hello friends,
is any one knows whats it the difference between future market and option market
In options when you take on a position as a buyer you only have to pay a premium. So you total risk on a trade will only be the premium that you paid. In futures, your risk is defined by your stop loss. When you put on the trade you are already in the market. When you buy an option, you are not yet in the market. You have the right to exercise the option. If the market goes your way, you can exercise the option. If it goes aginst you then you can let it expire worthless in which case you only lose the premium.
Options also have a different expiry curve I think. They expire quicker the closer they get to the end of their lifetime. They call it time decay I think.
Also buyers and sellers mean different things in options and futures. In futures, a buyer is simply someone speculating that the price will go up. A seller is the opposite.
But in options, someone trying to make a profit from price moving up would buy a call option. Someone trying to make a profit from price going down would buy a put option. In both scenarios, they are both buyers. The only difference is that they are buying a different type of option. They are buying the right to exercise an option in a different scenario.
Option sellers are commonly referred to as option writers. They ‘write’ an option with specific terms such as a specific strike price and time expiry. Then sell it to an options buyer. They take on unlimited risk if they purely sell an option by itself. They get an instant profit in the form of premium but if the option that they wrote ends up in the money and doesn’t expire worthless the they will suffer a much greater loss. That is why usually, option writers will cover themselves using various strategies to help control their risk.