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Most retail traders usually buy options, i. Selling options is used when exiting options that were already bought. What this means is that by buying an option calls or puts the odds of losing are significantly more.
Now the question is if options buyers are inherently taking a higher risk, who is on the other side of the trade with better odds of winning? Let me explain with a basic introduction to what comprises option premium, different types of options, open interest and an example showing how most options most active calls and puts in nse worthless. Option premium, the value of calls or puts that you see on your trading screen has two components, Intrinsic value, and time value.
Intrinsic value is how much the option is in the money, or simply how much you would get if the options were to expire right now. Time value is the portion of premium which is over and above the intrinsic value of an option, i.
The total number of open contracts for any option is called its Open Interest. In the example above if Nifty were to expire today atthe total options that would expire worthless would be: Yes, an option buyer can take quick intraday trades for a profit, or be on the right side of the market and have the potential of making unlimited profits, but the odds of winning are most active calls and puts in nse in favor of an option writer who benefits with majority of options expiring worthless.
An option buyer has limited risk and most active calls and puts in nse profit potential, so if 1 lot of Nifty call was bought at Rsmost active calls and puts in nse maximum loss on this trade is the Rs Rs x 50and if Nifty went to the call would make a profit of Rs 45, When you write an option, say 1 lot of calls at RsRs Rs x 50 which is the premium paid by the buyer is credited to your trading account and this Rs on the premium is your maximum profit potential.
After taking this trade if. Since the potential losses are unlimited, it is best as a beginner option writer to be conservative, and allocate only a small portion of your trading capital when starting off. Since the risk is unlimited for an option writer, the exchange blocks margin and similar to futures is marked to market at the end of every day.
So to buy an option at Rsyou need to have only Rs Rs x 50but to write an option you will need around Rs 25, which is marked to market daily, which means that if there is a loss you are asked to bring in those funds to your trading account by end of the day. Option writing margin requirement varies for every contract, and as on today Zerodha is the only brokerage in India to offer a web based SPAN tool that lets you calculate this.
You have a bearish view of the market and Nifty is presently at Check the SPAN calculator for the margin required as shown below:. Love playing poker, basketball, and guitar. Most active calls and puts in nse Rs required to short option. You can check it out yourself here: If i am exiting the call written mid wayis the process in Zerodha same as in case of buying a option. I mean just by a single click on exit option i can the call option written.
Can I hold the most active calls and puts in nse over night [or till expiry] after shorting or is this settled at EOD automatically everyday? Will you charge interest for margin provided? Should I buy back my option before expiry or should I leave it to expire, especially if it is in the money ITM.
I have written November callnow today is expiry day, if market closes above what should I do? How we calculate vix for a stock like Infosys, Last time 11 October Result Day I observed that Option prices increased from 6 October to 10 October, this time prices decreased from 6 Jan o 10 Jan.
Calculation of Vix for a stock is pretty complex, let me see if I can find tool for you, nothing in the back of mind. Dr Sir I a little confused on This point Nifty is on expiry, value of calls on expiry is 0, and you get to keep the entire Rs Nifty is on expiry, value of calls is still 0, and you get to keep the entire Rs Did You mean no profit no loss? In mis at I totally agree with you. Very important and required information for all of us. I understand that margin is required when one writes the naked option and has to arrange MTM funds.
A question in my mind for a long time is, when one takes a debit spread, say long call and short call, the maximum the person looses is the most active calls and puts in nse in premium which was already paid. In such a case why should a margin be collected, though the margin is less than naked option writing?
Is it not sufficient to block selling the long option alone before covering the short option? The margins blocked are as per the exchange requirements, and yes the Indian exchanges are extra stringent about this. Coming to your example, Long call and Short call, and assume only Rs 10, is blocked for this the buy premium. Yes the scenario is unlikely, but possible. I guess the only way such spreads will become popular is if NSE starts letting people trade the spreads directly itself, similar to calendar spreads.
I want to write call and put nifty options Positionally. In this case we can get profit from premium melting. Other wise the lose also will be minimum and limited. Can you give exposure? For above trading method, what is the margin for 4 lots qty? Ranganathan, you can check all margin requirements on our SPAN calculator: Krishna, it depends on what spread you are taking, check this blog on SPAN calculatorwhich shows how you can see the margin requirements of such spread using our SPAN calculator.
Just tried out your suggestion, but the math does not add up. Suppose I get into a bear call spread on Nifty, as follows:. SPAN margin — Rs: The total margin required is still Rs. The maximum loss on this spread is only Rs. The risk is limited, and so should the margin. The difference between the return on capital is almost 5x. Why is the margin benefit so little?
Is it possible to enable SPAN minimum requirements on individual trading accounts? Guc, what you need to realize is that the risk for such contract is never limited, there is always a big execution risk which is open and one of the reasons why margins are higher. What if while exiting you got out of your buy CE position and market suddenly bounced up in this little time? The risk on your short CE would then be unlimited.
Unless the spread itself starts trading on the market similar to calendar spreadsit will never be possible to block margins based on what you have suggested. Also, this is an exchange regulation and the SPAN calculator gives what exchange asks us to block.
DC, advisory is tricky because: People will never follow advise properly, but the adviser is liable for it. If it starts working, traders will become puppets to the adviser. What is missing is the liquidity, basically we need a lot more traders coming to the market, when they do, new products will automatically come about. The bigger problem for everyone to solve is bringing in liquidity to the markets. I wish you include two parts like buying and writing in brokerage calculator.
Which helps writers to include STT. STT changes for option buy positions, if most active calls and puts in nse is in the money and you let it expire. You can read this blog for that. If you look at the default example on http: If it is possible to set a trigger in the trading terminal for executing option strategy, it makes life easier.
I mean when nifty futures trades at a set price, then the option strategy gets executed at market prices. Most active calls and puts in nse like SL-M order. Most active calls and puts in nse trigger like what you said, take an option strategy if Nifty trades at a price, it is little tricky, mainly because of the regulations.
Exchange would consider that as an algo, which is not allowed for retail. For In the money options, Do we have facility to exercise the options at Spot price at end of Day? How it will be carried out. Mukesh, all Indian options are Europen options. If you exercise them, they will be cash settled. For more, check out the options trading module on Varsity.
Nitin, On the last line algo for retailthere were a couple of SEBI circulars which wanted brokers to demonstrate appropriate risk management processes before offering algo access to their customers. Is there some SEBI circular that prohibits retail from using algos?
Is there also a SEBI circular under which exchanges derive power to validate algos? What SEBI has recently mandated is that for brokers providing algo, to compulsorily take part in mock trading sessions and a stricter audit. Let me try getting you the circular numbers on these. Hi This is very wonderful article. Really I appreciate you.
Recently I have opened trading account with OpetionsXpress. It is really wonderful system for trading in Options and Futures. I recommend to you to visit that site and create a Virtual trading account and evaluate the platform which they are providing to their clients.
Still we are far behind in technologies. Sir, I appreciate you. It is a very good article.