Options Trading Basics FAQ's
Options Trading Basics Frequently Asked Question(s) provide answers to commonly asked questions about Options Trading Basics in Indian Stock Market. This Options Trading Basics FAQ list is to help investors for their better understanding of Options Trading Basics and to resolve their quires.
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Frequently asked question
To trade in options, one must research before buying. The options trading is not as riskier as trading in individual issues of the stocks or bonds. If one does the trade in the appropriate manner then it can be more lucrative.
Yes, one can trade in options in day trading. The day-trading margin rule is applied to the day trading in any security that includes options.
A Sell to Open refers to the various instances in which an option investor initiate or open an option trade by selling or creating a short position in an option. It allows the option seller to receive the premium paid by the buyer on the opposite side of the transaction.
The traders lose money because they try to hold the options that are too close to the expiry. So, if you are getting good price then it is better to exit at a profit when there is time value left in the option.
The Options are of two types:
a) Call Options.
b) Put Options.
When an individual buys an options contract then they don’t need to pay the margin as the loss incurred is limited. An individual needs to pay a premium amount. The loss will be further limited to the premium value.
At the time of selling the option contract, one needs to pay a margin need as there can be a chance of the unlimited loss and limited profit.
The options contracts are settled in the cash on the daily basis and on the expiration date. The traders do not need to hold any stocks.
Buying or selling the call or put options depends on the market outlook of an individual. If you think that market will rise in this month then you must consider the “Buy Call Option” or “Sell Put Option” and vice versa.
Option is a contract that gives the holder the right to buy or sell the underlying asset that is obligated to honour the contract at a predetermined price and time. It requires less margin. A future is a contract that is made buy or sell the underlying asset at predetermined price and time. It requires higher margin.
The minimum amount required to buy an option will be the premium paid in addition to the brokerage and other charges.
Yes, it is possible to trade in Nifty or stock options Intraday.
The market timings to trade in Index and single stock options in NSE and BSE is from 9:15 AM to 3:30 PM on the trading days. You can place orders to buy and sell the options in this period.
After hours options trading refers to the buying or selling of Option in the aftermarket hours i.e. 9:30 AM to 3:30 PM. After hours options trading is done with the helps of After Market Orders (AMO).
The long dated options are the contract that has the maturity of up to 3 years. The other features of the long dated options are similar as of the monthly contracts.
The long dated options gets expire on the last Thursday of the month. If Thursday is a holiday then the expiry day is on the previous trading day.
The long dated options offers various benefits such as:
a) It provides the long-term exposure in the stock or index to a trader.
b) The long-term hedging against the equity position.
c) It further minimizes the risk by allowing the traders to make investment for longer period of time.
In India, NSE and BSE are the options trading exchanges. Both of these exchanges are regulated by SEBI to provide the transparent trading environment.
No, an individual cannot place the options order in pre-market trading. Only equity cash is allowed to trade in the pre-market session.
A lot size refers to the minimum number of shares in an options contract. The NSE F&O is different from index to index and stock to stock.
As per the SEBI regulations, Adjustments means the modifications to the positions and or contract the specifications so the value of positions of the buyers or sellers continues to remain same.
There are various indicators to figure out whether the option contract has been adjusted or not. Some of them are:
a) The option is either too cheap or too expensive.
b) There are various two symbols for the options of same month and strike price.
c) The liquidity of the adjusted options is less than the options.
The index options are the contracts in which an underlying asset is Index.
The index options include Nifty 50 index option, NIFTY IT Index option, FTSE 100 Index Options, etc.
It provides large exposure by doing a single trade. It helps in lowering the costs and risks while trading. It also helps in lowering the volatility related to trade.
The Exotic options are the non-standardized options. These options have complex features in the underlying asset and the calculation and the payment of payoffs.
These are option whose payoffs completely depends on the price of the underlying that further crosses a level during the option’s lifetime.
These are the option whose pay off depends on if the option choses ITM or OTM on the expiry.
These are the option whose payout is calculated by deducting the average from the strike price.
This type of option permits a trader to select the purchased option is a call or out after the specific time period.
It is an option where an underlying asset is also another option. This type of option has two strike price and expiry dates.