Options trading is also known as derivative trading because options contracts derive their value from the underlying instruments. You can buy or sell stocks, ETFs, etc. At a fixed price for a specified period using online trading options. This online trading method also gives buyers the flexibility not to buy the security at the defined price or date.
In the Indian market, options cannot be sold or bought on each and every stock. SEBI has allowed options trading only with certain stocks that meet its strict criteria. These stocks are chosen among the top 500 stocks taking into account factors such as the average daily market capitalization and the average daily traded value over the previous six months. The most common concept that most of you must have heard about trading through options is the power of leverage.
When an investor or trader buys or sells options, they have the right to apply that option at any time before the expiration date. Simply buying or selling an option does not require that it actually be exercised at the expiry point. Because of this structure, options are considered “derivative securities”. In other words, the price of options is derived from other things (such as the value of underlying assets, securities, and other instruments).
If you buy an option with a premium today, you can sell it at any time, including the next second. The profit or loss you make is the difference between the premium. On the other hand, you can buy the option today and keep it until it expires. If you do, profits or losses depend on the value of the option when it expires, also known as the liquidation price.
Let's say the Nifty 50 is now trading at around 17,000 points. . Options trading in India accounts for the vast majority of the total trading volume in the BSE and the NSE. The investment cost in options trading is normally around 3 to 4% of the investment needed in stock trading.
This makes it extremely popular with traders. On the contrary, a higher strike price has more intrinsic value for put options, since the contract allows you to sell the shares at a higher price than the one they are currently trading at. You can find out the minimum margin that must be deposited to negotiate an options contract by calling your broker, or you can also mention it on their website. On the other hand, an option that allows you to sell stocks at some point in the future is a “put” option.
The price of obtaining an option (premium and trading commission) is much cheaper than what a trader would have to spend to buy shares directly. However, the loss for the purchaser of the purchase option is limited only to the premium he paid to purchase that option. If none of the above options seem profitable, simply sell the “put” option you now have. A call option gives the owner the right to buy an asset at a predetermined price, and a put option gives the owner the right to sell it.
The exercise of an options contract means your right to purchase the options contract at the end of its expiration. That's also one of the reasons why option buyers are interested in buying options, money is also one of the factors. Your broker may have additional requirements, such as disclosing your net worth or the types of options contracts you intend to trade with. Options trading is the way in which investors can speculate on the future direction of the stock market in general or individual securities, such as stocks or bonds.
It is always recommended to have a loss limit for each trade, as it will help us to have good risk management and also to prolong our trading career. Do not share your online trading password with anyone, as this could weaken the security of your account and result in unauthorized trading or loss. I'm not going to explain the chain of options in detail, since it's a very broad topic. I would make another blog for you to understand it better.
However, you must consider the different strike prices and their premium values to decide which one is best to trade. Trading in derivative markets, such as futures and options, can be a good source of income for a trader, in addition to this, the margin required to take a position is very low in the intraday market. When you're ready to start trading options, start small and you can always try more aggressive options strategies in the future. .