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. But you are not obliged to buy or sell the stock. Let’s understand option trading in India with an example. Shyam is looking to buy a Rs. 30 Lakh flat from Ravi on the outskirts of the city.
What is options trading in India?
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 3-4% of the investment needed in stock trading. This makes it extremely popular among traders. Our Options Trading Guide offers:
How many types of options are there in trading?
By now you must have understood that in option trading you have both options at the same time that you choose long or short according to your expectations. And so there are two types of options-
Is option trading the most likely method of trading?
You know from somewhere (friends, brokers, news channels, etc.) that option trading is the most likely (potential) method of trading other than investment and stock trading.
What are the best indicators for intraday option trading in India?
Best Indicators for Intraday Option Trading in India #1. Open Interest (OI). Open interest is the number of unsettled or open contracts of a particular option. OI does not... #2. Put-Call Ratio (PCR) Indicator. The put-call ratio measures the trading volume of put options vs call options. The... #3. ...
How much does Shyam want to buy a flat?
Shyam wants to buy the flat but does not want to pay more. Ravi gives Shyam an option (the right) to buy the flat at Rs. 30 Lakh (strike price) if he pays an upfront fee of Rs. 1 Lakh for a period of five months.
How long does Shyam have to sell his flat?
Shyam gets the right to buy or not to buy the flat within a period of five months and Ravi is bound by the contract to sell it only to Shyam.
What is positional trading?
Positional trading in options involves buying/ selling of multiple options to form an option strategy such that you have positive cash flows until the options are held.
How many underlying options are there in a lot?
Trading in options is done in lots. A single lot size contains a fixed number of underlying instruments. For example, 1 lot of Infosys call or put options has 1200 number of underlying Infosys shares.
What is option buying?
Options give you the power to buy a higher number of shares for a small amount of money (called premium) in comparison to buying a stock.
What is it called when you buy options before the expiration date?
Whereas buying an option that gives you the right to sell shares before the expiry date is called a Put option. Trading in options does not mean that you have to actually exercise the right at the buy/sell point. In day trading options you simply buy/sell options without worrying about exercising the rights.
What is the strike price in options?
In the case of real estate, the strike price was 30 lakh.
What is the power of options?
The power of options lies in. Continue Reading. Hi, An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security.
What is futures option?
In Futures, you have the obligation to buy the stock at predetermined price. In Options, you have the right but not the obligation. Coming to types of options, there are two: Call Option : This gives you the right (but not the obligation) to buy a stock or an index at a predetermined price.
How do traders hedge their futures position?
Many traders hedge their futures position or bulk equity position by taking options on the opposite side. Options take a small sum of money. Institutional traders regularly sell the options raking in the premium. What they do is define the range of underlying and sell the option with strike price.
What is option trading?
Options trading gives the buyer a right but not an obligation to purchase an underlying security at a pre-determined price called the strike price. Conversely it also gives the seller an obligation to honour the contract but not a right. I will try to explain this as simply as possible.
Is option trading a risk?
Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital. Despite what anybody tells you, option trading involves risk, especially if you don't know what you are doing.
What is Options Trading?
Option trading, as the name suggests, is a method of trading in an underlying stock or index or commodity where you have the option to invest your money according to your expectations with respect to the underlying stock or index trend.
How much difference is there in a Nifty 50 option contract?
For example, suppose the spot price of the Nifty 50 index is 15000, then option contracts for the Nifty 50 can be available from 13000 to 17000 at a difference of 50 each.
What is the difference between a call and put option?
Hence a call option provides the right to buy while a put option provides the right to sell the underlying asset.
How many sides are there in option trading?
In the world of option trading, there are two sides at a time. If someone buys the option-contract, then there must be someone who sells it. The position you create during trading is called-
What is the most likely method of trading other than investment and stock trading?
You know from somewhere (friends, brokers, news channels, etc.) that option trading is the most likely (potential) method of trading other than investment and stock trading.
How many shares are in a lot of nifty?
For example, a lot of nifty contains 75 quantities. If you buy the options (call or put) of RIL, you will get 505 shares in one lot.
What is an option contract?
Options are contracts that give the bearer the right, but not the obligation, to either buy or sell an amount of some underlying asset at a pre-determined price at or before the contract expires. Options can be purchased like most other asset classes with brokerage investment accounts. (Source: Investopedia)
Indicators Under Option Trading In India For Beginners
Open interest is the number of unsettled contracts of a specific option trade. OI does not tell downtrend and uptrend, but you can get a fair view of the strength of a specific trend.
How To Start Option Trading In India For Beginners?
Firstly, you need to log in to your online trading account using the credentials provided by your stockbroker.
Conclusion
This is how you can start option trading in India even if you are new to this segment.
Key Takeaways From This Chapter
The options trading segment allows investors/traders to buy or sell securities like stocks, ETFs, etc. at a particular time slot.
Frequently Asked Questions
Paytm Money is considered one of the emerging and secure trading software in India to trade options easily and conveniently. You can open your trading account on Paytm Money, the best trading app in India 2021 .
How to trade options in India?
Our Options Trading Guide offers: 1 Read our authentic option broker reviews to find the best broker for options trading in India. 2 Read detailed options trading platform reviews to find the best options trading software. 3 Understand 25 popular options trading strategies and compare them. 4 Read a range of articles about options trading basics for beginners. 5 Get answers to options trading questions by experts. 6 Understand options trading terminology like Paired Option Contracts, Over The Counter (OTC) Options and Options Spread.
How many options trading strategies are there?
Understand 25 popular options trading strategies and compare them.
What Does Options Trading Involve?
In very simple terms options trading involves buying and selling options contracts on the public exchanges and, broadly speaking, it's very similar to stock trading. Whereas stock traders aim to make profits through buying stocks and selling them at a higher price, options traders can make profits through buying options contracts and selling them at a higher price. Also, in the same way that stock traders can take a short position on stock that they believe will go down in value, options traders can do the same with options contracts.
How do options traders make money?
Options traders tend to make their profits through the buying, selling, and writing of options rather than ever actually exercising them. However, depending on the strategies you are using and the reasons you have bought certain contracts, there may be occasions when you choose to exercise your options to buy or sell the underlying security.
What do people think of investing?
When most people think of investment, they think of buying stocks on the stock market, and many are probably completely unaware of terms like options trading. Buying stocks and holding on to them with a view to making long term gains is after all, one of the more common investment strategies. It's also a perfectly sensible to way invest, providing ...
How to buy options contracts?
You can buy options contracts by simply choosing exactly what you wish to buy and how many, and then placing a buy to open order with a broker. This order was named as such because you are opening a position through buying options.
What is call option?
If you were expecting an underlying asset to go up in value, then you would buy call options, which gives you the right to buy the underlying asset at a fixed price. If you were expecting an underlying asset to go down in value, then you would buy put options, which gives you the right to sell the underlying asset at a fixed price. This is just one example of the flexibility on these contracts; there are several more.
Why do you use spreads in options?
Most commonly, they are used to either limit the risk involved with taking a position or reducing the financial outlay required with taking a position. Most options trading strategies involve the use of spreads. Some strategies can be very complicated, but there are also a number of fairly basic strategies that are easy to understand.
How to sell options?
The other way you can sell options is by opening a short position and short selling them. This is also known as writing options, because the process actually involves you writing new contracts to be sold in the market. When you do this you are taking on the obligation in the contract i.e. if the holder chooses to exercise their option then you would have to sell them the underlying security at the strike price (if a call option) or buy the underlying security from them at the strike price (if a put option).
