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Basics of Options Trading FAQs

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What does nifty options and futures mean?

Nifty Futures and Options can be described as derivative contracts whose underlying is the Nifty Index. Nifty Index is the basis of Nifty Futures, Options and their value. If the Nifty Index is increasing, the Nifty Futures and Options will …

What does options market mean ?

An Options market is where options can be bought and sold. There are two types: BSE and NSE exchanges OTC or Over-the-Counter markets Options trading on exchanges is transparent and regulated. OTC markets are unregulated if trading takes place between …

What does volume and open interest mean in options ?

Volume and open interest (OI), measure traders' interest in a specific option. This is used by traders to determine the liquidity of an option. Options with low volume or open interest will have fewer buyers and sellers, and therefore low …

How are trading stocks different from options ?

Options trading is very different from stocks. Options - Options have an expiration day within which you may trade in them. All options expire at the expiration date. Stocks have no expiration dates and can be held for many years. …

How the price of an Option is affected by the probability of price movement ?

Take an example - Let's say that SBI trades at Rs 250. It is possible for its price to move up by 50% to Rs 280 in the next month. There are 25%, 25%, 20%, and 15% chances that the …

In India what is the cycle of contract for Options ?

Except for long-dated contracts and options, India has a maximum 3-month trading cycle. This includes 1 month, 2 or 3 months. On the day following the expiration date of the monthly contracts, option contracts can be introduced. The last trading …

Do Stock buyers and Options buyers have the same rights ?

You have the following rights if you own shares in a company's stock: You are a part-owner of the company You are entitled to receive dividends You can vote in the company Capital is your right Option buyers do not …

How to settle an option that I have bought and paid the premium ?

You have the following options to settle an Option after you've bought it. You can make your position equal before expiration by selling the same Call option with the same underlying, strike cost and expiration date. If you bought 1 …

In Options trading ,What is selling \ writing or shorting means ?

Most traders purchase Call and Put options. When they anticipate the market will rise, they buy Call options and then buy Put options when the market falls. There is a riskier trade that is only a few traders make. This …

What does Option Greeks mean and how it is used in Option trading ?

Option Greeks measure the option's sensitivity for changes in the price, volatility, and expiration time. The spot price of an option as well as volatility and expiration time are all changing in the trading market. Options greeks allow traders to …

How can we calculate the premium paid on Options ?

Stock exchanges do not decide the premium for Options. Option pricing models such as Black-Scholes or Binomial are used to calculate the premium on Options. The price of Options is also determined by market factors such as demand and supply. …

What are various pricing models for Options ?

Options pricing models are used by traders to determine the fair value of options. Two of the most common models are the Binomial Model and Black Scholes Model. Black-Scholes' pricing model considers five key factors that affect an option's value: …

What are the elements that can change the value of the premium of an Options ?

Six factors affect the premium for an option. Price of the underpinning: If the price of the sub-underlying rises, the premium value for Call Option will increase while that of Put Option will decrease. The intrinsic value of an option …

What is the difference between Options and Futures ?

Options and Futures can be considered derivatives. Both are contracts and derive from underlying instruments such as Stocks, Currency, and Commodities. A Future is a contract that allows you to purchase or sell an underlying asset at a specified price …

What does Assignment in Options mean ?

An Assignment is the opposite of an Exercise in Options. An Assignment is when the seller or buyer of an Option exercise his right to sell or buy. Stock exchanges use a trading software that randomly selects a buyer or …

In options trading , what does moving averages mean ?

These averages, which are very similar to the ones we use every day, are used to identify trends. It is a popular technical indicator that can be used to predict the direction of a trend in stock analysis. There are …

What does time value of an Option mean ?

Time value is the difference between an option's premium and its intrinsic price. All options at Out of The Money and At The Money have a time value. Time Value = Premium – Intrinsic Value Call option Intrinsic Value = …

What does intrinsic value of an option mean and how to calculate intrinsic value of an option ?

The intrinsic value of an Option refers to the price at which an option's strike price is in-the money. It can also be considered the value of an Option, if it was exercised today. For call option Intrinsic Value = …

How Square off and exercise an Option is different ?

It is when you take the exact opposite position to your current one, it's called "squaring off". Let's suppose that your current position is BUY Option on Reliance. If you SELL Put Option On Reliance with the same strike price, …

Is it possible to trade on option of any stock or index?

You cannot trade options of any stock or Index. The Exchanges only allow trading on Options of companies or Indexes. Optional trades of new companies and Indexes may be permitted from time to time

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