Option trading in India is when an individual sells or buys an options agreement on an acknowledged stock exchange with the assistance of the virtual trading platform offered by their stockbroker. Options trading is also recognized as derivative trading as the options agreement derives its worth from fundamental instruments.
Purchasing an option provides individuals with authority to purchase shares before the date of expiry is known as the call option. Whereas buying an option that gives the individual authority to sell shares before the date of expiry is known as put options.
For instance, they can purchase one call options agreement of brand A by paying 72.75 rupees for a specific strike price with many more underlying shares.
A call option of that brand with a strike price of 2000 rupees offers them the authority to buy 500 shares of that brand only at 2000 rupees irrespective of the stock price right now. The individuals will require 140000 rupees to purchase an option for 500 shares of that brand. The individuals will need 10 lakh rupees (2000*5000) to purchase 500 shares of brand A directly.
Workings of options trading in India
If the individual reading this column is interested in the share market, they must be wondering how to trade in options. This is a guide for them
- They will require an account for options trading which they can get with the assistance of an experienced stockbroker.
- The individual will also need margin money.
- The traders have to find liquid trading options.
- Once their account is activated, they have to log into the trading platform.
- Then they have to go to the option of adding funds. In that window, they have to put the amount of money they want to trade.
- They also have to select the category. The most typical ones are currency derivatives and equity.
- Next, they have to create their watchlist where they can keep a record of the option which they have picked out for day trading.
- After analysing the market, they have to place an order for opinion buy.
- After checking the loss or profit details, the individuals have to square off their order.
- There will be a sell tab accessible on their device screen through which they can sell their operations.
The individuals required to have the following credentials to open an account for options trading
- Income tax returns
- Concealed cheque
- Salary slip
- Aadhar card
- PAN card
Best plans for options trading in India
- The strategy of utilising Bollinger Band
The setup of 3 different lines creates the Bollinger band, where the middle one is the simple moving mode of the latest 20 candles value.
The lower and upper dash from the band on either side of the mid-centre. The lower and upper dashes are 2x standard divergence from the middle centre and 8 points out the oversold and the overbought zones.
Whenever the value moves outside the lines, then the chance is ready for a probable reversal. This is why if the burst out is above the top line, then the traders can start a short call for a long put position.
The traders can sell their calls whenever the red-coloured candle enters again in the upper line, and it tends to drop lower as individuals monitor the charts.
When the burst out is from beneath the lower mark, the traders can take a short put or long call after analysing the chart for a couple of hours.
- Position trading
This kind of trading in options includes selling and buying a lot of options from one single option policy. In which the traders have continuous cash flow till the options are clasp.
The operation positions are made after receiving a view of the specific stock or index. There are a lot of options utilised to minimize the loss.
For example, if the traders are bearish on the Bank Nifty. And they expect a persistent rise in the values. Then they can take the bear call spread strategy.
Trading in the options category does not mean that the individual has to exercise the authority at the selling or buying point practically. In the day trading options, individuals can sell or buy options without stressing about exercising authority.
It gives them the power to purchase a higher quantity of shares for a smaller amount of money which is also known as premium compared to buying a stock. It is a great advantage for them to hold that position in the trade market. Hence, trade options is not difficult if you end up following a few crucial steps, then you are indeed good to go.