Future ad options are derivative basic instruments in stock market. Derivatives are financial instruments and their values are driven by stocks, currency, and gold.
Future:
Future is a derivative in which there is a contract between buyer and Seller to buy or sell Assets for specific price. If you buy future you have to pay for assets within specific time and if you sell assets you have to transfer assets within specific period of time.
Future contracts are available for equity stocks, indices, commodities and currency. Price of the assets in future market is more than the price of the assets in spot market. This price difference is generally negative and known as basis. The difference between prices is just because of some storage cost, or some other expenses.
Options:
In option derivatives holder of instrument has right to buy or sell the underlying assets at the pre determine price. This pre determined price is called strike price. An option can be of two type call option put option. In call option buyer has all rights to buy assets at given price, while seller has only obligation no rights. If buyer wants to buy assets seller have to sell that assets.
That means once seller sells their assets they don’t have any rights over that assets. In put option buyer has rights to sell the assets to buyer and seller has just obligations to buy the assets.
In option contract buyer has all rights while seller has only obligations no rights. Is the seller of contract break the obligations, seller has to pay for that, and that amount is called premium
