Future and option trading meaning
How are Stock Futures settled? Can I square up my position? When am I required to pay initial margin to my broker? Do I have to pay mark-to-market margin? What are the profits and losses in case of a Stock Futures position? What is the market lot for Stock Futures? Why are the market lots different for different stocks?
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. Upone expiry, if you exercise your option and If STT is more than intrinsic value, then zerodha will automatically lapse it. You need to check this, Sandeep — https: 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?
Hi Just opened an account with Zeroda. Nothing really, you just need to have enough margins. You can use this for figuring out the margins required — https: 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.
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If you use it right, volatility can be your best friend. Once you understand a little about market psychology, you can truly exploit volatility to create some serious profits in a relatively short period of time. Before I get sidetracked, let me mention the fact that there are two types of volatility in commodity options trading and really all options trading for that matter: In other words, how stable or unstable have market prices been throughout history?
The basic reason why it is important to understand volatility is because it will tell you what your best plan of action is, as far as what type of position to take in the markets.
In the realm of commodity options trading , you have to be prepared to face the uncertainties and volatility that the futures markets can throw at you. You have to keep in mind that options is simply a game of educated guesses. It is vital for you to make that distinction before even beginning to enter a trade. The options markets are inherently speculative. The whole drama of it is the big question mark about what the markets may or may not do. This is where you get volatility skews and parity in puts and calls.
This is why option writers pad their premiums the farther out in months the options go, because they realize that the farther the timeline extends, the more probability there is for uncontrollable events to affect market prices. When this major drop in value happens, if you are wise, you will exit by offsetting your position instead of allowing your option to expire worthless.