How to trading options online in indian stock market
What is an Option? Suppose you have bought an option of shares of ABC Company at a strike price of This option gives you a right to buy shares at INR before contract expiry. The seller is under an obligation to sell shares to you at INR whenever asked for. The option seller is thus under an obligation to execute the contract. Terminologies used in options: It is the transaction price which is decided by the exchange.
A pre-defined period when the option will expire. This predefined period is last Thursday of every month for Indian stock markets. You can settle the contract even before this period.
Explained in case study Exercise day: It is the day when the option is exercised. It is the price of the stock underlying asset in the cash market.
At the money ATM , In the money ITM and Out of the money OTM are the three terms which are used to describe the relationship between the options strike price and the price of the underlying asset stock.
This is a scenario when the options strike price is exactly the same as the price of the stock in the cash market. This is the break-even point i.
This is a scenario when for a call option; the strike price is below the stock price and for a put option the strike price is above the stock price in the cash market. This is a profit zone for our position if the option is exercised. This is a scenario when for a call option; the strike price is above the stock price and for a put option the strike price is below the stock price in the cash market.
This is a loss making zone for our position if the option is exercised. They provide huge returns if the view proves right. It is recommended to always opt for a ITM option. This predefined period is last Thursday of every month for Indian stock markets.
You can settle the contract even before this period. Explained in case study Exercise day: It is the day when the option is exercised. It is the price of the stock underlying asset in the cash market. At the money ATM , In the money ITM and Out of the money OTM are the three terms which are used to describe the relationship between the options strike price and the price of the underlying asset stock. This is a scenario when the options strike price is exactly the same as the price of the stock in the cash market.
This is the break-even point i. This is a scenario when for a call option; the strike price is below the stock price and for a put option the strike price is above the stock price in the cash market. This is a profit zone for our position if the option is exercised. This is a scenario when for a call option; the strike price is above the stock price and for a put option the strike price is below the stock price in the cash market.
This is a loss making zone for our position if the option is exercised. They provide huge returns if the view proves right. It is recommended to always opt for a ITM option. In options trading, there are 3 contracts that are open at any point in time.
Bullish Premium to be paid: INR 10 Strike Price: Total Investment made for one lot: Any price movement of the spot above would yield us profit.
If at all till the expiry the spot stays below , then the option would make a loss and the maximum loss would always be equal to the total premium paid i. If the spot rallies above , say the premium goes up to say Since an option is a right given by the seller to the buyer, the buyer has the right to exercise that right.
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: November 23, at 9: November 23, at November 27, at 6: November 27, at 4: November 28, at 4: December 17, at 4: December 18, at 5: December 22, at 4: December 23, at 7: December 23, at 6: December 24, at December 29, at 5: December 29, at 6: December 30, at 7: December 31, at 8: December 31, at January 1, at 5: January 1, at January 2, at 3: January 8, at 4: January 9, at 8: January 20, at January 21, at 5: March 4, at 7: January 21, at 6: January 22, at 5: February 9, at 6: February 10, at 3: February 10, at 6: February 19, at 2: February 21, at 2: March 20, at 6: March 23, at 6: March 21, at 3: April 19, at 7: July 3, at 7: July 6, at 6: July 7, at July 23, at Rama krishan reddy says: July 24, at 4: July 25, at July 26, at July 29, at 2: July 29, at 6: August 25, at 9: August 26, at September 6, at 9: September 6, at September 13, at 5: September 14, at September 30, at September 30, at 1: November 15, at 9: November 24, at November 25, at 2: November 25, at 4: December 2, at 8: December 3, at December 4, at 9: December 12, at 3: December 13, at December 2, at 5: December 20, at December 21, at February 13, at 4: February 14, at February 15, at February 15, at 4: February 15, at 1: February 15, at 9: February 16, at 7: March 4, at 2: March 4, at 4: March 5, at 8: March 11, at 3: March 12, at 9: March 22, at March 22, at 1: