Open Interest and trading volume. You can only trade options on a fixed number of underlyers stocksIndex etc. This list is maintained by exchanges and updated from time to time. In NSE website www. 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.
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 that means buyer of this option can buy Reliance stock at even if the current market price of the stock is higher say 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 that means buyer of this option can sell Reliance stock at even if the current market price of the stock is lower say People buy CALL option when they are bullish i. Reliance stock price greater than the strike price. Reliance stock trading at on expiry day cut-off time. Reliance stock price less than strike price on expiry day cut-off time. People buy PUT option when they are bearish i.
Reliance stock price is less than the strike price. This is a bearish strategy. It has unlimited loss and limited profit potential. Selling options is not recommended for beginner level traders. When you get a buyer for this contract you get paid Rs. This is a bullish strategy. Employee stock options are not tradable stock exchanges unlike standardized options. Employee stock option terms are not standard for example company X gives employee A an option to own stocks of the company 50 Rs.
The same company gives employee B an option to own stocks of the company 35 Rs. Exchange traded options have standardized terms i. 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. You will close this position by taking opposite position i. 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.
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. 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 strike NIFTY CALL OPTION and NIFTY is trading at 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 NIFTY PUT OPTION and NIFTY is trading at 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 NIFTY CALL OPTION and NIFTY is trading at 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.
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. Note intrinsic value cannot have negative value so minimum intrinsic value is 0 for an option. 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. 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. 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:. 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. 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 priceregardless 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 priceregardless of the stock's price at the time you exercise the option.
Gupta bought RELIANCE-CALL option contract. The stock is currently trading at Rs. 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. 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.
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. If you believe that the stock has made its move stock 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. 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: Only small portion of options actually get exercised 2. Majority of options get exercised when they get closer to expiration. 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. All in the money options are exercised automatically during the expiration day. For details please contact your broker.
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. Selling options are only recommended for experienced investors. No, india 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 india 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 options 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 stock 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 options 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 www. 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.
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. 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. Long calls and long puts have positive gamma whereas short calls and short puts have negative gamma.
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. Welcome FAQ Topics OptionBingo. Users registered to the website can search and build tradable options strategies. These options strategies are created by combining various Stock or Index options available for trading in stock exchanges.
Users can also search for individual stock or index options. Three main tools available are: StrategyFinder — Users can search options strategy based on specified parameters. Strategies from the search results can be picked and viewed. Users can also update selected strategies.
NIFTY Tips — This package is designed for NIFTY short term positional traders. NIFTY report with targets and stop-loss is uploaded by Sunday 2: Can be used by traders interested in NIFTY Options, Futures or Options Strategies Options Tutorial — 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 — This package is designed for intraday traders. 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. What all exchanges are covered in the website? For Intraday system package prices are near real-time.
For options strategies package prices are updated and options strategies are generated every fifteen minute during market hours. At what time of the day options strategies database gets updates? Every fifteen minutes options prices are downloaded and options strategies are generated during market hours. Is it a paid or free site? You can register free. Free subscribers get limited access to the website.
India know subscription details please refer subscription section. What are the payment options available? We have integrated payment gateway in our website. You can pay via credit cards, debit cards and Net banking. Can I execute trades from this website? No, at this point time you cannot execute your trades from this web-site. I have forgot my password what should I do? This will take you to login page.
Enter your details and we will send you the password in to your email id registered with us. In case you need further assistance please get in touch with us. Is it possible to trade option contract in any quantity I want? Where can I get the lot size information? Refer exchange web-site for details.
In NSE you can find the details under FnO section. Where can I see trading list of tradable options and their strike prices? Where can I find the historical options prices? Also, there are some tools and data services available that can be used to study historic prices. Do I need knowledge of advanced mathematics to understand options? This is a very common myth. Simple strategies like buying options are similar to buying stocks to large extent.
You need to pick a good strategy according to perceived market trend and understand the risk. If you want to further study the pricing models and volatility related topics you may require good background in mathematics. 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. The contract also obligates the seller or writer to meet the terms of delivery if the contract right is exercised by the contract buyer. What is a strike price? What is a premium? The amount payable by the option buyer to the option writer seller for owning the option.
The value of premium is determined by the market by demand and supply. It is also influenced by the price movement of the underlyer stock, index etc. What is a lot size? Options are traded in pre-defined lots. For example if you want to buy NIFTY options you have to buy in lots.
You can trade only whole number contracts like 1, 2, 3 and so on but not in fractions. What is options expiry? Options expiry is a date after which the contract is no longer valid. Every contract has an expiration date. What is a call options? A call is an option contract that gives the owner the right to buy the underlying stock at a specified price strike price for a certain, fixed period of time until its expiration. What is a put option?
A call is an option contract that gives stock owner the right to sell the underlying stock at a specified price strike price for a certain, fixed period of time until its expiration.
How can I benefit from buying Put option? How can I benefit from selling a call option? A person who Sells options is a writer. Yes, any investor can sell option though his broker. How options employee stock option different than standardized ordinary options?
What is the difference between Futures and Options? The main difference between options and futures is described below: What is the difference between Stock and Index options?
How can I find out if a particular option is American style or European style? Are both American style and European style options available for trading in Indian markets? In NSE Index options are of European style whereas stock options are of India style.
What are out-of-money options? What are at-the-money options? What is intrinsic value of the option? The total number of options contracts on an underlyer that have not yet been closed i. Is increased open interest bullish? Many people interpret open interest as described below: What is the difference between volume and open interest? What does liquidity mean?
Ability of an option or other tradable security to get bought or sold in the market without affecting the price. What is PCR PUT CALL RATIO? PCR is calculated as: Now the stock is trading at The stock is up 30 Rs but why my option is trading at 40 up only 20 Rs.
Why the option did not move as much as the underlying stock? Who decides on the option price premium? Like the stock trading price it is purely driven by Demand buyers and Supply sellers. How could I know whether the price of a particular option is cheap or expensive?
What is the difference between square off and exercise? Under what circumstances I should square off vs. Can I exercise anytime or I need trading to wait until the expiration day? I have taken a position on an European style option. If I exercise an in-the-money call option, how soon I can sell the underlying stock?
If I am holding options option and its value has increased i. I am making profit right now, Do I need to hold it until expiration? Will be a good move to book close out the position and book profits? What is options assignment? What will happen if I have an open option position during options expiration day and I have neither closed my position not excised? Can I revoke my order to exercise options? No, once an order is accepted by clearing house it cannot be ordinarily revoked.
How do I know if I could get assigned or exercised? What is the likely hood of getting assigned? I bought an index option which is a European style option. Does this mean I cannot close my position until expiration? If I initially shorted an option and later covered my short that is bought back my call option. Can I still get assigned?
No, you have closed out your position and there is no way you can get assigned. If I hold options until the expiration day will I get exercised automatically? A dividend was announced on the stock. What will happen in this case? What will happen if I hold an stock option and a decision is taken to remove that stock from Futures and options category?
Which one should I choose? I sold a call option and received a premium for that. If I get exercised do I need to give back the premium to the buyer? What are options spreads? Can an individual person be both long and short the exact same option at the same time? What is options volatility? Does change in volatility affect margins? How can I find out how much margin is applicable for an options? Will I get margin benefits if I have positions on different trading No, you will not get margin benefits in this case.
Will I get margin benefits if I have positions in both futures and options on same underlying? Yes, you will get benefits in this case. Will I get margin benefit if I have counter positions in different months on same underlying? Delta of NIFTY Mar CALL is 0. Similarly, if NIFTY moves down by 1 point, this options price will go down by 0. Similarly, if NIFTY moves down by 1 point, this options price will go up by 0. What is option GAMMA? What is an option VEGA? What is an option THETA?
What is theoretical value of an option? What are Binomial and Black-holes equations? How important is it to use options geeks? 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. 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 strategy and mostly used by expert traders If you are bearish You may consider BUY-ing PUT options You may consider SELL-ing CALL option.
Open Interest trading Trading Volume. Jan1 Jan2 Jan3 Jan4. A buys 1 option and B sells 1 option contract 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. I bought 1 lot of XYZ strike call option at 20 Rs when stock was trading at Corporate Actions Split, Merger, Dividend. I own a Call option on a stock.