WHAT IS OPTION TRADING ?
Option trading is another classification from derivatives. Technically speaking, options are defined as “The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (thestrike price) during a specified period of time”. As there are very complex definitions and explanations, traders are often unable to understand what exactly options and option tradings are. In this article we try our best to explain you in the simplest way we can. Initially we would like to introduce that every stock which is trading in futures also trades inoptions. The expiry time remains same as it is for future, mostly last thursday of the month. Options are once again divided in to ‘call option’ and ‘put option’ simply called as ‘CALL’ and ‘PUT’ respectively. When the price of particular share increases, the call option (CALL) increases and PUT decreases. As well, when the price falls down, interestingly reverse happens, PUT value increases and CALL value drops. So first thing we got here is there is no immediate reason to short sell options even if you predict that markets will fall also due to the following reason :
If a trader knows that particular price of the share is going to fall, he can buy put and when the price falls, his put raises and puts him into profit. Of course when he knows markets go up, he purchases the call and make the most out of it. So, in both the cases, the trader is buying the option, CALL or PUT. Finally, every option carried two terms with it – Strike price and premiumwhich are discussed in our next articles. Summary of the article :
     
  Option trading is performed with call options or put options
  Best suitable for low investment traders
  Options trading gives a good opportunity to earn more in less time.
  Call options to be bought when markets are expected to go up
  Put options are to be bought when markets are expected to go down
  High risk traders can make advantage of this kind of trading
  Risk reward ratio is very high when compared with cash or futures trading
  In this trading type, profit is unlimited with limited amount of risk
  Capital requirement is less when compared with the other two types of trading
  Hedging and speculation are the applications of option trading.



Nifty options are classified into two categories
Nifty call Option (Nifty call/Nifty CE)
Nifty put Option (Nifty put/Nifty PE)

  • Nifty Call Option:
  • Nifty put Option

Nifty call rises when nifty index rise and the price declines when index falls. Nifty call is denoted as Nifty CE in trading terminals. In nifty call put options too, the loss is limited with unlimited profit. Each lot consists of 50 shares in nifty options. As for other stocks, three expiries are available in this type of options too, current, next and far. Trader who has a good short term view on nifty index can purchase a next or far month call option and hold till respective month expiry for good returns.

Nifty Put Option:
Nifty put is often referred as Nifty PE in terminals. Behaviour of PUTS are inversely proportional to CALLS. Nifty put rises when index falls and nifty put declines when index rises. This is no way exceptional with respect to lot size, expiry or calculation. As said above, if one has a strong view of nifty index to fall in near future, he might opt for nifty PUT for maximum returns.


Advantages of trading in nifty call put when compared to other stocks:

  • High volumes in Nifty call put options
  • Easy to predict nifty index
  • Less chance of manipulation due to heavy volumes in nifty
  • No problem of liquidity in nifty call put
  • Easy break even possible while trading in nifty options
Put option gives the trader the right to sell the option of an underlying security to the writer for certain number of fixed shares (as per the lot size) at certain price of an expiry contract. As call option, this too available for all the stock which are available in future contracts. Also, Put options are similar for nifty, bank nifty, cnx IT, mini nifty and all other indices. The capital margin required to buy a put option is same as the margin required to buy a call option
Features of this article:
    • Every put option rise with respect to its spot and future price’s fall.  
    • These falls with respect to its spot price’s rise.
    • These are best suitable to buy when markets are bearish.
    • These are best suitable to short when markets are bullish.
    • These are hedged with Nifty long positions to reduce risk appetite.

Banking Partner

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Present list of Nifty 50 are as follows: Summary of this article:
How to make ?
Help ?
Quick Look
We provide Quality Service through innovative principles and up to date technology and have retained our valued clients into a long term relationship through constant anticipation of their expectations. We constantly create awareness of changing market trends among our clients. We are also provide LIVE CHAT SUPPORT
Quick Contact
We will call you back
   
  Your Name
 
  Your Contact Number
 
Copyright © Nifty Focus 2012,  Privacy Policy