Options and futures basics
I shall read all your chaptrs. I started reading your this site only today on 31St july Hi Usha — please do not pay for or opt for such services. They are all useless. Starting reading from chapter 1 and progress along…reading and understanding the subject is a 1 time lifetime effort…and after that you will never think of opting for such services. Sarath — there are two things here. One is receiving the buying and selling options on the same day or anytime before expiry …in this case you will receive or lose money as applicable.
The other thing is buying or selling an option and holding it till expiry…if you do this, then it is deemed that you are exercising your options. When you excercise your options you will receive a settlement price if any as applicable. I trade in commodities and there we may or may not have profit but the turn over is in crores.
Do i need to fill ITR What type of account data i need to hold for incometax purposes. Usha, everything answered in this module: Sir,I have gone through your TA it is excellent and superb, simple to understand with real time examples. One doubt remains in me regarding Support and Resistance and Trend Analysis. And how to differentiate between them?
What is meant by option will expire worthless on expiry. Suppose if I bought Nifty CE for strike price of and on expiry Nifty closed at level then whether the option buyer will get profit or not. Can you please clarify the logic behind option pricing. Hi, many thanks for the above chapter. Nifty call bought at Rs 35 On expiry nifty is The call option is trading at Do We need to square off the position on expiry day to exercise the option or is it automatic if we are in the money?
Why is ITM option is not trading at intrinsic price on the expiry day? Why is it trading a little less than that? Its automatic upon expiry, if you are long options contracts. Could you please eloborate the above explaination in terms of the lot size of 75 and actual Profit earned. No PDF because the module is still not complete.
Chapters between 6 and 10 are there. Are you referring to the modules as such? Working on one module at a time…Module 5 just got done…starting 6th soon.
By the way 7th module is complete…you may want to check that. If suppose i square of this today, what will be my profit. The break-even calculation is right. Since you are closing the trade before the expiry your profits will be the amount of premium you pay to buy minus the amount of premium you received while selling it. So in this it would Rs. After August , all data including for strikes XX50 type is available. Or there is some other reason.
My question is …… can we sell the option call any time before the expiry date or only on the date is fixed??????? Karthik, Which ones less risky options or day trading? Can you please lay down the perks of day trading compared to that of options? For this particular call option, to buy a lot, am I supposed to pay Hi sir pls tell me how much margin i need to deposit to short a call option..?
Option shorting margins is similar to futures margin. Check this — https: HI, sir I have read this module…. Yes as long your option does not have any intrinsic value your short option position will make money. How can we consider It is high or Low? Hi, sir There are are different Iv in all strikes, according to Option theory when IV is high Option Premium would be high and vice versa. Hi, sir Please explain this Interpretation when Iv is high premium would be high and vice versa.
Volatility is one of the key drivers for the premium. Higher the volatility, higher the premium…vice versa. Suggest you read the chapter on Vega. Hi,sir We are very great full to you for giving such precious informations. Now confident level is increasing……. Thank you so much. All our content is made available for free online. I have a query. Will I be profitable I. You can sell the option if you choose on the very next day and take home the profit i. There is no requirement for you to hold on to this till expiry.
When calculated the profit is negative.. Thank you Karthik and also would like to say you have a wonderful module and you make learning very simple. Options sounded like greek when people spoke about it now it makes sense after reading first 3 chapters. Guess i got a long way to go. Hello Karthik, I am a newbie just trying to get into the markets.
I have been reading various articles and have just started going through your lessons. The explanations are extremely lucid. There are so many different ways and means of playing the markets that it really is confusing for a newbie just trying to figure out where to start and what to do or not to do. Basically I need to know the following: In Chapter 19 you have suggested that a beginner start with Swing Trading and then graduate to Intraday.
Should a newbie trade in individual stock after doing required research as per your suggestion or should one trade in NIFTY Index Lots 3. Can a newbie start with Options as I found the concept interesting But is it advisable to start Options as your first step in Trading?
Would be much grateful if you could give me a clear Roadmap on what to start off with so that I can get a sense of direction! Option payoff is non linear, unlike futures which is linear. This holds true for both option buying and selling. One needs to be aware of this along with its characteristics in its entirety..
Hi Karthik, Plz suggest me regarding nifty index option that which strike price should I choose from related to spot price otm,ATM,inm. I also want to know whether the premium of call option will get reduced nearing to expirydate, if it so can I exercise my contract and make profit out of it?
Since i am a newbie to share market as a whole, plz clarify me about this. From where I can read your options lessons? Request you to kindly read through the same. The feeling I get from going through your modules is similar to someone bringing you a bottle of chilled water after knowing that you have been stuck in some desert for two or three days without any water or food. Keep up the good work. I pray for your well being. Its very impressive exaplanation abt options. However if you are particular about intraday, then derivatives is the best option.
Also, to minimize losses you could try hedged position in options. We have discussed various strategies here — http: But then it depends on how and why you are writing options. Hi, i am new to option…. I little bit understood the concept but i do not know how to implement like … say my prediction for the next week is that Buy at tgt and if short then short at with the target of now who me to place this in the option…… what to choose in CE and PE Need you support Mr.
As you read through this module, you will realize that we discuss everything with respect to strike selection. So my suggestion for you is you should read through the entire content and you will be clear on selecting the right strike. Sir, I just want to know how to exercise call option on expiry, whether it is automatically done broker or i have to do something. Request to think about that please let me know if I can do it for you…Thanks.
That will depend on the premium of the put option. When markets crash, the put premiums tend to go up and therefore your futures position is hedged. What happens to premium of a call and put option if underlying prices move up? I think you explain better in the comments section! I seriously learn more from the comments section. Which one do you think is more appropriate for analyzing the positions to be taken in options contracts? Should I be indifferent between the two?
The underlying is Nifty 50 index, so it always makes sense to look at the underlying and develop your point of view. But immediately after this, mtm loss is shown as I purchased 2 lots of December contract. When I asked, I was told that this is due to bid ask spread.
The reason why I purchased is because of low vix. Will the bid ask spread narrow down? Or to break even how much should the premium rise to? Sir, in order to escape significant time decay, I wish to buy options whose expiry is 45 to 60 days away. Under the Indian context, which options are liquid for even otm strikes? Sir, how do we measure liquidity? Suppose I want to buy 20 lots. Then roughly what should be the minimum lots in open interest and minimum lots in bid and ask prices to be called as sufficiently liquid?
One way to look at liquidity is by looking at the bid ask spread and impact cost. I m confused with the date. After knowing above Call option basics , i think to deal with Future Trade is more suitable than Call option. Well, both these instruments are very different.
Remember, a buy call and a sell call works differently and has different pay off features. This versatility is not there in futures. I have discussed this in multiple places, request you to please go through the contents. Both of them are closely interconnected, you will understand this better as you progress reading through the material. Expiry day is fixed by the exchanges which is the last Thursday of the month.
Profit will be difference between the premiums i. Be careful of what you buy on expiry day, especially due to the STT trap on options. Check this post — http: If I dont buy this option and closing price of maruti on 30 march is above for e. What will be my profit or loss? Hello sir, Thank you so much for teach us in this systematic and logical way it sir as i am reading through this module i have lots of misunderstanding one of such is this Suppose i short a OTM CE option say Delta at 0.
I mean can he close his position before expiry and benefit from premium fluctuations or he has only two way to stay in trade 1. I have to say understanding options from sellers prospective is confusing for me may be due to i knew to options. Sir i request you please try to upload some extra supplementry notes for shorting options regarding their pay-off Lastly i cant explain in words my thanks to you for every thing you teach me Stay healthy and keep rocking….. Ankit, the same is applicable for sellers also.
They can write or sell option and get of the the trade very next minute or they can choose to hold on to the trade till expiry. The best way to learn this is by experiencing it once. Will i get 8 rs profit on the same day? However, before the expiry your profitability is the difference in premium. So yes, you can pocket the profit of Rs. Dear Karthik, I just got to know about options. I trying to fully understand it. Hi Karthik, I have a query , Strike prize should be a price which is min.
Strike selection is a very tricky process. It is not just about the price, it also depends on volatility and speed at which the market moves. Suggest you read through this module to get a fair sense of how it works.
Dear Sir, Who makes options or futures contract? The stock market or the respective companies? We know that companies releases shares in the market when they have requirement of funds. But who releases the option and future contract to be traded in market?
Sir, In the example given above if Venu decides to settle the deal with cash instead of selling the land directly, Ajay will be getting 4 lacs and Venu gets to keep the land right? Now from Venu side, these are the calculations right, Amount received as premium is 1 lac Amount paid as a part of the deal is 4 lacs Now he still gets to keep the land and if he sells it to some third party, then he would be getting 10 lacs and subtracting whatever he spent earlier, he would be left with exactly 5 lacs.
But instead if he choose to give away the land, he will get to keep only 1 lac and 5 lacs paid to him as a part of the deal. Now finally he gets to keep 6 lacs with him. Should this mean he should always sell the land instead of settling it with cash? He can choose to do that, this is an example to convey the concept along with introducing the concept of cash settlement. In India all options are cash settled, hence it makes sense to stick to cash settlement. OK thanks… I read options theory part 1 up to chapter You are doing extremely good job.
Please provide rest of the module as soon as possible. Hi, A question related to options traidng. How much funds will be required for this call buy transaction? Is the current price shown for the options for a single contract or for a single LOT 75 contracts? Please explain the meaning of LOT and how its related to current quote price.
I have never done any transaction in options so wanted to get my following calculations clarified. If I wait till expiry and spot trades below strike say Premium must be trading at higher levels compared to 3. Is this reasoning correct?
Say if there is 1 day to expiry and spot is at , then CE is likely to trade below 3. He had paid Rs 1L 6 months in advance. We should also consider Time Value of Money. Hence the Interest cost opportunity cost should also be factored. So effective profit would be Rs — Rs which is Rs Again if he can put the 1L to much more productive use in other avenues say his business , profits would further reduce to that extent. Is that all and no Margin is blocked?
For buying options there are no margins, you only pay the premium in full. So with , you can initiate the position. Very useful write ups provided by u.
We could not even learn in class paying huge amount. Thanks for providing such detailed information. I have 1 querry i. Secondly If i buy a call at Rs. Whether my premium also will be credited? What categories to be applied. If you have an account with us, then you get access to charting on Kite. Check out more details on charting here — https: You may also want to check out the module on TA for drawing inference on price movement — https: If i buy a call rs 8.
If the above scenario happens on last closing day, whether option buyer will loose his entire premium of Rs. Pl correct me if anything narrated above is wrong and pl explain about the situation of settlement.
In this example, the option buyer will neither make or lose money. Of course, he will have to pay for the charges incurred like brokerage, transaction charges etc. Really thanks for your valuable guidance. U r taking so much efforts to make us learning and encouraging us for trading.
CE purchased on 3rd Oct. Now I have a question that I purchased a call Rs. Now the premium price for same lot , and price on 4 th of Oct expiring on 26 th Oct. In this Decreased or increased situation can i sell my option CE on Rs.
If profit made, profit and premium paid will be credited to my account on 4 th Oct or on 26 the Oct.. Yes, you can sell the option at 11 and make a profit of 8, no need to wait till expiry. Yes, you will get the profit credited to your trading account on 4th. Recently I am going thru your Technical Analysis Module which gives pleasure in reading and understanding. Your modules are as good as you are teaching in class, that much effective information is provided and hence a Lay Man like me can get understand the tricks of trading.
It is now 8 days and sent 3 email reminders. Can you please ask why they are showing so unprofessional behavior. No one contacted me till now: Sorry to say but very unprofessional behavior. I noticed one more issue in Kite. Please tell me where I am wrong. Since these are intraday trade, you lost 13 points in the first trade and now on the 2nd trade, you; ve made 11 points. So net-net you are losing 2 points. You replied below query but not mine. I am still learning after studying all the theoretical now I am doing practical.
And I am noticing bugs in profit calculation therefore asking you to clarify my doubt. Now I am stuck what should I do? We answer ALL queries that come in here. Really very nicely explained chapters, I am still going through the chapters.
I had just a simple query regarding Bank Nifty. Bank Nifty as the name suggests is group of banks that decide Bank Nifty Index. Will you please indicate different parameters , stocks etc. Everything about Nifty Bank is here — http: For this reason, its available only in English.
The article is super and your patience in answering each comment here is commendable too. This is the first article I read on your site and am interested enough to start at Module 1, chapter 1!
Thank you, Karthik, for your efforts in creating and maintaining this varsity. If Ajay pays Rs. Hey In the case that the land price remains 5L, Ajay should be neutral and not opposed to buying the land. In fact, the amount paid as premium should not factor into his decision on whether to buy or sell the land. Can a stop loss be placed for options? If yes does it remain valid intra day and we have to manually place it again next day or does it remain valid once placed till it is triggered?
Commodities go on till Then is there are any chances that my premium value comes to zero? In fact, you can square off anytime before the expiry. Thank you sir for reply. Suppose 1 day before expiry it is trading at 50 CE. Suppose 1 day before expiry it is trading at 5CE. Suppose in swing trade , I am in loss in this contract and did not close my position on expiry ON 3. Capital gains will be taxed based on your income bracket.
Suggest you read this module on taxation — https: And also if market trends up again till Jan my prize also goes up? Or am I obligated to hold that position till expiry? Both buyers and sellers of options have the flexibility to square off their positions anytime they wish, no need to wait for expiry. And as per expectations price and premium goes up therefore i wanted to book profit. I was entering exit order at market price but everytime order was getting rejected. When we buy option we have right to exercise it any time then why my order was rejected?
After entering exit order for minimum times my sell order gets executed n i earned profit. So, please tell me whether i was doing any wrong process or there is something about call square off before expiry which i dont know..
Sir, I was not getting any error. At end instead of selling at market price i clicked on limit price that time my order gets executed. Ah, I get it. We do not allow market order for stock option, it has to be a limit order. This is because of the lack of liquidity and the associated volatility. Also, whenever an order is rejected, there will be a rejection reason which is displayed.
That will give you the information. Is it easy to sell this huge qty on expiry day? As you have mentioned in the module Call Options , the loss is limited to the premium that we paid. Infact it went down. Since the price went down, I did not sell the stock as i do not want to take more loss. The loss when you buy an option call or put is restricted to the extent of the premium paid. Hence, your loss here would be Theoretically, when PE increases, CE should decrease and vice-versa. Options premiums have multiple forces acting on them simultaneously.
The direction of the market is just one of them. But the answer to your query is because of Volatility. Increase in volatility increases option premiums and vice versa. I need to execute the below orders 1. Buy 1 lot of Bank Nifty options i. Sell 1 lot of Bank Nifty options i. The maximum loss I can incur is around and the maximum profit is around , then why do I need 59K?
Is it a requirement from Exchanges? I bought Reliance Call at Rs. If I buy option for intraday MIS as order. Can we expect monthly unlimited plans for options traders or derivative segments? Because of this plan so many peoples are preferring to open account in ProStocks especially day traders. Hope you will come with some plans for day traders too like investors, there is no doubt about your services one of the best broker in India thank you so much for this.
Sunil, multiple plans only confuse clients. Now can i square-off my position at this stage or do i have to wait mandatory till the contract expire. No extra charges for this. If you leave the option to expiry, that is considered as expressing your interest to exercise the option. Please clear my doubt regarding options trading. I purchase 1 lot of the same. Can I book profit by selling that 1 lot even though the stock has not hit the strike price? Two days later, it went all way up to Rs.
Finally, it expired worthless resulting in a loss. If I buy any stock in option,and I want to sell in stock in profit,so I can wait for my expiry date or before I can book profit. There are only 3 possible scenarios, out which 2 indeed benefit Venu. Statistically, Venu has You have considered all possible outcomes equally probable. I get your point, Rayan. Perhaps I should have worded it better. What I really meant to say was — out of the 3 possible outcomes, 2 favor Venu. This gives Venu an edge, but like you mentioned, all the three scenarios have an equal probability of occurrence.
I guess you did not understand my question.. I just have a query. Is it necessary for the option contract to cross the strike price to be in profit. Or we can book profit by squaring off on the same day or days after if the premium is increased, but still the strike price is not reached. Eg — Purchased Put option of Nifty with a strike price of 67 squared off at premium , but the strike price of is not reached yet.
And how to calculate profit after the contract crosses the strike price?? Your profit will be the difference between the buy and sell price of the strike…i. All my doubts are cleared now regarding the calculation of profit. I am feeling more confident now. Regarding the new rule of product suitability to curb retail participation in fno products will this be extended even to intraday stock trading with leverage BO and CO orders or is it limited to only futures and options?
Here is a quick recap of the history of the Indian derivative markets — June 12th — Index futures were launched June 4th —Index options were launched July 2nd — Stock options were launched November 9th — Single stock futures were launched. Ajay wants to play it safe, he thinks through 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 — Ajay pays an upfront fee of Rs.
Consider this as a non refundable agreement fees that Ajay pays Against this fees, Venu agrees to sell the land after 6 months to Ajay The price of the sale which is expected 6 months later is fixed today at Rs. Do note, he is fixing a price and paying an additional Rs. However irrespective of what happens to the highway, there are only three possible outcomes — Once the highway project comes up, the price of the land would go up, say it shoots up to Rs.
Scenario 1 — Price goes up to Rs. So how much money is Ajay making? Scenario 2 — Price goes down to Rs. Here is the math that explains why it does not make sense to buy the land — Remember the sale price is fixed at Rs. Scenario 3 — Price stays at Rs. Agreed Ajay would lose 1 lakh, but the best part is that Ajay knows his maximum loss which is 1 lakh before hand. Hence there are no negative surprises for him.
Also, as and when the land prices increases, so would his profits and therefore his returns. He would lose a lot of money if the land prices increases after 6 months right? Well, think about it. The agreement is entered after the exchange of 1 lakh, hence 1 lakh is the price of this option agreement. As a thumb rule, in an options agreement the buyer always has a right and the seller has an obligation I would suggest you be absolutely thorough with this example. Let us now proceed to understand the same example from the stock market perspective.
And they are- The stock price can go up, say Rs. Now that we are through with the various concepts, let us understand options and their associated terms Variable Ajay — Venu Transaction Stock Example Remark Underlying 1 acre land Stock Do note the concept of lot size is applicable in options. So just like in the land deal where the deal was on 1 acre land, not more or not less, the option contract will be the lot size Expiry 6 months 1 month Like in futures there are 3 expiries available Reference Price Rs.
We will understand the logic soon Regulator None, based on good faith Stock Exchange All options are cash settled, no defaults have occurred until now. March 18, at March 19, at 5: August 5, at 3: August 6, at August 7, at 8: August 7, at October 25, at 9: November 17, at March 29, at 1: March 31, at 8: March 18, at 1: March 19, at 4: December 25, at 8: December 27, at 3: December 5, at 1: December 6, at March 18, at 3: April 5, at 4: April 6, at 6: May 17, at 6: May 18, at May 18, at 6: May 19, at 1: March 30, at 5: March 31, at 5: May 18, at 4: May 19, at March 18, at 4: March 19, at 6: March 20, at 4: March 20, at 7: March 21, at 7: March 20, at 3: March 22, at 8: March 21, at 1: March 22, at 5: March 23, at 4: March 22, at 6: March 23, at 1: March 24, at 6: April 18, at 7: April 19, at 3: March 24, at 8: March 25, at 4: April 18, at 3: March 24, at 1: March 30, at 2: March 31, at 4: April 13, at 1: April 14, at 4: April 28, at 8: April 29, at 5: June 2, at 8: June 3, at 5: June 10, at June 12, at 7: S Senthil Kumar says: June 29, at July 1, at 6: June 30, at 7: July 4, at July 4, at 5: July 5, at 4: July 6, at 4: July 10, at 7: July 12, at 3: July 13, at 3: July 13, at 7: July 20, at 1: July 21, at 6: July 31, at August 2, at 5: July 31, at 1: August 12, at August 13, at 5: August 30, at 5: August 30, at 2: September 2, at 3: September 3, at 7: September 5, at September 6, at 8: September 16, at 7: September 17, at 6: September 20, at 7: September 21, at 4: September 20, at 4: September 21, at 5: September 21, at 6: November 18, at March 4, at March 5, at October 11, at 1: October 13, at October 21, at October 21, at 1: October 27, at 2: October 29, at 8: October 26, at 9: October 27, at 4: October 28, at October 30, at October 31, at 1: Part of that endeavor involves education.
To that end, we have provided a short glossary of some basic stock market terminology to help beginning traders on their way. Those with more experience can always stand to review their knowledge, as well. These assets represent investments. Subsequently, they allow companies, commercial enterprises, and municipalities to raise new capital. These securities denote ownership in a corporation.
Generally, stocks consist of two different types:. On the stock market, ETFs trade like stocks but more closely resemble mutual funds. They hold stocks, commodities, and other assets while remaining tradeable themselves. Because they reflect an index, their prices change throughout the day.
In contrast, mutual funds have their net-asset values NAV calculated at the end of the business day. ETFs combine the flexibility of stocks with the diversification inherent in mutual funds. That, in addition to their tax efficiency and low costs, make ETFs an appealing choice for many traders.