How to trade stock options nse

How to trade stock options nse Enriching Investors Since 1998. Profitable Trading Solutions for the Intelligent Investor. Beginners Guide to Options. What is an option? An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset (a stock or index) at a specific price on or before a certain date. An option is a derivative. That is, its value is derived from something else. In the case of a stock option, its value is based on the underlying stock (equity). In the case of an index option, its value is based on the underlying index (equity). · Listed Options are securities, just like stocks. · Options trade like stocks, with buyers making bids and sellers making offers. · Options are actively traded in a listed market, just like stocks. They can be bought and sold just like any other security.

· Options are derivatives, unlike stocks (i. e, options derive their value from something else, the underlying security). · Options have expiration dates, while stocks do not. · There is not a fixed number of options, as there are with stock shares available. · Stockowners have a share of the company, with voting and dividend rights. Options convey no such rights. Some people remain puzzled by options. The truth is that most people have been using options for some time, because option-ality is built into everything from mortgages to auto insurance. In the listed options world, however, their existence is much more clear. Types Of Expiration. There are two different types of options with respect to expiration. There is a European style option and an American style option. The European style option cannot be exercised until the expiration date. Once an investor has purchased the option, it must be held until expiration.

An American style option can be exercised at any time after it is purchased. Today, most stock options which are traded are American style options. And many index options are American style. However, there are many index options which are European style options. An investor should be aware of this when considering the purchase of an index option. An option Premium is the price of the option. It is the price you pay to purchase the option. For example, an XYZ May 30 Call (thus it is an option to buy Company XYZ stock) may have an option premium of Rs.2. The Strike (or Exercise) Price is the price at which the underlying security (in this case, XYZ) can be bought or sold as specified in the option contract. The Expiration Date is the day on which the option is no longer valid and ceases to exist. The expiration date for all listed stock options in the U. S. is the third Friday of the month (except when it falls on a holiday, in which case it is on Thursday).

People who buy options have a Right, and that is the right to Exercise. When an option holder chooses to exercise an option, a process begins to find a writer who is short the same kind of option (i. e., class, strike price and option type). Once found, that writer may be Assigned. There are two types of options - call and put. A call gives the buyer the right, but not the obligation, to buy the underlying instrument. A put gives the buyer the right, but not the obligation, to sell the underlying instrument. The predetermined price upon which the buyer and the seller of an option have agreed is the strike price, also called the exercise price or the striking price. Each option on a underlying instrument shall have multiple strike prices. Call option - underlying instrument price is higher than the strike price. Put option - underlying instrument price is lower than the strike price. Call option - underlying instrument price is lower than the strike price.

Put option - underlying instrument price is higher than the strike price. The underlying price is equivalent to the strike price. Options have finite lives. The expiration day of the option is the last day that the option owner can exercise the option. American options can be exercised any time before the expiration date at the owner's discretion. A class of options is all the puts and calls on a particular underlying instrument. The something that an option gives a person the right to buy or sell is the underlying instrument. In case of index options, the underlying shall be an index like the Sensitive index (Sensex) or S&P CNX NIFTY or individual stocks. An option can be liquidated in three ways A closing buy or sell, abandonment and exercising. Buying and selling of options are the most common methods of liquidation. An option gives the right to buy or sell a underlying instrument at a set price. Options prices are set by the negotiations between buyers and sellers. Prices of options are influenced mainly by the expectations of future prices of the buyers and sellers and the relationship of the option's price with the price of the instrument. The time value of an option is the amount that the premium exceeds the intrinsic value.

Time value = Option premium - intrinsic value. Long Term Investing. Multiply your capital by investing. long term trends. Multi Bagger Stocks. Create wealth for yourself. quickly identifying changes in trends, riding the trend. booking profits at the end of the trend. Capture brief price swings. fast moving trending stocks. intra-day price volatility of the most active stocks in both.

BULLISH & BEARISH Markets. generate a steady stream of daily income. Futures Day Trading. maximum profits everyday. highly liquid futures contract. • Use of this website andor products & services offered by us indicates your acceptance of our disclaimer. • Disclaimer: Futures, option & stock trading is a high risk activity. Any action you choose to take in the markets is totally your own responsibility. TradersEdgeIndia. com will not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information.

This information is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. The writers may or may not be trading in the securities mentioned. • All names or products mentioned are trademarks or registered trademarks of their respective owners. How to Day Trade Stock Options. How to Day Trade Stock Options. A stock option is an agreement, but not an obligation, to buy shares of stock at a set price on or before a certain date. A call option gives you the right to buy a certain amount of stock at a set strike price. A put option gives you the right to sell a stock. The option holder has the right to exercise an option, and the party who sold the option must fulfill the terms of the contract. Subscribe to a data service that provides the information required for pretrade analysis, post-trade decision support and risk management for option traders.

Practice some paper trades to find out if you will be any good at options trading. Always calculate and include your commission costs. Your options must make a real move in the right direction to make option trading financially feasible. Gain experience day trading stocks before you attempt to day trade options. Day traders often execute multiple trades in one day. When you are dealing in options, you must, on a moment's notice, have enough experience to analyze a stock, make the correct calculations before you buy and then sell at exactly the right time. Take an online course in trading stock options. Learn the various strategies veteran option traders use to increase profits and decrease losses. Find out which strategies work best under different market conditions. Purchase options software. Use it to track the options market with any trading style you use. Software can also help you keep track of the stocks in your portfolio and monitor their price movement, trends and signals.

Trade both European - and U. S.-style options to boost your profit potential. European options include OSMI (cash-settled options based upon the SMI stock index of the Swiss Exchange) and ESX (cash-settled options based upon the FTSE100 stock index of Euronext). Many brokerage firms require that an account be approved for options trading and that you maintain a minimum balance. Option markets can be traded both up and down. Some option strategists suggest that in certain situations, day traders buy both a call and a put. That way, it doesn't matter which direction a market moves. You can trade options either long or short. Long trades have unlimited profit potential and limited risk. Short trades have limited profit potential and unlimited risk. If you are a novice at day trading stock options, trading uncovered options short can be very risky. More Articles.

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And I FULLY expect you to verify each and every claim in this options course. It's what any prudent investor would do. So hold your judgement until you verify everything I am saying. To make things easy for you I made this home page the starting point of the web based options course . To get started, just fill out the form below. Step 1: ਎nter your email below. The Transparent Trading Newsletter will give you full access to the course as well as the bonuses. I'll send you daily emails to guide you through the course and from time to time I'll send trade alerts so you can see what I trade in real time. Discover five ways to achieve financial freedom in five years or less. Just enter your email to the right (unsubscribe at anytime). If you prefer to learn on your own, just read the overview below which will give you a big picture overview of the course. If you properly learn the option trading strategies taught in the course you'll be able to make money regardless of the direction of the stock market (up, down, or sideways). Trading stock options can be fun and it can also be risky.

If you trade the right way the rewards are great, but if you don't you'll lose money (trust me, I know from experience). However, once you learn the power of put and call options, investing will never be the same again. The versatility and profit potential of options trading is nearly unmatched in the stock market arena. I even heard Warren Buffet (the world's richest investor) uses stock options. However, due to the leveraged profit potential, many people are attracted to options trading for the wrong reason. So if you are one of the many who are looking for "get rich quick" with no work on your part please look elsewhere. I don't want to teach you until you are clean and off that drug. I mainly cater to people who are looking to create an additional stream of income so they can spend more time with their family. Thus, I teach a sensible, low risk, approach to investing. But like anything worthwhile, it's going to take a lot of hard work before you succeed! The Learning Modules of the FREE Web Based Options Course. The web based options course will teach you the simple 7 step process I use to trade stock options. For the most effective learning experience, read through each lesson in the exact order as they are listed. Module 1: Option Basics.

This section goes over the basics of stock options trading. You'll learn what stock options are, and will be taught the concept of how trading stock options can be profitable. Module 2: Option Value. Stock options are so unique and understanding how options are valued can be confusing. This learning module teaches you the basic components that give stock options their value. Module 3: Basic Strategies. I feel there is no use learning advanced option strategies unless you can make money with the basics, so here I outlined five basic option trading strategies. Module 4: Stock Charts. Stock options are derived from stocks so you need at least a basic understanding of how to read stock charts. This section outlines the basic principles of stock chart reading.

Module 5: Technical Indicators. This is a follow up to the stock chart lesson. It goes over a few basic tools used by traders to help them interpret stock price movement. Module 6: The 7-step process I use to trade stock options. This is where all the lessons will be tied together. You'll be walked through the 3-step process of trading (when to enter, when to exit, and how to manage risk and profits). To get started click on this link and you'll be taken to the first lesson of the course. Message from Trader Travis: I don't know what has brought you to my page. Maybe you are interested in options to help you reduce the risk of your other stock market holdings. Maybe you are looking for a way to generate a little additional income for retirement. Or maybe you've just heard about options, you're not sure what they are, and you want a simple step-by-step guide to understanding them and getting started with them. I have no idea if options are even right for you, but I do promise to show you what has worked for me and the exact steps I've taken to use them to earn additional income, protect my investments, and to experience freedom in my life. Just enter your best email below to claim my  FREE  report:  Five Option Trading Strategies I've Used to Profit In Up, Down, and Sideways Markets.

Along with your  FREE  report, you'll also get my daily emails where I share my favorite option trading strategies, examples of the trades I'm currently in, and ways to protect your investments in any market . Products Created by Trader Travis. Free Options Course Learning Modules. Module 1:  Option Basics. Module 3: ꂺsic Strategies. Module 6:  The 7-step process I use to trade stock options. Copyright © 2009 - Present. The Options Trading Group, Inc. All rights reserved. DISCLAIMER: All stock options trading and technical analysis information on this website is for educational purposes only.

While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions. This is neither a solicitation nor an offer to BuySell futures or options. Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.

NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. Welcome to DalalStock® (Best Stock Tips Provider Since 2008) DalalStock® Provide 91% Accurate Stock Tips in Various Segments of Share Market. We Have Large Technical Analysis Team with Broad Knowledge of Stock Market Fundamentals . DalalStock® Provide Free Trial Stock Tips in Whatsapp . We Provide Daily Stock Tips through Whatsapp, and SMS. Our Service Area in Share Market are Intraday Tips (Intraday Trading Tips), Nifty Tips (Nifty Future Tips) (Nifty Option Tips), Investment Tips, Equity Tips, Day Trading Tips, Commodity Tips, Future and Options TIps, NSE Intraday Tips, Online Trading Tips, Today Intraday Tips (Share Tips)(Stock Tips for Today), Nifty Intraday Tips, Nifty Options Tips. We Provide Absolutely Free Stock Tips (Free Share Tips) for 1 Day in below Segments of Share Market, If you Like Our Service Then Pay after 1 Day. Please Note that Free Trial Takes 2-3 Days Times to Activate on Your Mobile Number. We will First Confirm Your Details via Calling you and Then after We will Activate Your Trial, So Fill up Right Details and Turn On Your Mobile and Co-Operate with our TeleCalling Executives. Our Stock Tips Services.

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however free trial is not required but still we are giving because You can also check our website daily for our paid performance. Don't Judge our Accuracy in this Highly Volatile Market, However Still Giving Consistent Profit We don't Believe in Past Performance, Because 99% Stock Advisory Shows You Manipulated Past Performance. They will not give true result. So here we are posting our daily Live Stock Tips performance so you can Judge Yourself. Visit Our Website Daily to Check Our Paid Calls Performance. if Anyone Can Prove any Manipulate Action in our Paid Calls then that person will be rewarded with Good Prize हम past performance में यकीन नहीं रखते, क्योकि ९९% स्टॉक टिप्स देनेवाली कंपनीया जूठा और आधा अधुरा past performance दिखाती हे, वो आपको अच्छा लगे ऐसा ही कुछ दिखाएगी यहाँ पर हम आपको हमारा हरदिन का Live Performance दिखायेगे, जिससे की आप अपनी तरीके से फेसला ले सके, आप हमारी वेबसाइट पे हरदिन आये और आप खुद हमारे सभी टिप्स देखे और फेसला ले. अगर किसी भी व्यक्ति ने हमारी टिप्स पर कुछ गलत अपडेट किया हो ऐसा साबित करदे तो उस व्यक्ति को उपहार की तौर पर एक अच्छा इनाम दिया जायेगा Now we are Ready with our New technology, So Now No More Waiting List. Anybody Can Join our Service instantly. How to trade stock options nse StrategyBuilder &ndash Users can build their own strategies by searching options and then combining selected options. BingoBrowser &ndash Users can search for individual stockindex options based on parameters specified. NIFTY Tips &ndash This package is designed for NIFTY short term positional traders. NIFTY report with targets and stop-loss is uploaded by Sunday 2:00 PM. Can be used by traders interested in NIFTY Options, Futures or Options Strategies. Options Tutorial &ndash This package can be used by traders who want to learn options trading.

Content includes lots of examples from Indian market context and includes concepts which are generally not included in popular text books. Complex topics are explained in easy manner. Intraday Trading System &ndash This package is designed for intraday traders. BuySell signals are generated on the screen during market hours. This is algo based trading system which uses statistical analytical techniques to analyze realtime demand and supply situation of the stock and identifies buysellexit opportunities. Another feature of this system is that it has inbuilt trailing stop loss management so that you don't lose out the profit you deserve. No need to download any software. A premium service from trader to trader. For more information refer tools sections or get yourself registered with us. You can only trade options on a fixed number of underlyers (stocks , Index etc). This list is maintained by exchanges and updated from time to time. In NSE website nseindia. com you can get the list under FnO section. There is a trading size defined by exchanges called &lsquolot&rsquo.

You can trade in multiple of lots. For example one lot of NIFTY holds 50 contracts. At a minimum you need to trade 1 lot. Number of lots should be in whole numbers like 2, 3 4 and so on but not fractions. So if you have traded 3 lots of NIFTY you actually hold 3 * 50 (No of lots * Nifty lot size) = 150 contracts. An option is a contract to buysell a stock (underlyer). Contract defines a fixed price at which stocks could be traded. This is called strike price. Contract has a maturity date which is the date till the contract is valid. The seller (called option writer) sells the contract to Buyer. Buyer pays the price of the contract called premium to seller. Buyer has the right, but not the obligation to buysell the stock(underlyer) at a fixed price (strike price). The contract also obligates the seller or writer to meet the terms of delivery if the contract right is exercised by the contract buyer.

If you have not fully understood the concept of Options please don&rsquot give up. Continue to read the FAQ section many of your doubles will get cleared after reading subsequent sections. It is the fixed price at which owner (buyer) of the CALL option can buy the underlying asset from option seller, no matter whatever is the current price of the underlying asset. Example, If strike price of Reliance CALL option is 1300 that means buyer of this option can buy Reliance stock at 1300 even if the current market price of the stock is higher (say 1500). In case of Put options, strike price is the price at which owner (buyer) of the PUT option can sell the underlying asset to the option seller, no matter whatever is the current price of the underlying asset. Example, if strike price of Reliance PUT option is 1300 that means buyer of this option can sell Reliance stock at 1300 even if the current market price of the stock is lower (say 1100). If you are bullish. You may consider BUY-ing CALL options You may consider SELL-ing PUT options (remember that selling naked option is a risky method and mostly used by expert traders) If you are bearish. You may consider BUY-ing PUT options You may consider SELL-ing CALL option. People buy CALL option when they are bullish i. e. they anticipate that price of the underlying stock will move up. Let&rsquos understand using an example. Suppose, today&rsquos date is 1-MAY-2008 and you buy a RELIANCE CALL option (strike=2500, maturity June 2008) @ Rs. 50 per contract when RELIANCE stock was getting traded at 2400. Let&rsquos see what happens after options expiration.

Case I : Reliance stock price greater than the strike price. Reliance stock trading at 2600 on expiry day cut-off time. Net profit = (current price &ndash strike price) - premium = (2600 &ndash 2500) -50= Rs. 50 per contract. Case II : Reliance stock price less than strike price (2500) on expiry day cut-off time. Net loss = Premium paid = Rs. 50 per contract. So when you buy a CALL option you have unlimited profit potential but limited risk or downside. People buy PUT option when they are bearish i. e they anticipate that price of the underlying stock will go down. Let&rsquos understand using an example. Suppose, today&rsquos date is 1-MAY-2008 and you buy a Reliance PUT option (strike=2500, maturity June 2008) @ Rs. 50 per contract when RELIANCE stock was TRADING at 2600. Let&rsquos see what happens after options expiration. Case I : Reliance stock price is less than the strike price. Reliance stock trading at 2400 on expiry day cut-off time. Net Profit = (Strike Price &ndash Current Price) &ndash premium = 2500 &ndash 2400 &ndash 50 = 50. Net loss = Premium paid = Rs 50 per contract.

So, when you buy a PUT option you have unlimited profit potential but limited risk or downside. This is a bearish method. It has unlimited loss and limited profit potential. Selling options is not recommended for beginner level traders. Let&rsquos understand it using an example. Suppose you want to SELL NIFTY call option (strike=5000 expiration June 2008) on 1-MAY-2008 at 50 Rs per contract and NIFTY was trading at 4900 at that time. When you get a buyer for this contract you get paid @ Rs. 50 per contract and are credited to your account. Let&rsquos see what happens after options expiration. Case I : NIFTY price <= strike price on expiry day cut-off time. Net Profit = 50 (Premium credited to your account when the trade was executed) Case II : NIFTY price > strike price on expiry day cut-off time. Net = STRIKE price &ndash Nifty cut-off PRICE + PREMIUM. Example : If NIFTY cut-off price = 5025  Net = 5000 &ndash 5025 + 50 = Rs. 25 per contract(Profit) If NIFTY cut-off price = 5100  Net = 5000 &ndash 5100 + 50 = Rs. -50 per contract (Loss) This is a bullish method. It has unlimited loss and limited profit potential. Selling options is not recommended for beginner level traders.

Let&rsquos understand it using an example. Support you SELL a NIFTY PUT option (strike=5000, expiration June 2008) on 1-MAY-2008 at 50 Rs per contract when NIFTY was trading at 5050. When you get a buyer for this contract you get paid @ Rs. 50 per contract and are credited to your account. Let&rsquos see what happens after options expiration. Case I : NIFTY price >= strike price on expiry day cut-off time. Net Profit = 50 (Premium credited to your account when the trade was executed) Case II : NIFTY price < strike price on expiry day cut-off time. Loss : STRIKE &ndash Nifty cut-off price - PREMIUM. Example : If NIFTY cut-off price = 4950, Loss = 5000 &ndash 4900 - 50 = 50 (LOSS) If Nifty cut-off price = 4975, Loss = 5000 &ndash 4975 - 50 = -25 (PROFIT) A person who Sells options is a writer. Writer sells to option buyer. Yes, any investor can sell option though his broker.

That&rsquos not correct. An option writer can close the SELL option transaction if heshe wants by squaring off. OwnerBuyer of the option need not worry about the opposite party as there will always be equal number of buyers and sellers available all the time for a given contract. Employee stock options are not tradable in exchanges unlike standardized options. Employee stock option terms are not standard for example company X gives employee A an option to own 100 stocks of the company @ 50 Rs. The same company gives employee B an option to own 2000 stocks of the company @ 35 Rs. Exchange traded options have standardized terms i. e lot size and strike price of a given contract is same for all investors. The main difference between options and futures is described below: Options contract gives the buyer the right, but not the obligation to buy (or sell) the underlying asset (stock, Index etc) at a specified price at any time during the life of the contract. On the other hand futures contract gives the buyer the obligation to buy underlying asset (index, stock etc) at a specified price at any time during the life of the contract. Each trade comprises two transactions, opening transaction and closing transaction. When you go long i. e BUY call (or put) option as opening transaction it is called as &ldquoBuy to open&rdquo. You will close this position by taking opposite position i. e. by selling the same amount of call (or put) option. Closing transaction in this case would be called as &ldquoSell to close&rdquo. Each trade comprises two transactions, opening transaction and closing transaction. When your opening transaction is SELL short call (or put) option it is known as &ldquoSell to open&rdquo. You will close this position by taking opposite position i. e. by buying the same amount of call (or put) option.

Closing transaction in this case would be called as &ldquoBuy to close&rdquo. If you own(bought) an American style option, you can exercise your right to buy (in case of call options) or right to sell (in case of put options) underlying asset anytime between the purchase date and expiry date. If you own(bought) an European style option, you can exercise your right to buy (in case of call options) or right to sell (in case of put options) underlying asset only on the expiry date. The underlying asset covered by index options is not shares in a company, but rather, an underlying Rupee value equal to the index level multiplied by Lot size. The amount of cash received at upon exercise or expiration depends on the settlement value of the index in comparison to the strike price of the index option. In India Index options have EUROPEAN exercise style and Stock options are AMERICAN exercise style. For more details refer question on difference between EUROPEAN & AMERICAL exercise styles. For questions regarding option exercise & exercise styles please refer OPTION EXERCISE section. Refer nseindia. com. Under F&O section you can see contract information.

If Option type is CE means CALL European style option, CA means CALL American style option, PE means PUT European style option, PA means PUT American style option. Yes. In NSE Index options are of European style whereas stock options are of American style. A call option is in-the-money if its strike price is below the current market price of the underlier (stock, Index etc) . For example, if you bought a 4000 strike NIFTY CALL OPTION and NIFTY is trading at 4200 the call option is in-the-money. A Put option is in the money when its strike price is above the current market price of the underlier (stock, Index etc.) . For example, if you bought a 5000 NIFTY PUT OPTION and NIFTY is trading at 4900 the put option is in-the-money. A call option is out-of-money when its strike price is above the current market price of the underlier (stock) . For example, if you bought a 5000 NIFTY CALL OPTION and NIFTY is trading at 4900 the call option is out of money. A Put option is out-of-money when its strike price is below the current market price of the underlier (stock) . For example, if you bought a 5000 NIFTY PUT OPTION and NIFTY is trading at 5100 the put option is in-the-money. An option is at-the-money if the strike price of the option equals (or nearly equals) the market price of the underlying security(stock). Intrinsic value can be defined as the amount by which the strike price of an option is in-the-money . Some people view it as the value that any given option would have if it were exercised today.

For Call options, Intrinsic value = Current Stock price &ndash Strike Price. For Put Options, Intrinsic value = Strike Price - Current Stock price. Note intrinsic value cannot have negative value so minimum intrinsic value is 0 for an option. Time Value = Option Price - Intrinsic Value. Lets take an example: If stock XYZ is trading at Rs 105 and the XYZ 100 call option is trading at Rs 7, Intrinsic value = 105 &ndash 100 = 5. Time Value = 7 &ndash 5 = 2. So, we would say that this option has time value = Rs 2. Different people view it in different manner. Generalizing it may not be a good idea. Many people interpret open interest as described below: Rise or fall in the open interest may be interpreted as an indicator of the future expectations of the market. A rising open interest number indicates that the present trend is likely to continue. If the open interest number is stagnant, then it may suggest that the market is in a cautious mode. If Open interest starts declining, then the market suggests a trend reversal mood. In a rising market, continuous decline of open interest indicates an expectation of downward movement.

Similarly, in a falling market, the decline of open interest indicates that the market expects an upward trend. Volume is the number of contracts of a particular option contract that have traded on a given day, similar to it meaning the number of shares traded on a particular stock on a given day. Open interest is the number of option contracts for a particular stock at a specific strike price and a specific expiration date that were open at the close of trading on the prior trading day. While some traders look at this information as an indication of liquidity of a particular option or option chain, a more reliable indicator may be the tightness of the bid ask spread. A common misconception is that open interest is the same thing as volume of options and futures trades. This is not correct, as demonstrated in the following example. C buys 5 option and D sells 5 option contracts. A sells his 1 option and D buys 1 option contract. E buys 5 options from C who sells 5 options contracts. -On January 1, A buys an option, which leaves an open interest and also creates trading volume of 1. -On January 2, C and D create trading volume of 5 and there are also five more options left open. -On January 3, A takes an offsetting position, open interest is reduced by 1 and trading volume is 1. -On January 4, E simply replaces C and open interest does not change, trading volume increases by 5. PCR is a very popular indicator to measure the prevailing level of bullishness or bearishness in the market. Remember Put contract is bought by investors who are bearish and Call contracts are bought by people who are bullish.

PCR is calculated as: PCR = No of traded Put options no of traded call options. As this ratio increases it means that investors are putting more money into put options rather than call options. There are different ways you can interpret this information to gauge market directions. Although options are derived from stocks or indexes but they are traded as independent securities in the markets. The price movement pattern and extent could be different than the underlying stockIndex. Delta value is used interpret the relationship between price movement of an option and its underlyer stockIndex. Like the stock trading price it is purely driven by Demand (buyers) and Supply (sellers). You can compute the fair value of options using Binomial or Black Scholes formulas. We do provide theoretical value of options in our web-site using Black-scholes model. Exercising a stock CALL option means buying the stock at the price set by the option (strike price), regardless of the stock's price at the time you exercise the option. Exercising a stock PUT option means selling the stock at the price set by the option (strike price), regardless of the stock's price at the time you exercise the option. Let&rsquos understand it using an example: Mr. Gupta bought 2500-RELIANCE-CALL option contract. The stock is currently trading at Rs. 3000.

If Mr. Gupta decides to &lsquoexercise&rsquo his right he will get the stocks at the rate of 2500 even though the stock is being traded at 3000. You square off options position when you want to close your existing position. Square off can be done by taking the exactly opposite position for e. g. if you have initially bought 1 lot of CALL (or PUT) option you can square off by selling 1 lot of CALL (or PUT) option with same strike and expiry. Similarly, if you have initially sold 1 lot of CALL (or PUT) option you can square off by buying 1 lot of CALL (or PUT) option. You may want to exercise your option when you want to take delivery of underlying stock or Index. You may want to exercise if you want to take the delivery of underlying stock and you have longmedium term interest in the stock. If you want to book profit or cut your losses, you may want to close out your position by squaring off. If the option is of American style then it can be exercised any day (when the market is open) before its expiration. In case of European options it can be only exercised on the expiration day. Yes, you can close out your position by squaring off which in short means taking the reverse position. You can sell the underlying stock as soon as you give instructions to your broker to exercise.

We suggest you also double check with your broker if there are any deviations and special rules apply. It all depends on your outlook of stock and your riskreward appetite. If you believe that the stock has made its move to large extent and there is not much scope of further movement in your anticipated direction then it you may want close out the position by squaring off. On the other hand if you believe that there is lot more steam left and the stock will go a long way, you can continue to hold your position. When the holder (buyer) of options exercise the option writer(seller) is said to be assigned the obligation to deliver the terms of option contract. If it is a CALL option the writer(seller) needs to deliver the obligated quantity of the underlying security at the strike price. In case of PUT option the writer(seller) needs to buy the obligated quantity of the underlying security at the strike price. Assignment is done on a random basis. The clearing house picks short positions that ae eligible to be assigned and then allocates the exercised positions to any one or more short positions. All in the money options whether American or European style are automatically exercised by the clearing house. No, once an order is accepted by clearing house it cannot be ordinarily revoked. There is no way to know if you could get assigned. If you have sold an option there is always a possibility of getting assigned on any business day before expiration (in case the option is American style) to fulfill your obligation to receive (and pay for) or deliver (and get paid for) shares of underlyer stock .

There are some general rules that you should keep in your mind: 1. Only small portion of options actually get exercised. 2. Majority of options get exercised when they get closer to expiration. Option exercise statistics are published in NSE website nseindia. com. I you continue to hold your option sell position you cannot eliminate the posibility of being assigned. You can close your position any time by squaring off your position i. e taking the exact opposite position. No, you have closed out your position and there is no way you can get assigned. All in the money options are exercised automatically during the expiration day. For details please contact your broker. SEBI regulation says that if the value of the declared dividend is more than 10% of the spot price of the underlyer stock on the dividend announcement day then the strike price of the stock options are refuced by the dividend amount. If the decalred dividend is less than 10% then there is no adjustment of for the dividend by the exchange.

In this case market adjusts the price of the options considering the dividend announcement. All active contracts will continue to exist until the last day (as declared). After that no more contracts on this stock will available for trading. If you are holding such an option your position will be exercised and settled on last day. It is always advisable to check with your broker regarding such announcements. &lsquoBuy Call&rsquo is capital gain method which involves uncapped profit potential and limited loss, where as &ldquoSell Call&rdquo is an income generation method which involves limited profit and unlimited loss potential. Selling options are only recommended for experienced investors. &lsquoBuy Put&rsquo is capital gain method which involves uncapped profit potential and limited loss, where as &ldquoSell Put&rdquo is an income generation method which involves limited profit and unlimited loss potential. Selling options are only recommended for experienced investors. No, you keep the premium but you still need to deliver the underlying stocks to the options holder. Options spreads are the basic building blocks of many options trading strategies.

A spread position is entered by buying and selling equal number of options of the same class on the same underlying security but with different strike prices or expiration dates. Refer our StrategyFinder tool to see real tradable strategies which also includes spreads. If you do it from the same trading account it will offset each other. If you do it from different accounts then you will have a flat position from economic perspective. There is no visible advantage in doing so. Margin is the amount of cash you need to deposit with your broker as a collateral if you want to write an uncovered (naked) option. You also need to maintain margin to cover your daily position valuation and reasonably foreseeable intra-day price changes. When you short sell an option there is unlimited risk involved if the stock moves in opposite of your expected market direction. There is always a possibility that the seller will not be able to fulfil his obligation to deliver the terms of the contract due to lack of funds. If the options price has increased significantly and the seller wants to close out his position by buying out the option there is possibility that he may not have sufficient funds in his account. This kind of situations will prevent markets from functioning efficiently as the counter party wont be able to get his payment.

To avoid these kinds of circumstances the concept of margins were introduced in all markets across the world. Volatility is a measure of the rate and magnitude of the change of prices (whether up or down) of the underlying. To put it simply you can view volatility as the speed at which price of underlying can move in either direction. If volatility is high, the premium on the option will be relatively high, and vice versa. You can find out the applicable margin from your broker. Many online brokers like hdfcsec. com , icicidirect. com etc. do provide tools to calculate margin requirements. No, you will not get margin benefits in this case. Yes, you will get benefits in this case. Yes, you will get margin benefits in this case. However, the benefit will be removed three days prior to expiry if the near month contract. Delta can be defined as amount by which an option&rsquos price will change for corresponding 1 point change in price of the underlying stock or index.

Long Call options have positive deltas, whereas Long put options have negative delta whereas Short Call options have negative delta, and Short put options have positive delta. Let understand using couple of examples. Delta of NIFTY Mar-2009 3000 CALL is 0.50. Theoretically, this means that if NIFTY moves up by 1 point, this option&rsquos price will go up by 0.5 point. Similarly, if NIFTY moves down by 1 point, this options price will go down by 0.5 point Delta of NIFTY Mar-2009 2800 PUT is -0.75. Theoretically, this means that if NIFTY moves up by 1 point, this option&rsquos price will go down by 0.75 point. Similarly, if NIFTY moves down by 1 point, this options price will go up by 0.75 point. Note that DELTA values are dynamic and changes almost everyday. If Delta is viewed as the &lsquospeed&rsquo of price movement of option relative to underlying then option Gamma can be viewed as the acceleration. Basically, Gamma measures the amount by which delta changes for a 1 point change in the stock price. For example, if Gamma of an option is 0.5, that means theoretically that with 1 point price movement of underlying the delta will move 0.5. Long calls and long puts have positive gamma whereas short calls and short puts have negative gamma. Vega can be interpreted as the amount by which the price of an option will change with 1% change in implied volatility of the underlying. One common scenario when option Vega changes is when there is a large movement in underlying price. Long calls and long puts both have positive vega where as short calls and short puts will always have negative Vega. Option theta can be interpreted as change in the price of the option with one day decrease in the remaining life of the option. To put is simply it is a measure of time decay.

Note that longer the life of an option, the higher will be the premium and vice versa. With each passing day the value of option decreases (considering all factors equal). When you want to buy an option you probably want to know what is the fair value of the option is and what should be the fair price of an option, whether the option is under-valued, over valued or rightly valued. You can get answers to these questions by calculating the theoretical value of an option. There are many mathematical models and formulas available which can be used. These are mathematical models that can be used to calculate the theoretical value and greeks of options. If you consider option Greeks in taking decisions to buy or sell options you are basically increasing your probability to make a profit in your trades. Disclaimer: OptionBingo does not make any recommendations for investments. All contents herein are provided for illustrative, educational and informational purposes only and are not intended as recommendations to buy or sell. Any information provided herein shall not be construed as professional advice of any nature.

Trading involves risks and it is advised that a certified financial analyst ought to be consulted before making any decisions. Copyright © 2009 OPTION BINGO CONSULTING PRIVATE LIMITED. All Rights Reserved.