NIFTY Options Trading by RAJ

However practically the option value can at minimum be zero and not negative and hence the premium for these options will be close to zero which is the price at which these options are being traded. For lower NIFTY levels in the range of to the option price is close to its fair value.

This might not work during the last week of Expiry when the Market makers are closing their positions. As far as options trading goes it always pays to be well aligned with the long term market trend. In April , it was recognized as a stock exchange under the Securities Contracts Regulation Act, Increasing open interest at a particular level is also considered as an indication of market expectation that the index will reach that level by the contract expiry date.

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Here you will get an idea about the basic knowledge on how to trade in Nifty Option and earn more money by getting free nifty option tips. If you do not like waiting too much in the share market business, then intraday trading is the best option for you; and, in this regard, the Nifty Call and Put Options can provide you better prospects even with a limited capital. For this reason, the young and novice investors will be able to learn the rules and trick associated with the share market in a much better way, without worrying about losing a big amount of money.

Why should you trade in Nifty Options? Since in this kind of trading you can invest in small amounts, for this reason, you are able to invest on wide range of areas, such as finance sector, Pharma sector , oil business, etc. By placing your money on options trading, you will be able to bring down the risk of engaging your money on particular shares for too long. Since the purchasing and selling of shares happen on the same day itself, therefore the risks are minimal as well.

When you invest your capital on too many companies then it yields better returns when compared to investing on just one or two companies. With smaller investments, you are able to take much better decisions. Daily Free Intraday Tips. Intraday Sure Shot Tips.

Indian Monsoon and its impact on the NSE share market. Benefits of Day Trading in Nse Market. These instruments are known as underlying for the option. Options derive their value from the value of its underlying assets specific price: Each Option has a strike prike price. A strike price is the price at which you get the right to buy or sell the underlying certain date: Unlike stocks which continue to exist as long as the company is running, options have an expiry date after which they are not traded anymore and their value becomes zero Anything that is traded on an exchange can have corresponding option contracts also being traded provided they meet certain regulatory criterias like minimum daily traded volume, etc.

Any such instruments or a combination of such instruments can be used to construct an Option contract. Options are said to mirror the movement of its underlying but there is a premium attached to it. This premium is the value attached to the optionality of the options. Stocks are valued based on several factors like the company earnings, fixed assets, book value. There are certain factors that add premium to the value of the stocks like the fundamentals of the company, market monopoly in the product and services offering by the company, expected future growth of the company.

Similarly Options have a fair value and a premium value. Calculating the fair value of option is simple. Options are not traded at its fair value. The price of the option only tends towards its fair value as the expiry date comes closer. There is always a premium attached to its fair value. For example if the NIFTY index is at , it does not mean that you can buy the option for zero dollars, you will still have to pay some dollars to get this option depending upon the expected level of NIFTY on the option expiry date.

However if NIFTY stays at levels then the option value will tend to zero towards the expiry date. On the positive side the option value will keep increasing as long as the NIFTY is moving above Thus at least in theory options offer limitless profit and limited loss. Option trading is more a game of numbers than fundamental analysis.

For the same instrument there can be multiple options for different trading levels. Add another dimension to it and you have put and call options at each level. Add one more dimension to it and you can either go long or short on these options. So many dimensions can get intimidating at first for a new investor, but options are interesting. Let's try to understand it with the help of two simple charts given below. From the Put Options chart it is easy to understand that the price of the put option is close to its fair value for higher index levels in the range of to Option premium over fair value increases for lower NIFTY levels in the range of to , indicating that the market expects the NIFTY index to fall from the current level of to From the Call Options chart the premium over fair value for higher index levels in the range of to , is extremely high because all the theoretical negative fair value adds up as premium.

However practically the option value can at minimum be zero and not negative and hence the premium for these options will be close to zero which is the price at which these options are being traded. Thus the value of call options is either zero or close to its fair value. After making adjustments for the negative put and call premiums the charts would look more like what we usually see in the financial text books as given below NIFTY Index: Both the charts point towards a bearish market.

The market expects NIFTY which is currently at to tend to levels by the option expiry date. The high value of put options in the Index region of to shows that the market expects that this level will not be reached by the Index, hence investors are selling the index at this level hoping to cover it by squaring off at lower levels. Similarly the high value of call options in the Index region of to suggests that the market expects the Index to reach above this lower level, hence investors are buying at this level hoping to square off when the index reaches above this level.

Thus from the above argument we can conclude that the NIFTY index will trade below level and above levels. Also note that a higher premium in the to put and call options indicate that these options are relatively expensive to their fair value, but most probably these are the levels at which most of the trading is happening and the market is most interested in.

If the Index continues to fall towards the put options will gain more premium while the call options will tend more to zero. If the market turns around and starts moving towards then the call options will start adding premium while the put option premium will start going down. Trading in options would then simply mean to guess correctly the direction in which NIFTY will move and take a corresponding position where you can earn more premium.

Another interesting column in the above table is Open Interest which indicates how many contracts are still open for the respective option. Higher Open Interest indicates more liquid option. Increasing open interest at a particular level is also considered as an indication of market expectation that the index will reach that level by the contract expiry date. One of the factors influencing the value of the options is the volatility index VIX. VIX value provides the expected fluctuation perceived by the market over the next 30 calendar days.

When the market is range-bound or has a mild upside bias, volatility is globally observed to be typically low. On such days, call option buying a position taken on the view that the market will move higher generally outnumbers put options buying a position taken on the view that the market will move lower.