Page 135 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes Does commodity speculation affect agricultural income in India?

The vision for the commodity market in India is to reduce information asymmetry and make a
robust market available to the end producer or farmer. It is also expected to balance out price
information and give the producer a better price and a platform to hedge.
The futures market will allow the farmer to see the upside of the price over two to three months
and help him decide where to sell.

How to keep updated?

Most commodity trading firms have a research team in place that prepares commodity charts
and conducts detailed study on the trends of the commodity in question.
Investing strategies based on this research are usually provided to clients. They usually provide
daily market reports before the market opens and intra-day calls during trading hours, along
with monthly and weekly research reports.

7.8 Future and Options

Futures and options are forms of exchange- regulated forward trading in which you enter into
a transaction today, the settlement of which is scheduled to take place at a future date. The
settlement date is called the expiry of the contract.
Futures

A Futures Contract is an agreement between the buyer and the seller for the purchase and sale
of a particular asset at a specific future date. The price at which the asset would change hands in
the future is agreed upon at the time of entering into the contract.

The actual purchase or sale of the underlying involving payment of cash and delivery of the
instrument does not take place until the contracted date of delivery. A future contract involves
an obligation on both the parties to fulfill the terms of the contract.

Options

An option is a contract that goes a step further and provides the buyer of the option the right
without the obligation, to buy or sell put as specified asset at an agreed price on or upto a specific
date.
For accuring this right the buyer has to pay a premium to the seller. The seller on the other hand
has the obligation to buy or sell that specific asset at the agreed price. The premium is determined
taking into account a number of factors, such as the underlying’s current market price, the
number of days to the expiration the strike price of the option, the volatility of the underlying
assets, and the risk less rate of return.

Did u know? Specifications of the options contract like the strike price, the expiration date
and regular lot are specified by the Exchange.

Who trades Futures?

Futures traders are traditionally placed in one of two groups: hedgers, who have an interest in
the underlying asset (which could include an intangible such as an index or interest rate) and are

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