NOTES:Money is made in selling options.Its like selling an insurance premium.But selling unhedged options is suicidal.It is evident from the fact that even in Indian markets 90% of the options goes unexcerised.But the problem remains in the fact that the equation becomes one of unlimited risk and limited profits.With this equation the economic stability in long term is threatened.
Option Holder Option Holder means a Trading Member who is the buyer of the Options Contracts.
Option Writer Option Writer means a Trading Member who is the seller of the Options Contracts.
Options in Indian stance: Buy Open Means a buy transaction, which will have the effect of creating or increasing a long position.
Closing buy transaction Means a buy transaction, which will have the effect of partly or fully offsetting
a short position.
Closing sell transaction Means a sell transaction, which will have the effect of partly or fully offsetting a long position.
Contract Month Contract month means the month in which a contract is required to be finally settled.
Derivatives Contract A contract that derives its value from the prices of underlying securities.
Expiration Day The day on which the final settlement obligation are determined in a Derivatives Contract.
Futures Contract Means a firm contractual agreement to buy or sell the underlying security in the future.
Last Trading Day Means the day up to and on which a Derivatives Contract is available for trading.
Long Position Long Position in a Derivatives contract means outstanding purchase obligations in respect of a permitted derivatives contract at any point of time.
Open Position Open position means the sum of long and short positions of the Member and his constituent in any or all of the Derivatives Contracts outstanding with the Clearing Corporation.
Open Interest Open Interest means the total number of Derivatives Contracts of an underlying security that have not yet been offset and closed by an opposite Derivatives transaction nor fulfilled by delivery of the cash or underlying security or option exercise. For calculation of Open Interest only one side (either the long or the short) of the Derivatives Contract is counted.
Outstanding Obligation Means the obligation which has neither been closed out nor been settled.
Permitted Derivatives Contract Permitted Derivatives Contract is a derivative contract, which is permitted to be traded on the Futures & Options segment of the Exchange.
Regular lot / Market Lot Means the number of units that can be bought or sold in a specified derivatives contract and it is also termed as Contract Multiplier.
Risk Disclosure Document Refers to the document to be issued to all potential investors at the time of registration for disclosure of the risks inherent to derivatives.
Settlement Date Means the date on which the settlements of outstanding obligations in a permitted Derivatives contract are required to be settled.
Sell Open Means a sell transaction, which will have the effect of creating or increasing a short position.
Short Position
Short position in a derivatives contract means outstanding sell obligations in respect of a permitted derivatives contract at any point of time.
Trading cycle Trading cycle means the period during which the derivatives contract will be available for trading.
Trade Type Trade type is the type of trade as may be permitted by the F&O Segment of the Exchange from time to time for each Market Type.
Underlying Securities Means a security with reference to which a derivatives contract is permitted to be traded on the Futures & Options segment of the Exchange from time to time In Indian stock exchanges two types of Options Contract are traded Index options contract :The European style Stock options contract: The American style American Options In American Model of options,call or put contracts can be settled on any day that falls between the date of entry and the expiry date. European Options In the European Model of options,settlement on all open positions could be undertaken on the final settlement day alone.However,buying positions could be squarred up or selling positions could be covered by opposite transactions on a daily basis.
Option Premium Option premium is the price that has to be paid by the option buyer to the seller to acquire the right to buy or sell.To the buyer,this is the cost of buying options whereas this is the income to the option seller.
Settlement Price This is the price at which all outstanding positions are cleared by the Exchange on the settlement day(generally,the expiry day)and the price is arrived at on
the basis of the spot value of the asset on that day.
Types of Options Broadly,options can be classified into two namely call option and put option.
Call Option A call option gives the right,but no obligation to the contract buyer to purchase a specified quantity of the underlying asset subject to the contract terms such as strike price,exercise date etc. On the other side,the seller of a call option is bound to honor the rights of the buyer as per the contract terms. Limited Risk and Unlimited Profitability to the Buyer A call option is bought when the contract buyer is bullish(expects that the price would rise)about the underlying asset and expects that a profit could be made by exercising his right (to buy) at the strike price and selling the asset at a higher price which is decided by the spot value of the asset.If things are going as expected,the call buyer can make a handsome profit and this could be termed as unlimited. On the other side,his loss is limited only upto the premium paid if the value of the asset remained stagnant or even lower. For example,person A purchases a right to buy 100 shares of Infosys Technologies at a price of Rs.3500(strike price) per share on the last day of December,2001(expiry day) and the right is bought at a premium of Rs.100 per share.Also assume that Infosys share price has increased to Rs.3900 on the expiry day.The call buyer will purchase Infosys at Rs.3500/share(since this is the strike on the contract) from the call seller and the same will be sold at Rs.3900/share because it is the settlement value.His gain after deducting the premium is Rs.300 per share. Conversely,suppose that value of Infosys has come down to Rs.3000 on the expiry day.He can simply walk away from the contract and what he has to lose is the premium and nothing more.
Limited Profit and Unlimited loss to the Seller Unlike a call buyer,the writer of a call option is bearish on the underlying asset(expects that the price would fall) and the call is sold on expectation that a profit could be made to the extent of the premium received.So long as he is right, the seller makes a profit but this is limited to the premium.On the other side,the call writer may be a big loser if the value of the asset increases.In such an occasion, he has to buy it from the market at a higher price to fulfill his
obligation to sell to the call buyer and this loss may be unlimited.
Covered Call If a call is written on an asset on the backing of long position(buying) of the same asset in the cash market,it is known as a covered call.Since,the call seller has bought the required quantity of the asset in the cash market, losses due to a price increase of the asset could be eliminated.
Naked Calls A naked call is one where the seller of the call option does not have position in the underlying asset.
Put Option Put Option refers to a type of option contract which gives its buyer a right,but no obligation,to sell a specified quantity of the underlying asset on a future date at the agreed price(strike price) On the other side,the seller of the contract is obligated to buy the asset from the contract buyer as per the agreed terms. As stated earlier,the buyer enjoys unlimited profit and limited loss in the case of put option too while the seller has unlimited loss and limited profit. In the case of put option,the contract buyer is bearish on the asset(expects that the price would fall)and intents to make a profit by selling at a higher price(strike price) and settling the same by purchasing at a lower rate on the settlement day.The extent to which the strike price(that is his selling price) is higher to the settlement price(that is his buying price) is his profit and this can be termed as unlimited.On the other side,the maximum loss that may incur to the contract buyer is limited upto the premium paid in case his expectations proved wrong. As far as the seller of put option is concerned,his profit is limited to the premium received while the loss may go up to any level,subject to the difference between the strike price(at which he was forced to buy as per contract terms)and the settlement price on which he has to sell or settle the account. For example,a put option on Infosys is bought at a strike price of Rs.1300 and on payment of a premium of Rs.80 per share.In this case,the contract buyer starts to make profit when the price of Infosys falls to Rs.1220(strike price minus premium) and continues to gain to the extent of the price fall. On the
other side,his maximum loss is only upto the premium in case the price of Infosys is going up. From the above discussion,it is clear that the risk is much higher in option writing(selling) than in option buying.Option buyers also enjoy higher leverage to their funds in the sense that big positions of buying and selling could be maintained by payment of a small premium which is just a fraction of the value of the assets underlying.
Intrinsic Value The difference between strike price of a contract and the spot value of the underlying asset at any point of time is the intrinsic value.Based on this,option contracts are said to be in the money at the money and out of the money.
In the Money A contract is in the money when the contract is in favor of the buyer,that is,a profit could be made by trading or exercising his rights. In fact,it depends on the difference between the strike price and the exercise value and hence will differ in the case of call option and put option. A call option is in the money when the settlement value of the asset is higher than the strike price. A put option will be in the money when the settlement value is lower than the strike price.
At the Money An option contract is said to be in the money when there is no cash flow from exercising the contract.Such a situation arises when the strke price is equal to the exercise price and the case is the same in both call options and put options.
Out of the Money An option contract is out of the money when the contract is not in favour of the buyer,that is,a profit could not be generated by exercising the right or by trading. A call option is out of the money at times when the strke price is higher than the spot value of the asset.In such circumstances,a profit could not be made from the contract. A put option is out of the money when the strike price is lower than the spot value or settlement price of the asset.
When a contract is out of the money,the premium fetched by it may be lower as compared to other times.A contract which may be out of the money at a point of time may turn to be in the money at another time and vice versa. Settlement in option contracts As stated earlier,each option contract carries an expiry date beyond which,the contract does not have any value and all contracts have to be settled on the settlement date that may be either the expiry date itself or any day prior to that.On the day of settlement,all open positions(buying or selling of calls and put which are not covered by an opposite transaction) which are in the money are compulsorily settled by the Exchange at the settlement price which is the spot value of the asset in question on the settlement day and subsequently,the profit is handed over to buyers.All contracts at the money or out of the money on the settlement day will be allowed to expire as worthless.
Assignment When an option buyer comes forward to execute his right to buy or sell,the obligation to honor this right falls upon a seller and a notice may be served for this purpose.The process of vesting obligation on a seller is called assignment. Options trading in the Indian Equity Market Index Options Options on stock indices commenced on June,4,2001 in the Futures & Option (F&O) segment of the National Stock Exchange and subsequently in the Stock Exchange,Mumbai. Index Options can be defined as contracts on which the underlying asset is a stock index.These option contracts give us the right to buy or sell equity indices as per the contract terms such as strike price,expiry date etc and the transaction will be settled in cash because index can not be handed over from person to person. Currently,index options are available on the S&P CNX Nifty of the NSE and on the Sensex(BSE 30)of the Stock Exchange,Mumbai.
Equity Options Besides index options,equity options or stock options are also commenced on July,2,2001 and option trading is available on 31 individual stocks.The list is the same as those stocks on which Stock Futures are available and it has already been covered.
Salient Features
Market Lot As seen earlier in Futures,option contracts are standardized products as far as minimum value,market lot,expiry dates etc are concerned.Like Futures contracts,the minimum value per contract has been fixed at Rs.2 lakhs as recommended by SEBI and the market lots are designed so as to maintain the above stated minimum value.Hence,option contracts on Nifty are available in the lots of 50 units and its multiples while the Sensex is being traded in 25 units lots. As far as stocks options are concerned,market lot differs from scrip to scrip and this is decided so as to ensure the minimum value of Rs.2 lakhs per contract.
Expiry date
At any point of time,three varieties of option contracts are available when looked from the maturity angle, namely the near month,next month and far month contracts and the expiry dates are on the last Thursday of each month(near month refers to contracts that expire in the current and the other two are contracts having expiry dates in the next two subsequent months respectively)For example,in January,all January contracts are near month contracts,Februry and March contracts are next month and far month contracts respectively.
Trading and settlement Final settlement of option contracts is on the last Thursday of each month and all open positions on the settlement date will be closed out by the Exchange at the settlement price(spot value of the asset on the settlement date) if the contracts are in the money.Option contracts out of the money or at the money will be allowed to expire because they are worthless from the point of view of option buyers. Besides,final settlement of the contracts by the Exchanges concerned,buying or selling positions of option holders and writers could be traded on a daily basis and positions could be closed out at any time by entering into an opposite transaction.For example, a buying position in a type of contract could be closed out by effecting a sell and vice versa and profit can be booked without waiting for the final settlement day.Thus,options are giving profitable trading opportunities to the participants on a daily basis. If you want this newsletter to be delivered in your mailbox Please subscribe http://groups.google.com/group/STOCKRESEARCHER/subscribe If You like the StockLearners Blog kindly let others know about the same.invite people using
http://groups.google.com/group/STOCKRESEARCHER/members_inv ite Compiled By VINAYAK TEAM STOCKRESEARCHERS Your feedback is important to me :-). Please share your comments.
