How to trade in option trading in india.How to Trade in Futures and Options?

Saturday, 21 August 2021

 

How to trade in option trading in india.How to Trade Options In India? Step-by-Step Guide!

 
Options Trading in India (Basics, Guide, Strategies and Terms) Options Trading in India accounts for the vast majority of total trade volume at BSE and NSE. The cost of investment in options trading is normally about % of the investment needed in stock trading. This makes it . Sep 01,  · Start with an IIFL demat and trading account and trade in options, futures, equities, mutual funds and currencies with the help of a next-gen trading platform and . Options Trading is a form of contract that gives you the right, to either buy or sell an amount of stock at a pre-determined price. We have all heard of call and put options and options trading. Subsequently, the clearing house settles how to trade in options in india with examples the trade.

1 Comments.A Beginners Guide To Call Options Trading

 
 
Jul 02,  · I will deliberately skip the nitty-gritty of an option trade at this stage. The idea is to understand the bare bone structure of the call option contract. Assume a stock is trading at Rs 67 ted Reading Time: 7 mins. Oct 11,  · Necessities for trading in Options-You need a trading account and a savings bank account linked to the trading account. If you already have a trading account then check with your broker if you can trade in Options with that account. Trade with a Plan- Follow business websites and newspapers to understand the current market environment. Create a plan on what position will you take and what Option 4/5. Options Trading is a form of contract that gives you the right, to either buy or sell an amount of stock at a pre-determined price. We have all heard of call and put options and options trading. Subsequently, the clearing house settles how to trade in options in india with examples the trade.
 

 

How to trade in option trading in india.How to Trade in Futures and Options – Beginners Guide – India Infoline

 
Oct 11,  · Necessities for trading in Options-You need a trading account and a savings bank account linked to the trading account. If you already have a trading account then check with your broker if you can trade in Options with that account. Trade with a Plan- Follow business websites and newspapers to understand the current market environment. Create a plan on what position will you take and what Option 4/5. Sep 01,  · Start with an IIFL demat and trading account and trade in options, futures, equities, mutual funds and currencies with the help of a next-gen trading platform and . Jul 02,  · I will deliberately skip the nitty-gritty of an option trade at this stage. The idea is to understand the bare bone structure of the call option contract. Assume a stock is trading at Rs 67 ted Reading Time: 7 mins.
 
 
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The options market makes up for a significant part of the derivative market, particularly in India. I would not be exaggerating if I were to say that nearly 80 percent of the derivatives traded are options and the rest is attributable to the futures market. Internationally, the options market has been around for a while now.

Though the options market has been around since , the real liquidity in the Indian index options was seen only in ! I remember trading options around that time, the spreads were high and getting fills was a big deal. However, in , the Ambani brothers formally split up and their respective companies were listed as separate entities, thereby unlocking the value to the shareholders.

In my opinion, this particular corporate event triggered vibrancy in the Indian markets, creating some serious liquidity. However, if you were to compare the liquidity in Indian stock options with the international markets, we still have a long way to catch up. You can be a buyer or seller of these options. For now, let us understand what the call option means. In fact, the best way to understand the call option is to first deal with a tangible real-world example, once we understand this example we will extrapolate the same to stock markets.

Consider this situation; there are two good friends, Ajay and Venu. Ajay is actively evaluating an opportunity to buy 1 acre of land that Venu owns. The land is valued at Rs , Ajay has been informed that in the next 6 months, a new highway project is likely to be sanctioned near the land that Venu owns.

If the highway indeed comes up, the valuation of the land is bound to increase and therefore Ajay would benefit from the investment he would make today. If the highway news turns out to be a rumour – which means Ajay buys the land from Venu today and there is no highway tomorrow, then Ajay would be stuck with a useless piece of land!

This situation has put Ajay in a dilemma as he is uncertain whether to buy the land from Venu or not. While Ajay is muddled in this thought, Venu is quite clear about selling the land if Ajay is willing to buy. What do you think about this special agreement? Who do you think is smarter here — Is it Ajay for proposing such a tricky agreement or Venu for accepting such an agreement?

The answer to these questions is not easy, unless you analyse the details of the agreement thoroughly. I would suggest you read through the example carefully it also forms the basis to understand options — Ajay has plotted an extremely clever deal here! In fact, this deal has many faces to it. Remember as per the agreement, Ajay has the right to call off the deal at the end of 6 months. Now, with the increase in the land price, do you think Ajay will call off the deal?

This means Ajay now enjoys the right to buy a piece of land at Rs , when in the open market the same land is selling at a much higher value of — Rs 10,00, Ajay is making a steal here.

He would go ahead and demand that Venu to sell him the land. Venu is obligated to sell him the land at a lesser value, simply because he had accepted Rs , agreement fees from Ajay 6 months earlier. Another way to look at this is — For an initial cash commitment of Rs , Ajay is now making 4 times the money! Venu even though very clearly knows that the value of the land is much higher in the open market, is forced to sell it at a much lower price to Ajay.

It turns out that the highway project was just a rumour, and nothing really is expected to come out of the whole thing. People are disappointed and hence there is a sudden rush to sell out the land. As a result, the price of the land goes down to Rs , So what do you think Ajay will do now?

It does not make sense to buy the land, hence he would walk away from the deal. Here is the math that explains why it does not make sense to buy the land —. Remember the sale price is fixed at Rs ,, 6 months ago. If Ajay has to buy the land he has to shell out Rs , and Rs , paid towards agreement fees. Which means he is in effect paying Rs , to buy a piece of land worth just Rs , Clearly, this would not make sense to Ajay, since he has the right to call off the deal, he would simply walk away from it and would not buy the land.

However do note, as per the agreement Ajay has to let go of Rs ,, which Venu gets to pocket. For whatever reasons after 6 months the price stays at Rs , and does not really change. What do you think Ajay will do?

Well, he will obviously walk away from the deal and would not buy the land. Why you may ask, well here is the math —. It does not make sense to buy a piece of land at Rs , when it is worth Rs , Since Ajay has already committed Rs 1 lakh, he could still buy the land, but ends up paying Rs 1 lakh extra in this process.

For this reason, Ajay will call off the deal and in the process let go of the agreement fee of Rs , which Venu obviously pockets. I hope you have understood this transaction clearly, and if you have then it is good news as through the example you already know how the call options work! But, let us not hurry to extrapolate this to the stock markets; we will spend some more time with the Ajay-Venu transaction. Agreed Ajay would lose Rs 1 lakh, but the best part is that Ajay knows his maximum loss is Rs 1 lakh.

There are no negative surprises for him. As and when the land prices increases, so would his profits and therefore his returns. At Rs 10,00, he would be earning Rs , on his investment of Rs , which is percent. There are only 3 possible scenarios, of which 2 indeed benefit. Statistically, Venu has a Let us summarise a few important points now:. The outcome of the agreement at termination end of 6 months is determined by the price of the land.

Without the land, the agreement has no value. Since Venu has received an advance from Ajay, Venu is called the agreement seller or writer and Ajay is called the agreement buyer. The agreement is entered after the exchange of Rs 1 lakh, hence Rs 1 lakh is the price of this option agreement. This is also called the premium amount. As a thumb rule, in an options agreement, the buyer always has a right and the seller has an obligation.

I will deliberately skip the nitty-gritty of an option trade at this stage. The idea is to understand the bare bone structure of the call option contract. Assume a stock is trading at Rs 67 today.

You are given a right today to buy the same one month later, at say Rs 75, but only if the share price on that day is more than Rs 75, would you buy it? Obviously, you would as after 1-month even if the share is trading at Rs 85 you can still get to buy it at Rs 75!

In order to get this right, you are required to pay a small amount today, say Rs 5. If the share price moves above Rs 75 you can exercise your right and buy the shares at Rs If the share price stays at or below Rs 75 you do not exercise your right and you do not need to buy the shares.

All you lose is Rs 5 in this case. An arrangement of this sort is called an option contract, a call option to be precise. Case 3: If the stock stays flat at Rs 75 it simply means you are spending Rs 80 to buy a stock which is available at Rs 75, hence you would not invoke your right to buy the stock at Rs This is simple right?

If you have understood this, you have essentially understood the core logic of a call option. What remains unexplained is the finer points, all of which we will learn soon. Whenever you expect the price of a stock or any asset for that matter to increase, it always makes sense to buy a call option! The seller or writer is obligated to sell the commodity or financial instrument should the buyer so decide.

Future Wise Is the online-proctored-exam system the new normal? Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express writtern permission of moneycontrol. A beginners guide to call options trading Though options have been around since , real liquidity in Indian index options was seen only in ! Karthik Rangappa. Related stories. Tags: Market Edge. Must Listen. Get Daily News on your Browser Enable.

Trending news. Over 17, passes issued for Mumbai local trains on first day. A beginners guide to call options trading. Business in the Week Ahead August , Ideas For Profit Bharat Forge. Explained PM Modi launches vehicle scrappage policy: What it means Desktop Version ».

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