Us trading futures and options india pdf
As with any of the previous modules in Varsity, we will again make the same old assumption that you are new to options and therefore know nothing about options. For this reason we will start from scratch and slowly ramp up as we proceed.
Let us start with running through some basic background information. The options market makes up for a significant part of the derivative market, particularly in India. Internationally, the option market has been around for a while now, here is a quick background on the us trading futures and options india pdf —.
Clearly the international markets have evolved a great deal since the OTC days. However in India from the time of inception, the options market was facilitated by the exchanges.
The badla system no longer exists, it has become obsolete. Here is a quick recap of the history of the Indian derivative markets —.
Though the options market has been around sincethe real liquidity in the Indian index options was seen only in ! I remember trading options around that time, the spreads were high and getting fills was a big deal. However inthe Ambani brothers formally split up and their respective companies were listed as separate entities, thereby unlocking the value to the shareholders. In my opinion this particular corporate event triggered vibrancy in the Indian us trading futures and options india pdf, creating some serious liquidity.
However if you were to compare the liquidity in Indian stock us trading futures and options india pdf with the international markets, we still have a long way to catch up. There are two types of options — The Call option and the Put option.
You can be a buyer or seller of these options. In fact the best way to understand the call option is to first deal with a tangible real world example, once we understand this example we will extrapolate the same to stock markets. Consider this situation; there are two good friends, Ajay and Venu. Ajay is actively evaluating an opportunity to buy 1 acre of land that Venu owns. The land is valued at Rs. Ajay has been informed that in the next 6 months, a new highway project is likely to be sanctioned near the land that Venu owns.
If the highway indeed comes up, the valuation of the land is bound to increase and therefore Ajay would benefit from the investment he would make today.
So what should Ajay do? Clearly this situation has put Ajay in a dilemma as he is uncertain whether to buy the land from Venu or not. While Ajay is muddled in this thought, Venu is quite clear about selling the land if Ajay is willing to buy.
Ajay wants to play it safe, he thinks through the whole situation and finally proposes a special structured arrangement to Venu, which Ajay believes is a win-win for both of them, us trading futures and options india pdf details of the arrangement is as follows —.
So what do you think about this special agreement? Who do you think is smarter here — Is it Ajay for proposing such a tricky agreement or Venu for accepting such an agreement? Well, the answer to these questions is not easy to answer, unless you analyze the details of the agreement thoroughly. I would suggest you read through the example carefully it also forms the basis to understand options — Ajay has plotted an extremely clever deal here!
In fact this deal has many faces to it. Now, after initiating this agreement both Ajay and Venu have to wait for the next 6 months to figure out what would actually happen. However irrespective of what happens to the highway, there are only three possible outcomes —.
Us trading futures and options india pdf as per the agreement, Ajay has the right to call off the deal at the end of 6 months. Now, with the increase in the land price, do you think Ajay will call off the deal? This means Ajay now enjoys the right to buy a piece of land at Rs. Clearly Ajay is making a steal deal here. Venu is obligated to sell him the land at a lesser value, simply because he had accepted Rs. Another way to look at this is — For an initial cash commitment us trading futures and options india pdf Rs.
Venu even though very clearly knows that the value of the land is much higher in the open market, is forced to sell it at a much lower price to Ajay. The profit that Ajay makes Rs. It turns out that the highway project was just a rumor, and nothing really is expected to come out of the whole thing. People are disappointed and hence there is a sudden rush to sell out the land. As a result, the price of the land goes down to Rs.
So what do you think Ajay will do now? Clearly it does not make sense to buy the land, hence he would walk away from the deal. Here is the math that explains why it does not make sense to buy the land —. Remember the sale price is fixed at Rs. Hence if Ajay has to buy the land he has to shell out Rs. Which means he is in effect paying Rs.
Clearly this would not make sense to Ajay, since he has the right to call of the deal, he would simply walk away from it and would not buy the land. However do note, as per the agreement Ajay has to let go of Rs. For whatever reasons after 6 months the price stays at Rs. What do you think Ajay will do? Well, he will obviously walk away from the deal and would not buy the land.
Why you may ask, well here is the math —. Clearly it does not make sense to buy a piece of land at Rs. Do note, since Ajay has already committed 1lk, he could still buy the land, but ends up paying Rs 1lk extra in this process. For us trading futures and options india pdf reason Ajay will call off the deal and in the process let go of the agreement fee of Rs. I hope you have understood this transaction clearly, and if you have then it is us trading futures and options india pdf news as through the example you already know how the call options work!
But let us not hurry to extrapolate this to the stock markets; we will spend some more time with the Ajay-Venu transaction. I would suggest you be absolutely thorough with this example. If not, please go through it again to understand the dynamics involved.
Also, please remember this example, as we will revisit the same on a few occasions in the subsequent chapters. Do note, I will deliberately skip the nitty-gritty of an option trade at this stage. The idea is to understand the bare bone structure of the call option contract. Assume a stock is trading at Rs. You are given a right today to buy the same one month later, at say Rs. Obviously you would, as this means to say that after 1 month even if the share is trading at 85, you can still get to buy it at Rs.
In order to get this right you are required to pay a small amount today, say Rs. If the share price moves above Rs. If the share price stays at or below Rs. All you lose is Rs. After you get into this agreement, there are only three possibilities that can occur. Case 1 — If the stock price goes up, then it would make sense in exercising your right and buy the stock at Rs.
Case 2 — If the stock price goes down to say Rs. Case 3 — Likewise if the stock stays flat at Rs. This is simple right? If you have understood this, you have essentially understood the core logic of a call option. What remains unexplained is the finer points, all of which we will learn soon.
At this stage what you really need to understand is this — For reasons we have discussed so far whenever you expect the price of a stock or any asset for that matter to increase, it always makes sense to buy a call option! Now that we are through with the various concepts, let us understand us trading futures and options india pdf and their associated terms. Hi Sir, Options is like greek and latin to me. Thanks for the analogies. No, all derivative contracts are routed via the exchanges.
You cannot enter into an OTC arrangement, even if you do, it would not be regulated hence quite dangerous. What benefit would Ajay get by calling off the deal before the expiry of 6 months? He will us trading futures and options india pdf wait for the whole 6 months for any chance of the highway project.
My first question Karthik is this: The dropdown value on the NSE website does not contain all months expiries — after 18th May we have 25th June followed by 24th Sept and then 31st Dec What happened to the other months? For to only June and Dec contracts are available. What happened to the remaining?
Saurabh, glad you noticed it! For all stocks options the expiry is very similar to futures. Hence we have current month, mid month, and far month contracts. However for Nifty there are several different expiry options. Leaps are good if you have a super long term view on markets. However the problem with leaps in India is that they are not liquid, there are hardly any trading activity here.
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Also as part of 2fa authentication, set answers to 5 us trading futures and options india pdf from a list of 10 questions. Every login thereafter would require the Kite password, and answers to any two of these five questions. Forgot password link under the login window on Kite can be used to reset passwords if forgotten. Once blocked, contact or create a ticket to unblock. When you log in to Kite for us trading futures and options india pdf first time you will be prompted to take a tour of the platform.
You can access it again from the menu at the top right-hand corner. You can personalize Kite by setting your own profile picture which will show up on the login page as well.
To set your profile picture, select my profile from the drop-down menu in the top right-hand corner. You can also change your password from this section. Horizontal bar graph to view the most profitable and loss making positions. Mouse over visualizations to see the values. Pin your favourite scrips or indices globally in the top left header. Nifty and Sensex are pinned in this image. Similarly search for any other indices.
Use up and down arrow to scroll within the marketwatch. Mouse over the scrip on the marketwatch or select and hit D to open the market depth.
Market depth gives the best 5 bids and us trading futures and options india pdf. Multiple market depth windows can be opened at the same time. The dynamic market depth bars give you a visual overview of what levels most orders are being placed and you can place an order at any price in the depth with a click on it.
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Read this for more. Use shortcut keys B or S. To reposition the order window, just click on it and drag it wherever you want. Kite will remember the position the next time you place an order. To sell stocks as CNC, stocks need to be available in holdings.
Exchange stipulated margins, us trading futures and options india pdf taken as NRML can be held until expiry, provided required margins maintained. All queries on margin answered on this blogpost. To know margin requirements use our SPAN calculator. Trigger if using this type of order to enter a fresh buy above the current market price or sell below the current market price when the trigger price is hit. SL if limit order to be sent when trigger is hit.
SL-M if a market order to be sent when trigger is hit. For guaranteed execution, always use SL-M. To know more on stoploss, click here. Use the orderbook to track all open, completed, and rejected orders. Edit or cancel pending orders with mouse over as shown below. Select the options menu and click on Info to know the order details including reasons for any rejected orders. Click here to know what the rejection reasons mean.
Target, Stoploss, and Trailing SL all activated only once the original limit order executed. SL automatically cancelled if target is met and target automatically cancelled if SL us trading futures and options india pdf hit.
Trailing SL which is optional trails the stoploss price or moves the SL price everytime the scrip moves in a favorable direction by the trailing stoploss value mentioned. For example, below order to buy Nifty at with a 10 point SL or and a 10 point target or Trailing SL of 1 point, which means if Nifty goes up by 1 point toSL automatically changes from to Bracket orders provide higher leverage because of predetermined stoploss.
To know more on bracket orders, click here. Visit our bracket order margin calculator. Enter a bracket order position using a trigger by changing the BO order type to SL. In the above example, Infy would be bought at the current market price is This means the order would remain open until the stock reachesand then execute on that trigger. This can be used to place buy bracket orders above current market price or sell bracket orders below current market price.
Similar to bracket orders, higher leverage due to fixed stoploss and all positions auto-squared off before market close. Click here to know more on Cover orders, and here for cover order margin calculator.
Enter a cover order position using a limit price by changing the CO order type to Limit. This means the order would remain open until the stock reachesand then execute just like a limit order to initiate the position. The trigger price, which defines your SL, is set at Rs. Place orders for the next trading day the previous day itself. AMO orders can be placed only during the following time duration —. MCX - Anytime during the day, if placed during the market hours the order will go through the next day.
Click here to know more. You can make use of the search to filter orders position based on instrument, order type, product etc. To know more on Pre and Post market session click here. Trading holiday calendar for Stocks bought as CNC equity us trading futures and options india pdf start showing up in holdings from the us trading futures and options india pdf trading day shows up in position tab on the day of purchase. Until stocks are delivered, us trading futures and options india pdf show up as T1 holdings check the image below.
Read this post that explains the risk of selling stocks before taking delivery or when they are showing in T1. Historical link initiates Q where holdings as on a particular date can be checked.
If a particular stock bought in multiple trades, when selling FIFO first in first out method has to be followed to determine if long or short term capital gain. Sparklines show you a brief overview of us trading futures and options india pdf stocks in your holdings have performed in the last 52 weeks. Check this post for our margin policy. Over indicators, 6 different chart types, us trading futures and options india pdf drawing tools, and popout as many charts at a time.
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