Option To Buy Contract Forward
Description
How to fill out Option To Purchase - Residential?
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FAQ
The trading principle behind a forward contract is simple: The buyer believes that the future price of the underlying asset will increase in future. That is why he enters the contract at the forward price, which is lower than the expected price of the asset in future.
The predetermined quantity of rice to be sold is 500 kgs and the price at which the rice will be sold is ?20 per kg. Hence, the price of forward contract is ?10,000 (500 * 20), which derives its value from the underlying ? rice. The contract will be fulfilled on a future date ? two months from now.
A synthetic forward contract uses call and put options with the same strike price and time to expiry to create an offsetting forward position. An investor can buy/sell a call option and sell/buy a put option with the same strike price and expiration date with the intent being to mimiegular forward contract.
Contrary to call options, forward contracts are binding agreements between two parties to buy or sell an asset at a specific price on a specific date. Forwards do not trade on a centralized exchange, instead of trading over-the-counter (OTC).
Buying forward allows the investor to lock up the commodity or security at a lower price now and then sell when prices rise. Depending on how buying forward is done, the contract to purchase the good or security can be sold to another party that is taking actual delivery.