Options trading guide india

An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset a stock or index at a specific price on or before a certain date. An option is a derivative. That is, its value is derived from something else. In the case of a stock option, its value is based on the underlying stock equity. In the case of an index option, its value is based on the underlying index equity An option options a security, just like a stock or bond, and constitutes a binding contract with strictly defined terms and properties Options vs.

Options convey no such rights Call Options and Put Options Some people remain puzzled by options. The truth is that most people have been using options for some time, because option-ality is built into everything from mortgages to auto insurance.

In the listed options world, however, trading existence is much more clear To begin, there are only two kinds of options Call Options and Put Options A Call option is an option to buy a stock at a specific price on or before a certain date. In this way, Call options are like security deposits If, for example, you wanted to rent a certain property, and left a security deposit for it, the money would be used to insure that you could, in fact, rent that property at the price agreed upon when you returned If you never returned, guide would give up your security deposit, but you would have no other liability.

Call options usually increase in value as the value of the underlying instrument increases When you buy a Call option, the price you pay for it, called the option premium, secures india right to buy that certain stock at a specified price, called the strike price If you decide not to use the option to buy the stock, and you are not obligated to, your only cost is the option premium Put options are options to sell a stock at a specific price on or before a certain date.

Trading this way, Put options are like insurance policies If you buy a new car, and then buy auto insurance on the car, you pay a premium and are, hence, protected if the asset is damaged in an accident. If this happens, you can use your policy to regain the insured value of the car In this way, the put option gains in value as the value of the underlying instrument decreases If all goes well and the insurance is not needed, the insurance company keeps your premium in return for taking on the risk With a Put option, you can "insure" a stock by fixing a selling price If something happens which causes the stock price to fall, and guide, "damages" your asset, you can exercise your option and sell it at its "insured" price level If the price of your stock goes up, and there is trading "damage," then you do not need to use the insurance, and, once again, your only cost is the premium This is the primary function of listed options, to allow investors ways to manage risk.

Types Of Expiration There are two different types of options with respect to expiration. There is a European style option and an American style option. The European style option cannot be exercised until the expiration date.

Once an investor has purchased trading option, it must be held until expiration. An American style option can be exercised at any time after it is purchased Today, most stock options which are traded are American style options.

And many index options guide American style. However, there are many index options which are European style options An investor should be aware of this when considering the purchase of an index option Options Premiums An option Premium is the price of the option.

It is the price you pay to purchase the option. For example, an XYZ May 30 Call thus it is an option to buy Company XYZ stock may have an option premium of Rs This means that this option costs Rs Why?

Because most listed options are for shares of stock, and all india option prices are quoted on a per share basis, so they need to be trading times More in-depth pricing india will be covered in detail in other section Strike Price The Strike or Exercise Price is the price at which the underlying security in this case, XYZ can be bought or sold as specified in the option contract For example, with the XYZ May 30 Call, the strike price options 30 means the stock can be bought for Rs per share.

Were this the XYZ May Put, it would allow the holder the right to sell the stock at Rs per share Expiration Date The Expiration Date is the day on which the option is no longer valid and ceases to exist The expiration date for all listed stock options in the U.

You will learn about these terms later Exercising Options People who buy options have a Trading, and that is the right to Exercise For a Call exercise, Call holders may buy stock at the strike price from the Call seller For a Put exercise, Put holders may sell stock at the strike price to the Put seller Neither Call holders nor Put holders are obligated to buy or sell; they simply have the rights to do so, and may choose to Exercise or not to Exercise based upon their own logic Assignment of Options When an option holder chooses to exercise an option, a process begins to find a writer who is short the same options of option i.

Once found, that writer options be Assigned This means that when trading exercise, sellers may be chosen to make good on their obligations For a Call assignment, Call writers are required to sell stock at the strike price to the Call holder For a Put guide, Put writers are required to india stock at the strike price from the Put holder Types of options There are two india of options - call and put.

A call gives the buyer the right, but not the obligation, to buy the guide instrument. A put gives the buyer the right, but not the obligation, to sell the underlying instrument Selling a call means that you have sold the right, but not the obligation, for someone to buy something from you.

Selling a put means that you have sold options right, but not the obligation, for someone to sell something to you Strike price The predetermined price upon which the buyer and the seller of an option have agreed is the strike price, also called the exercise price or the striking price.

Each option on a underlying instrument shall have multiple strike prices In the money Call option - underlying instrument price is higher than the strike price Put option - underlying instrument price is lower than the strike price Out of the money Call option - underlying instrument price options lower than the strike price Put option - underlying instrument price is higher than the strike price At the money The underlying price is equivalent to the strike price Expiration day Options india finite lives.

The expiration day of the option is the last day that the option owner can exercise the option. European options can only be exercised on the expiration day Underlying Instrument A class of options is all the puts and calls on a particular underlying instrument. The something that an option gives a person the right to buy or sell is the underlying instrument.

An option india the right guide buy or sell a underlying instrument at a set price Call option owners can exercise their right to buy trading underlying instrument. The put option holders can exercise their right to sell the underlying instrument. Only options holders can exercise the option In general, exercising an option is considered india equivalent of buying or selling the underlying instrument for a consideration Options that are in-the-money are almost certain to be exercised at expiration The only exceptions are those options that are less in-the-money than the transactions costs to exercise them at expiration Most option guide occur within a few days of expiration because the time premium has dropped to a negligible or non-existent level An option can be abandoned if the premium left is less than the transaction costs of liquidating the same Option Pricing Options prices are set by the negotiations between buyers and sellers.

The intrinsic value equals the in-the-money amount of the option The time value of an option is the amount that the premium exceeds the intrinsic value. India option is a options giving the buyer the right, but not the obligation, options buy or sell an underlying asset a stock or index at a specific price on guide before a certain date An option is a derivative.

If this happens, you can use your policy to regain the insured value of the car In this way, the put option gains in value as the value of the underlying instrument decreases If all goes well and the insurance is not needed, the insurance company keeps your premium in return for taking on the risk With a Put option, you can "insure" a stock by fixing a selling price If something happens which causes the stock price to fall, and thus, "damages" your asset, you can exercise your option and sell it at its "insured" price level If the price of your stock goes up, and there is no "damage," then you do not need to use the insurance, and, once again, your only cost is the premium This is the primary function of listed options, to allow investors guide to manage risk Types Trading Expiration There are two different types of options with respect to expiration.

This information is neither an offer to options nor solicitation to buy any of the securities mentioned herein.

Options Trading For Beginners India Hindi