Capital Market Chronicles – Episode 170: INTRODUCTION TO FUTURES AND OPTIONS (Part IV)
Derivatives aren’t roaming free like pigeons in the park 🐦 — they need a proper playground. And depending on your taste (orderly vs. wild west), you’ll find them in:
1️⃣ Exchange-Traded Derivatives (ETD) 🏛️
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Platforms: NSE, BSE, NYSE.
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Features: Standardised contracts, exchange rules, less drama.
👉 Imagine buying chips at a supermarket 🛒 — fixed price, barcodes, and definitely no shady haggling.
Platforms: NSE, BSE, NYSE.
Features: Standardised contracts, exchange rules, less drama.
👉 Imagine buying chips at a supermarket 🛒 — fixed price, barcodes, and definitely no shady haggling.
2️⃣ Over-the-Counter (OTC) Derivatives 🤝
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Platforms: Private networks.
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Features: Fully customizable, but no referee.
👉 More like buying “rare” sneakers 👟 from your cousin’s friend’s friend in a dimly lit alley. Flexible? Yes. Safe? Well… 🤷
Platforms: Private networks.
Features: Fully customizable, but no referee.
👉 More like buying “rare” sneakers 👟 from your cousin’s friend’s friend in a dimly lit alley. Flexible? Yes. Safe? Well… 🤷
The Basis Concept 🌶️
The “basis” is simply the difference between spot and futures prices — a tiny gap that can make or break fortunes.
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Contango (Futures > Spot): Extra costs (storage, insurance). Think of it like paying extra for “express delivery” on Amazon Prime 📦.
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Backwardation (Spot > Futures): Urgent demand or carrying costs. Like paying 2x for last-minute Diwali sweets 🍬 because you forgot to order earlier.
👉 Over time, futures and spot prices converge — aka the financial world’s version of “reality check” 🤯.
Options in Action 🎯
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Call Option: Strike ₹500, market at ₹450 → Nope. Why pay more when it’s cheaper outside?
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Put Option: Strike ₹600, market at ₹619 → Nope again. Like selling your iPhone for ₹600 when someone’s waving ₹619 at you 📱.
Call Option: Strike ₹500, market at ₹450 → Nope. Why pay more when it’s cheaper outside?
Put Option: Strike ₹600, market at ₹619 → Nope again. Like selling your iPhone for ₹600 when someone’s waving ₹619 at you 📱.
Advantages of Trading F&O 🚀
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Leverage: Small money, big control… but also big heartbreak 💔.
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Flexibility: Options = Swiss Army knife 🛠️ — hedge safely or gamble boldly.
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Hedging: Insurance against nasty price swings — except this one might actually pay you 🤑.
Leverage: Small money, big control… but also big heartbreak 💔.
Flexibility: Options = Swiss Army knife 🛠️ — hedge safely or gamble boldly.
Hedging: Insurance against nasty price swings — except this one might actually pay you 🤑.
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