Invest in the stock market through Future and Options

What is Future Investing?
Future investing is like a contract where an agreement between two parties (one will buy and other will sell) is done to buy and sell an asset at a certain time in future in a agreed price. Trained investors will always invest in the stock market through Futures as it has its own advantages as compared to traditional stock purchase.

The Future date for which the contract is signed is called the delivery date or settlement date. The price agreed by two parties are called future price. Investors invest in the stock market through futures when they would like to buy the share some time in future. A situation may exist for investors where they do not have immediate funds to buy shares, but they are very excited about future prospects of a particular share. In such a case they can invest in the stock market (with no money in hand) by buying it now and paying it later by using Future investing. In Future investing, investors can buy now and pay later, say after a month, or two months or max three months. The concept of Futures can be used by investors to invest in the stock market to minimize their risk. Futures can be easily understood as a investing instrument which allows the investors to pay little or no money today and book shares, and pay later during settlement date or delivery date.

What is Option Investing?
In general options are of two types – calls and puts.

Like Futures, Investors invest in the stock market through Call Option. It is like authority given to investors to buy a share at a given price on or before a given future date. But in Call Options investors are not obliged to buy the share any how. Call Options are made by investors when they think that a share is bullish (price going up). If a share price looks bullish, investors are ready to pay a premium. In Call Options, if market goes up as expected investors make money, but if market does not go up as expected then they loose money.

Similarly, Investors invest in the stock market through Put Option. It is like authority given to investors to sell a share at a given price on or before a given future date. In Put Options investors are not obliged to sell the share any how. If a share price looks bearish, investors are ready to pay a premium. In Put Options, if market goes down as expected investors make money, but if market does not go down as expected then they loose money.

You must have noticed that we have described the options where investors are not obliged to buy/sell a share any how; what does this mean? In Option investing, Investors invest in the stock market by paying only a small amount initially, where they buy a Call or a Put options depending upon their market analysis. After paying this small amount it is investor’s decision whether they would like to pay the balance amount or not. In the investment is going in the direction as expected (bullish or bearish) then the investor’s makes money. Otherwise, investors have full control of canceling the deal and minimizing their losses.

How investors can know whether the market is Bullish or Bearish?
The ratio of Put and Call gives an indication and general view of investors which invest in the stock market. When a market is bullish (rising) the number of Call options will be higher than the Put Options. Hence the ratio of Put to Call will be less than one. Similarly when a market is bearish (falling) the number of Put options will be higher than the Call Options. Hence the ratio of Put to Call will be more than one.

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