There are many investor who don't know what to do to protect themselves in the stock market. When you trade in stocks you need to understand and undertake some important decision on daily basis and these decision are going to decide your outcome of trading. A investor can choose different segment according to his Risk Capacity.
What I observe in market that a person should have to divide his investment in equal ratio and then he can trade in best suitable segment like Equity,Future, Option etc. People used to convert intraday position in positional work but that is not a great idea. Intraday market moments are highly influenced by fundamental & short term news but at other hand positional trade are more about technical analysis of any particular script and industry. Always be double sure about your trade pattern. Your decision should have proper consideration of your current financial situation and future plans too.
Option are the contract that gives you a right but not the obligation to buy or sell an underlying asset at fix future date and on specified predecided price.
This are the type of derivative contract whose value is derived from another asset that is called underlying asset. There are two types of option contract are there that is
Call Option : That gives you a right to buy an asset
Put Option : That gives you a right to sell an asset.
Te main purpose of option trading is to avoid risk of future price uncertainty through Hedging , Arbitraging, And Speculation In market it is important to work according to your risk appetite on which we focus
Hedging : In hedging you create opposite position to the first one which is in loss like if you have purchase a stock at INR 1000/- with the expectation of the price will go up . in case the price of share go down , you may loss. to reduce this loss you can buy a put option of 1000 /- strike Price because put option give you a right to sell an underlying asset as the price of underlying asset will decrease premium will increase an can sell put at higher level.
Arbitraging : In arbitraging you receive price difference benefit of same asset in different market. like option give you a right to buy or sell an underlying asset but not the obligation. if you have expectation that the price of stock will go up 100 /- to 150/- here you can buy 100 call option that will provide you a right to buy stock at 100/- whenever the price of stock after 1 month or on expiry come at 150/- you can exercise the contract and purchase the stock at 100 an can sell in spot market on current market price 150/-
Speculation: it is something receiving the short term benefit of market through leveraging your investment. in option contract you generally have to pay a premium amount not actual price of stock due to which investment is less.
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