Nse stock options trading
As with any of the previous modules in Varsity, we will again make the same old assumption that you are new to options and therefore know nothing about options.
For this reason we will start from scratch and slowly ramp up as we proceed. Let us start with running through some basic background information. The options market makes up for a significant part of the derivative market, particularly in India.
Internationally, the option market has been around for a while now, here is a quick background on the same —. Clearly the international markets have evolved a great deal since the OTC days.
Nse stock options trading in India from the time of inception, the options market was facilitated by the exchanges. The badla system no longer exists, it has become obsolete. Here is a quick recap of the history of the Indian derivative markets —.
Though the options market has been around sincethe 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 inthe 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. There are two types of options — The Call option and the Put option. You can be a buyer or seller of these options. 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 nse stock options trading two good friends, Ajay and Venu. Ajay is actively evaluating an opportunity to buy 1 acre of land that Nse stock options trading owns.
The land is valued at Rs. Ajay has been informed that in the next 6 months, a new highway project is nse stock options trading 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.
So what should Ajay do? Clearly this situation has put Ajay in a dilemma as he is nse stock options trading 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.
Ajay wants to play it safe, he thinks nse stock options trading the whole situation and finally proposes a special structured arrangement to Venu, which Ajay believes is a win-win for both of them, the details of the arrangement is as follows —.
So 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? Well, the answer to these questions is not easy to answer, unless you analyze 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. Now, after initiating this agreement both Ajay and Venu have to wait for the next 6 months to figure out what would actually happen. However irrespective of what happens to the highway, there are only three possible outcomes —. Nse stock options trading as per the agreement, Ajay has the right to call off the nse stock options trading at the end of 6 months. Now, with the increase in the land price, do you think Ajay will call off the deal?
This nse stock options trading Ajay now enjoys the right to buy a piece of land at Rs. Clearly Ajay is making a steal deal here. Venu is nse stock options trading to sell him the land nse stock options trading a lesser value, simply because he had accepted Rs. Another way to look at this is — For an initial cash commitment of Rs. Venu even though very clearly knows that the nse stock options trading of the land is much higher in the open market, is forced to sell it at a nse stock options trading lower price to Ajay.
The profit that Ajay makes Rs. It turns out that the highway project was just a rumor, 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? Clearly 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 nse stock options trading Rs. Hence if Ajay has to buy the land he has to shell out Rs. Which means he is in effect paying Rs.
Clearly this would not make sense to Ajay, since he has the right to call of 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. For whatever reasons after 6 months the price stays at Rs. What do you think Ajay will do? Well, he will nse stock options trading walk away from the deal and would not buy the land. Why you may ask, well here is the math —.
Nse stock options trading it does not make sense to buy a piece of land at Rs. Do note, since Ajay has already committed 1lk, he could still buy the land, but ends up paying Rs 1lk extra in this process. Nse stock options trading this reason Ajay will call off the deal and in nse stock options trading process let go of the agreement fee of Rs. I hope you have understood this transaction clearly, and if you have nse stock options trading 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 nse stock options trading spend some more time with the Ajay-Venu transaction.
I would suggest you be absolutely thorough with this example. If not, please go through it again to understand the dynamics involved. Also, please remember this example, as we will revisit the same on a few occasions in the subsequent chapters.
Do nse stock options trading, 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. You are given a right today to buy the same one month later, at say Rs. Obviously you would, as this means to say that after 1 month even if the share is trading at 85, you can still get to buy it at Rs. In order to get this right you are required to pay a small amount today, say Rs.
If the nse stock options trading price moves above Rs. If the share price stays at or below Rs. All you lose is Rs. After you get into this agreement, there are only three possibilities that can occur. Case 1 — If the stock price goes up, then it would make sense in exercising your right and buy the stock at Rs. Case 2 — If the stock price goes down to say Rs. Case 3 — Likewise if the stock stays flat 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. At this stage what you really need to understand is this — For reasons we have discussed so far 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! Now that we are through with the various concepts, let us understand options and their associated terms.
Hi Sir, Options is like greek and latin to me. Thanks for the analogies. No, all derivative contracts are routed via the exchanges. You cannot enter into an OTC arrangement, even if you do, it would not nse stock options trading regulated hence quite dangerous. What benefit would Ajay get by calling off the deal before the expiry of 6 months?
He will instead wait for the whole 6 months for any chance of the highway project. My first question Karthik is this: The dropdown value on the NSE website does not contain all months expiries — after 18th May we have 25th June followed by 24th Sept and then 31st Dec What happened to the other months?
For to only June and Dec contracts are available. What happened to the remaining? Saurabh, glad you noticed it! For all stocks options the expiry is very similar to futures. Hence we have current month, mid month, and far month contracts. However for Nifty there are several different expiry options.
Leaps are good if you have a super long term view on markets. However the problem with leaps in India is that they are not liquid, there are hardly any trading activity here.
Learn From Us getting into the stock market go link options trading book reviews binary option presentation who can trade stock options directory. Pocasi bylo stridave, chvili slunicko, chvili prehanky, ale to nam nevadilo, nejsme prece z cukru. Zacali jsme v Morskem svete, kde bylo plno roztodivnych nse stock options trading.
Free Download and information on Profitable Forex - What exactly is FOREX trading. Put simply, FOREX trading is the buying and selling of nse stock options trading currencies.
Some of these charting sources for Final Fantasy Xv Technical Analysis Does Metatrader 5 Expire forex charts that are used for binary options analysis are as follows. Larryking commented on May 9, Hello my name is larrykimg and I will like you Live Technical Analysis Binary Options Charting Tools give me the information about making What is a live graph of binary trades.