Here's how index futures operate. Assume that you are bullish on the market, while the Nifty is trading at 5, points, and you buy 50 units of Nifty futures at a strike rate of Rs 5, This means you are betting that the Nifty will cross 5, by the expiry date of your contract. If on that date, the Nifty is trading at 5, points, you have made a profit of Rs on each unit or Rs 5, on your investment.
If, however, the Nifty falls to 5,, you lose Rs 2, Rs 50 x 50 units. For index options, let's assume the Nifty is at 5, and you expect it to decline. You buy 50 units of Nifty put option to sell and pay a premium of, say, Rs at the strike rate of Rs 5, On the day of settlement, if the Nifty is trading at 5, points, you gain Rs 50 per unit or Rs 2, If you deduct the premium paid, it comes to Rs 2, In case, the index rises to 5, points, you can choose not to exercise the option.
You lose just Rs In the futures market, it is trading at Rs If your prediction comes true, you make a profit of Rs 25 on each share or Rs 25, If you had operated in the spot market, you may have been able to buy just shares of the scrip for Rs 20, and earned just Rs 7, See Profit Potential. And the option seller is compensated in the form of this fee or premium to give up his right on underlying assets till the expiry of the contract.
For the sake of reference and explanation, I will be using the trading portal of Zerodha Kite in this article, as it is the most commonly used trading platform in India. Following are the step by step procedure to trade options in India.
What are futures?
Step 1: You need to have a trading account with one of the brokers For example, Zerodha , Angel broking , 5Paisa , etc. The steps to trade options in India are almost same in any trading platform you chose. Step 2: We need to have a margin in our trading to be able to trade options. Based on the position taken by the investor, the margin requirement varies. Option buyer needs margin to pay for the premium required to trade options. And option seller needs margin as they have to keep certain money with brokers to account for Marked to Market M2M. Step 3: Next, we need to understand as to what is our view on the underlying asset.
If we have a bullish view, then we can buy a call option or sell put option and if we have a bearish view, then we can express the same by either buying a put option or selling a call option. Step 4: Select the underlying asset you chose to trade and also select the various strike prices that we choose to trade upon. Now, say we are looking to trade Nifty 50 Contract via Option and we have a bullish stance on the market.
An In the Money Option is one that would make money if we were to exercise it right now at current spot levels. An Out of Money option is one that would be worthless if we were to expire it right now and an At the Money option is one that is the closest strike price to the current spot price levels. It is advised to not to go too out of money while buying an option as the chances of them expiring in the money by expiry, is very less and more often than not, they expire worthlessly. Then, the next step in this process is to place an order to buy the option.
We can choose to buy the option at the existing price and we can also choose to place the order at a specified price by placing a limit order.
- donchian trend trading system?
- Search For Help And Support, Tutorials, & Stock Market Related Contents.
- What are Call Options & How to Trade them | Kotak Securities®.
- stock options backdating meaning.
Therefore, if you look at the ticket in the image above, we have two options to buy the contract from i. Market or Limit. If we choose the option of market order then the order is executed at the current market price. And if we choose Limit order, then we can choose the price at which we want to buy the contact. In the image above, the current rice of the contract call option is The total number of shares in one contract of nifty is And this information is directly available on the ticket shown above.
Step 6: The next step while trading options is to check in the order book if the order has been placed. We can do that by simply clicking on the orders tab and we can see the list of all the order which have been placed or canceled or executed. Option contract gives buyer the right, but he is under no obligation to buy or sell the asset.
For example, you have a bike and purchased insurance for the bike at Rs. If your bike is damaged, you will get your insurance claim as per the agreement. But if no such damage happens, the premium you paid becomes the income for the insurance company. In case of option buyer, the return potential is unlimited whereas risk or loss is limited to premium only.
- what is your forex trading strategy?
- forex fees on credit card transactions;
- iron butterfly option trading!
- indicador tarzan forex.
In case of option seller, return is limited to the premium whereas the risk involved is unlimited. There are 2 types of options namely call option and put option. In this case, the owner has the right but has no obligation to buy the asset. The price of TCS in the market is Rs. So you will definitely prefer to buy share from Kumar at Rs. Your profit is Rs. If the price of the share is Rs.
So what profit does Kumar get here? When you enter into a contract, you are required to pay a premium. Put option buyer has the right to sell but has no obligation to sell the contract and put option seller has the obligation to buy.
- online forex chart live?
- Stock Options Trading Explained in India - Samco?
- Different Options for the stock market.
- barchart trading strategies.
In this case too, the buyer of the contract pays premium. Profit is unlimited in case of contract buyer whereas it is limited in case of contract seller. In case of stock futures, the underlying asset is an individual stock. Market lot, tick size, expiry date, price quote and other standard specifications are mentioned in these contracts. Futures price is based on the sum of spot price and cost of carry. These are based on an underlying index.
Option Trading | Basics, Strategies, Types, Tips, Profit
This is a very important tool with which you can hedge your risk. It gives an opportunity to buy shares indirectly by buying the index. Start trading in futures as it offers tremendous potential to make profits. Hope you got a glimpse of future and options contract by reading this article. Happy Trading!
How Option Trading Works in India
We serve cookies on this site to analyze traffic, remember your preferences, and optimize your experience. Karvy is a diversified financial services and IT solutions provider with a large footprint across India, providing employment to thousands of people in practically all states in the country, and has a proven 40 year record of integrity and a reputation for excellence in the financial markets. A number of articles have surfaced in the media about Karvy in the last twenty four hours.
Welcome Log Out. Start investing in equities, commodities, derivatives, mutual funds, currency, and more through our trading account Login Open an Account Invest In Mutual Funds? Login Register Now. Insights Daily-English Weekly-English.
A beginners guide to call options trading
Call Performance Calls Performance Monthly Intraday calls performance Commodity wise calls performance Intraday Commodity wise calls performance monthly. Intermediate Saving vs Investment Portfolio Management. Advanced Mutual Funds Technical Analysis. News Market Commentary Corporate Announcement other news.