Zebu blog

Category: Futures and Options

  • Who Are The Market Participants Of The Futures Market?

    A market is strong not only if there are products to trade and a way to keep things in check, but also if the people who take part in it are good. The same is true of the futures market for commodities. Even though there are thousands of traders who buy and sell precious metals, industrial metals, and agricultural goods, these traders and market participants can be put into four main groups. This sorting is very important because each of these types of market participants leaves its own mark on the market and adds to its strength in its own way.

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    1. Speculators on the commodity market

    The time that speculators are on the market is very short. They might want to get out of their long or short position the same day or in a few days. They make money by understanding global economic cues and determining which commodity will go up or come down. In the equity derivatives market, speculators are also often called intraday traders. Most speculators don’t care which way the market is going and are willing to trade both ways, that is, on the long side and the short side. Speculators usually try to be on the right side of the market’s overall momentum and the momentum of the commodity they are trading. Since speculators depend a lot on small trading opportunities in the commodity markets, they use technical charts, supports, resistances, break-outs, patterns, etc. to help them make their trades. Speculators play a very important role in the commodity markets because they keep the markets liquid and make sure that the bid-ask spread is as small as possible.

    2. Margin traders who trade in the direction of the market

    When it comes to certain commodities, these traders have a slightly longer-term view than speculators, who usually work at the short end of the market. Since margin trading is possible in the futures market, traders use futures as a stand-in for buying the commodity on the spot market. Instead of locking up all of their money in a spot position, traders who pay a margin use futures as a stand-in for spot positions. Margin traders are not only willing to wait until the contract ends, but they are also willing to take a longer-term contract and pay the rollover cost to keep the position open. Margin traders usually don’t put too much stock in technicals, but they have a strong fundamental premise that makes them willing to pay the roll cost to keep the position open for longer. Most of the time, the trades of these margin traders give traders and analysts hints about which commodities are getting long-term interest and are a leading indicator of changes below the surface.

    3. Spot / Futures Arbitrage Traders

    Arbitrage traders do something very different in the commodity markets. By trying to lock in spreads, they actually try to make the prices on the market fairer. Before we can figure out how arbitrageurs work in the commodity markets, we need to know how they do business in the stock markets. If JSW Steel is quoted at Rs.500 in the spot market and Rs.510 in the stock futures market, the arbitrageur will buy JSW Steel at Rs.500 in the spot market and sell JSW Steel Futures at Rs.510. So, he can be sure of making a profit of Rs. 10 till the price gap is bridged. On the day of expiration, both the spot position and the futures position will end at the same price, giving the arbitrageur the chance to make the 2% spread. The markets for commodities can be a bit more complicated. First of all, different agencies control the spot market and the futures market for commodities, which makes things more complicated. Second, unlike stocks, commodities have extra costs like shipping fees, insurance costs, storage fees, stamp duty, etc., which all need to be taken into account when figuring out the spread. But when all of these costs are taken into account, if the arbitrage spread on any commodity is positive, the arbitrageur will buy in the spot market and sell in the futures market. By fixing any problems with prices, the arbitrageur will not only be sure to make a profit, but he or she will also make the market work better. Arbitrage takes a lot more time and money than speculation or trading on margin.

    4. Hedgers

    Hedgers are people who have an underlying exposure to a certain commodity. Let’s say you have a big order of silver that you need to give to a jeweller in 3 months. The only problem is that the deal will be made at the price that was in effect on that date. This puts you at risk for price changes over the next three months. You’re happy with the price of silver right now, but you’re worried that it might go down in 3 months. You can protect yourself by selling short 3-month silver futures. By doing this, you’re securing your position at a price that seems good to you at first. So, you don’t care what happens to the price of silver over the next three months. If the price of silver goes up, you will lose money, but that is what a speculator does. As a hedger, it is your job to protect yourself from losing money, which you have done well. Hedgers are traders who have real exposure to the underlying market. Because of this, they make the commodity markets more stable and trustworthy.

    These are the four main participants of the commodity markets. The direction and health of the commodity markets are determined by what these four people do together.

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  • Benefits Of Trading In Index Futures


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    A futures contract on a sectoral or market-wide index is called an index future. On the NSE, for example, you can buy futures on the Nifty, which is a market-wide index, and liquid futures on the Bank Nifty (which is a sectoral index of liquid banks). Both of these indices are very liquid, and both individual and institutional investors trade them a lot. Why have index futures in India become so popular? Why would you want to trade in index futures? Index futures trading in India grew out of stock futures trading, which was similar to the old Badla system on the BSE. In addition to looking at how to trade index futures, let’s look at how traders can actually benefit from doing so.

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    1. You can look at the whole and avoid stock risk

    Let’s say you’ve decided to buy banking stocks, but it will be hard to figure out which ones to buy. While NPAs may be a problem for PSU banks, valuations are a problem for private banks. A better idea would be to look at the whole banking industry, which will give you a natural way to diversify. You can do this by buying Bank Nifty Futures and taking part in the rise of banks. The benefit is that you can keep your position open as long as you want by rolling it over each month for a small fee of about 0.50 percent.

    2. You can trade in both long and short directions

    It’s fine if you’re betting that banking stocks will do well. But what if you think banks are bad? If you own banking stocks, you can sell them or sell them short on equity markets. But because Indian markets use rolling settlements, you can only short stocks for one day. The other option is to sell stock futures of certain banks, but this also comes with risks related to those banks. All of these problems can be solved by selling the index futures for Bank Nifty. If you think the Indian markets as a whole will go down, you can just sell Nifty futures.

    3. The margins for trading index futures are lower

    Always keep in mind that trading in futures is all about trading on margins. But the margins on indices like the Nifty and the Bank Nifty tend to be lower than the margins on individual stocks. Because an index is a group of stocks, it offers a natural way to spread out risk. This is shown by the fact that less risk is needed to take a position in index futures. This will make sure that the amount of money that is locked in is also less.

    4. With index futures, you can reduce your risk

    This is a very important part of how you manage your portfolio. Whether you invest on your own or through a company, you may have a large portfolio of stocks. Once the US Fed raises rates, you think the market will fall. At the same time, you are sure that the drop in your stock prices will not last long and that they will go back up in the next few months. You could just keep your portfolio, but it would be better to sell Nifty futures to spread out your risk. When the market goes down, you make money on Nifty futures, and these profits will help you lower your average cost of holding equity. After 3 months, you will definitely be better off.

    5. Very liquid
    There are often problems with the way certain stocks or stock futures trade. On the other hand, index futures rarely face liquidity risk because institutional investors like to use them. Because of this, the bid-ask spreads are also very small. This makes it pretty safe to trade in these index futures, since you won’t get stuck for lack of liquidity. This is one of the main reasons why trading index futures is good.

    6. Index futures can help you diversify

    If you have a portfolio that is mostly geared toward financial stocks and you think there is some risk because RBI is raising interest rates, so you want to add safety by investing in non-cyclical sectors like FMCG and IT. Buying these stocks is one option, but it will cost money and lock up funds if the opportunity is only for a short time. A better way is to add index futures for the FMCG index and the IT index to your portfolio. This will help you diversify your portfolio’s structure with little risk and money.

    7. It costs much less to trade index futures.

    Index futures have much lower commission rates and STT rates than equities or even stock futures. In fact, most brokers will also offer you fixed brokerage packages on indices, which makes them cheaper than stock futures as well. Make the most of the fact that index futures cost less. This is why index futures are a great way to trade with less risk and a higher chance of making money.

    As we mentioned earlier as one of the top brokers in the share market we understand the concerns with brokerage fees and offer lowest brokerage for intraday trading and the best trading accounts for our users.

  • The Features Of Futures Market

    Here are some of the most interesting things about futures contracts:

    Let’s start off by saying that the Indian derivative market is the largest in the world in terms of turnover and market participation!

    Before we get on to understanding more about the Futures market, we wanted to inform you that as an online trading company we offer lowest brokerage for intraday trading for our customers
    A futures contract can be used for exchanges, commodities, currencies, and indices. It can also be used for many different types of asset classes.

    A futures contract is not flexible like a forward contract. For example, if a contract says it applies to 1000 barrels of oil, the price must be locked in per barrel or in multiples of 1000 barrels. To lock in a price, someone would have to sell or buy a hundred different contracts. To lock in the price of a million barrels of oil, you would have to buy or sell a thousand of these contracts. Traders also get a good idea of what the futures price of a stock or the value of its index is likely to be.

    Future contracts are mostly used to figure out how many shares will be bought and sold in the future based on their current future price.

    Futures are traded on margin, which means that people who don’t have enough money can still trade and take part. To do this, one can pay a smaller margin instead of the full value of the physical holdings.

    There are two types of people who use future contracts: speculators and hedgers. Producers or hedgers are the people who make or buy an underlying asset hedge. The price at which the good will be bought or sold is also guaranteed by these people. On the other hand, speculators are people who use futures to bet on how the price of the underlying asset will change.

    Futures Contract Example

    Here’s an example of a futures contract to help you get a better idea of what it is:

    Let’s say that a person who makes oil wants to sell it but worries that oil prices will go down in the future. A futures contract can be used to make sure that the oil producer gets a set price and doesn’t lose money. With the help of future contracts, the oil producer can lock in the price at which the oil will sell, and once the future contract is up, the oil will be sent to the buyer.

    On the other hand, a company that makes things might need oil to make widgets. Since this company plans ahead and likes to get oil every month, they may also use a future contract. So, based on the price set in their future contract, the company knows how much oil they will get. They know that once their contract is up, they will have to take delivery of that oil.

    Conclusion
    Futures contracts are a great way to spread out your investments and make sure you make good money by using what you know and making guesses about future prices. Since you can trade Futures based on many different types of underlying assets, you can use a futures contract to protect yourself from losses in other asset classes and take delivery of the underlying asset before the contract expires.

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  • Reasons Why You Should Be Trading Options

    At least in India’s equities markets, options trading has clearly matured. In terms of daily volumes, options are not only liquid, but they are also many times larger than the cash and futures markets. We’ll look at the advantages of options trading, as well as the benefits of option trading for both buyers and sellers. Here’s a quick rundown of the advantages of trading options.

    While Options Trading has multiple benefits, trading using Zebu’s online trading platforms has its own set of benefits. We offer the lowest brokerage on intraday trading and are one of the best share broking company so we can make your investment journey seamless.

    Benefits of Options Trading

    Hedging risk is possible with options trading. If you are buying stocks of a company and purchase a put option for the same underlying, for example, your risk is minimised. If you are long a stock at Rs. 1000 and buy a Rs. 900 put option at a premium of Rs.10, your maximum loss will be Rs.110. That is the strength of options, since no matter how low the price drops, you will only lose a set amount of money.

    Options can assist you in lowering the cost of keeping a stock. For example, if you’re holding stock and the price isn’t changing, you can sell greater call options to earn the premium and lower your asset’s cost of ownership.

    Options are far more cost-effective in terms of costs, which is one of the key advantages of options trading. The trader might establish an options position with a little margin because of options. For example, an investor must pay Rs.20,000 to purchase 100 shares of a stock at a price of Rs.200. However, if he purchased equal-weighted call options, the premium required would be roughly Rs 5,000.

    Options have the potential to provide huge returns, or a multiplier effect. Here’s how to do it. If the strike is picked correctly, the option pays the same profit as straightforward stock buying. Because we are obtaining options at a lower margin while maintaining the same profitability, the percentage return would be significantly higher, at least in terms of ROI or return on investment.

    One of the major benefits of options is that they allow for the systematic transfer of risk from someone who wants to remove risk for a fee to someone who is willing to take on that risk for a fee. One of the most significant advantages of options trading is that it provides a genuine secondary market for risk, which is what distinguishes the options market.

    One of the most essential aspects of options is that they provide liquidity while also allowing price discovery in the underlying market. Options are a useful way of pricing complex risk characteristics, hence this is an important feature.

    The fact that the options-related data usually works as a lead indication is a significant advantage of the options. Data points such as option strike accumulation, changes in options interest across strikes, and significant spikes in implied volatility in options, for example, are all crucial leading indications of the future shape.

    Risks of Options Trading

    There are five disadvantages to trading options in general, and these are the same whether you are a buyer or seller of options.

    When naked options are sold, the potential losses might be enormous. As a result, vigilance is advised. Furthermore, even if you are buying options and frequently see your options expire worthless, it can reduce your trading capacity.

    Options pricing, option valuations, options trading, and other complexities make this a difficult trading landscape. Many traders are unaware of the basic hurdles of options trading and are quick to jump in.

    With Nifty or Bank Nifty options, or even very liquid stock options, liquidity may not be an issue. However, in mid-cap equities where options are authorised, liquidity is unquestionably a problem.

    If you’re working on a complex strategy, costs will be multiplied. Then there are statutory charges, exchange costs, tax costs, and so on, all of which must be taken into account.

    Time decay benefits the seller of the option but puts the buyer at risk because the option loses time to value with each passing day, even if the price isn’t changing much.


    As we mentioned earlier, trading using Zebu’s online trading platform has its own set of benefits. We offer the lowest brokerage on intraday trading and are one of the best share broking company so we can make your investment journey seamless.

  • What Are Futures Contracts And How Do They Work?

    Investors who want to diversify their portfolios by investing in other types of assets have found that derivative trading has been very profitable. Some people like to trade options, while others like to trade Futures. But because futures contracts are so complicated, you need to know everything there is to know about them.

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    What is trading in the futures?

    A Futures contract is a legal agreement to sell and buy a certain commodity, asset, or security at a certain price and date in the future. Futures contracts are standardized to make it easier for people to trade on the futures exchange. This is done to check for quantity and quality.

    The person who buys the futures contract has to buy or receive the underlying asset before the futures contract ends. The seller of this contract is responsible for giving the buyer the asset that the futures contract is based on when the buyer decides to use the futures contract.

    Future contracts let an investor guess which way a commodity, security, or financial instrument, which is the underlying asset, will move. When these contracts are bought, they are often done so to protect against losses from price changes in the underlying asset that are not good.

    Futures Contract

    Futures contracts are derivative financial contracts in which both parties agree to buy or sell an asset at a certain date and price in the future. Futures Trading is the process of trading with Futures Contracts.

    To follow the rules of futures trading, a buyer must buy the underlying asset while a seller sells it at a set price, no matter what the current market price is or when it expires. Future contracts also list the standard amount of the underlying asset, which makes trading on a futures exchange easier.

    People talk about the same thing when they say “futures” or “future contract.” For example, someone may say that they bought oil futures, which is the same as saying they bought an oil futures contract. When someone talks about a “future contract,” they are usually talking about gold, bonds, oil, or Nifty 50 index futures.

    Futures and forwards contracts

    Futures is a very broad term that is often used to talk about the whole market. Futures contracts are standardised, which is different from forward contracts. Forwards and forward contracts are both ways to lock in a price for the future in the present. Forward contracts are bought and sold over-the-counter (OTC) and have terms that can be changed. On the other hand, a futures contract will have the same terms for selling and buying, no matter who it is with.

    In the following blogs, we will look at futures trading in greater detail.

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  • Everything You Need To Know About Put Options

    Beginner investors should know enough about the market to be able to predict how economic, political, or social factors will change the current market trend. This will help them make profits easily. The same is true for learning about financial instruments that can give you big profits if you know how to trade them well. One type of investment tool is a derivative contract called a “put option.” As an online trading company, we understand the difficulties of working with an unresponsive platform and offer our customers with the best trading platform and lowest brokerage options.

    What are put options? How do they work?

    A put option is a derivative contract that gives you the right, but not the obligation, to sell a certain amount of the underlying asset at a certain price and date. The agreed-upon price set by the contract is the strike price. A put option is a great tool for sellers who want to protect their investment if the underlying asset’s price drops in the future. The underlying asset’s value could fall below what the buyer agreed to pay for it. The buyer loses money because of this. But because the parties have already agreed on a strike price, even if the current price is lower, the seller gets the strike price that was agreed upon. This lets the seller make a lot of money even if the market value of the asset has gone down. How are a call option and a put option different from each other? A call option is a derivative contract that gives a person the right, but not the obligation, to buy a certain amount of an underlying asset at a certain strike price and on a certain date. With a call option, you can make money if the value of the underlying asset goes up before the option’s expiration date. If the value of the underlying asset goes above the agreed-upon strike price, the investor can buy the underlying asset for much less than the market price.

    What’s good about using put options?

    When buying an options contract, you have to decide whether to buy a put option or a call option, so it’s important to know the benefits of each. When compared to each other, a put option is better than a call option.

    1. Time decay is a good thing

    If you want to make money trading derivatives, time is very important, and options are a time-bound asset that gives put sellers an advantage. The closer an option contract gets to the end of its expiration date, the less valuable it becomes. Because of this, people who sell put options are more likely to make money from time decay if they sell the contract while the option is still valuable. On the other hand, time decay does not help the person who has the call option in this case.

    2. Cost-effective

    The underlying asset or stock of an option can change in any way. Its value could change a lot depending on what is going on in social, economic, and political scenes in the world. For an investor to make money on a call option, the option must be bought for less than the strike price. When investors buy a put option, on the other hand, they might make money if the price of the underlying asset stays the same or even goes down a little. So, a trader who buys put options is more likely to make money than a trader who buys call options.

    3. Implied Volatility

    Implied volatility describes the expensiveness of an option contract. When the implied volatility of a market is high, the price of the option contract tends to be higher. If you were trading put options, you’d want to sell when the price was high and buy when the price was low. This is only a good idea when implied volatility is high but goes down slowly over time. Experts in the market have known for a long time that high implied volatility tends to go down over time. This means that traders who buy a put option will make money over time because the market is naturally in their favour.

    Conclusion

    When you first start investing, it seems like market forces are in charge, but the longer you invest, the more you learn about them and how they work. The longer you trade, the better you’ll be able to spot things that are likely to affect the market you’re trading in and take steps to protect your money. The same can be said about put options, which can bring in more money than call options. But you should make sure you know everything you need to before putting money into options trading, especially put options. An unresponsive platform can cause more problems than you anticipate so at Zebu, an online trading company we offer our customers with the best trading platform and lowest brokerage options.

  • Everything You Need To Know About Call Options

    When you first start investing, you’ll quickly discover that the Indian share market is an ocean you’ll need to master in order to avoid losses and maximise profits. Although a large number of financial instruments accessible for investment in the Indian market gives a wealth of profit-making chances, if you are unfamiliar with any of them, you may wind up losing money. When you’re looking for high-return investing opportunities, the first thing you’ll notice is an Options Contract. The value of an underlying asset, such as a stock or a security, is usually the basis for this financial contract between two parties. If you are looking for a seamless online trading platform your search ends here.

    As a share broker company we offer our customers endless opportunities and the best trading accounts to help them focus more on making profits. What Does the Term “Call Option” Mean? A call option is a contract between two parties in which one party has the right, but not the duty, to buy a specific underlying asset at a predetermined price and on a predetermined date in the future. You are not legally obligated to execute the options contract unless it is profitable to you because there is no duty on the need to make the purchase as indicated by the call options contract. Only if the previously decided amount is less than the underlying asset’s current price on the date the options contract is exercised can the purchase be profitable. The strike price refers to the underlying asset’s specified price.

    The call option will result in losses unless your strike price is lower than the underlying asset’s price on the date of execution. Consider the following illustration. If you buy a Wipro’s Call option for Rs 25 with the strike price as 500, you have the option of buying Wipro’s stock at Rs. 500 on the call option’s expiration date (before expiry). If the price of Wipro stock on settlement day is Rs. 480, however, exercising your call option would be a loss because you could have purchased the stock in the open market for a lower price. If the price of Wipro stock on settlement day is Rs. 520, on the other hand, you make a profit by exercising your call option. You paid a non-refundable fee of Rs. 25 to obtain this right to acquire the stock without any obligation to buy, which will be your maximum loss if you decide not to exercise the contract. Most investors prefer to buy call options rather than put options.

    There are a number of causes for this, which are stated below:

    1. Investing in a Cost-Effective Way Investing in shares or other derivatives involves a significant amount of capital to make the investment sustainable and profitable. Buying a call option, on the other hand, is as simple as paying the premium, which is based on the underlying asset, making it more inexpensive to purchase. You can invest in a cost-effective manner by using a call option in this way.

    2. Risks are less severe Investing in a call option is far less hazardous than investing in stock or other securities directly. Because call options are not particularly volatile, they can be an excellent risk management tool. The amount you spend as a premium for the privilege to acquire the call option is the full extent of your losses on a failed call option.

    3. Covered Calls Can Help You Earn Premium Even after purchasing a call option, you can increase your profits by selling the contract on the secondary market. If the underlying asset you acquired a while ago has risen in value, you can receive a premium by writing a call option with the strike price equal to the current market value. In options jargon, this transaction is known as a covered call, and it allows investors to gain additional earnings. Your search for a seamless online trading platform ends here. As a share broker company we offer our customers endless opportunities and the best trading accounts to help them focus more on making profits.

  • The Market Participants Of Derivative Trading

    Investing is one of the most effective methods to spend your money. When you first begin investing, however, it is always advisable to stick with investment methods that provide great security and assured returns. The majority of early investments are based on a low-risk profile. Their risk appetite increases as they obtain more investment expertise and understanding of the financial market. It helps investors to diversify their assets and invest in financial instruments with higher returns if they have a high risk profile.

    While investing can be one of the most effective methods to spend your money, there is a certain amount of risk involved – especially if you don’t use the right tools. At Zebu, a share broker company, we offer the best online trading platform for our investors, while also giving them an added advantage of lowest brokerage for intraday trading.

    What Exactly Is a Derivative?

    Derivatives are financial contracts between two or more parties that are based on an underlying asset like stocks, commodities, currencies, etc. The value of the derivative is based on the price or value changes of the underlying asset. You can use derivatives to protect a position, guess which way an underlying asset will move, or increase the value of your holdings.

    In order to trade derivatives, you must use an exchange or trade over the counter (OTC). Over-the-counter trade is conducted between two private parties without the involvement of a centralised authority. Furthermore, because the contract is signed by two private individuals, it is vulnerable to counterparty risk. The chance, or rather the danger, of one of the parties defaulting on the derivative contract, is referred to as this risk.

    The Benefits of Derivatives:

    1. Hedging

    The greatest approach to protect yourself from a disastrous investment is to use a derivative contract. When you trade derivatives in the stock market, you’re effectively betting on whether the price of a certain stock will rise or decline. As a result, if you suspect that the stocks in which you have invested are losing value, you could get into a derivative contract in which you precisely predict the stock’s value decline. You can profit from your derivatives contract by hedging your stock market losses as the stock price begins to fall.

    2. Arbitrage

    A commodity or asset is purchased at a low price in one market and then sold at a much higher price in another market in arbitrage trading. Derivatives trading provides an advantage in terms of arbitrage trading, allowing you to profit from price disparities between markets.

    3. Managing Market Volatility

    You can insulate yourself from the volatility of other asset classes by investing in derivatives. You can, for example, invest in stocks and then get into a derivatives contract with the same underlying asset. It can protect the health of your portfolio because either of the assets can offset the losses of the other.

    4. Excellent investment opportunity

    While most traders enter the derivatives market to speculate and profit, it is also an excellent place to put any extra money. Without affecting any of your existing underlying equities, your funds will earn additional returns.

    Derivatives Market Participants

    1. Hedgers

    They are the creators, manufacturers, and distributors of the underlying asset, and they typically sign into a derivative contract to reduce their risk. Simply defined, hedgers guarantee that they will receive a preset price for their assets and will not lose money if values fall in the future.

    For example, if you own shares in a company that is currently trading at Rs. 1000 and plan to sell them in three months, you don’t want a drop in market prices to depreciate the value of your investment. You also don’t want to miss out on profits if the market increases in value. You can assure that you are profitable regardless of whether the stock price falls or rises by taking a hedging position and paying a small premium.

    2. Speculators

    These are real traders that try to forecast the future price of commodities based on a variety of criteria and keep track of their prices on a regular basis. If they believe the price of a certain item will rise, they will purchase a derivatives contract for that asset and sell it at expiration to profit. A speculator, for example, will wager that the stock price will not fall in the above example when you got into a derivatives contract to protect yourself against the stock price decreasing. The speculator will earn if the stock price does not decline during the specified period.

    3. Margin Traders

    Margin traders are investors that trade on a daily basis and make profits and losses solely based on market moves that day. The margin refers to the minimum amount paid by the investor to the broker in order to participate in the derivatives market. These traders don’t purchase and sell with their own money; instead, they borrow the money from a stockbroker as a margin.

    4. Arbitrage Traders

    Arbitrageurs are traders who acquire securities at a cheaper price in one market and then sell them at a higher price in another. They can essentially profit from pricing differences because they are low-risk.

    Conclusion
    Investing in derivatives, like all other investment tools, demands a thorough grasp of the market and the ability to make decisions only after gaining sufficient knowledge. You can make good money using derivatives if you invest based on knowledge.

    As we mentioned earlier, tools are critical for your investment to go smoothly. At Zebu, a share broker company, we offer the best online trading platform for our investors, while also giving them an added advantage of lowest brokerage for intraday trading.

  • What You Can Know About The Market With The Put-Call Ratio

    Market emotion can be gauged using a derivative indicator known as the Put-Call Ratio (PCR). Both a “call option” and a “put option” provide buyers the right to buy or sell a specific asset at a specific price, respectively.

    On any given day, the open interest in both a put contract and a call contract is combined to calculate the PCR.

    PCR = Put Open Interest/ Call Open Interest

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    Interpretation:

    A rising Put-Call Ratio, also known as a PCR, indicates that put contracts have a bigger open interest than call contracts. Traders are either negative on the market or using put options to protect their holdings from potential losses.

    There is greater open interest in call contracts than put contracts if the Put-Call Ratio or PCR falls below 0.5. This is a sign that investors are bullish on the market as a whole.

    A Put-Call Ratio of 1 shows that there are as many people interested in purchasing put options as there are in purchasing call options.

    Considerations that should be taken into account
    Investors can use the put-call ratio to get a sense of market sentiment before a market shifts. Aside from this consideration, it’s vital to examine demand for both numerator and denominator (puts and calls).

    The denominator of the ratio contains the number of call options. In other words, a decrease in the number of calls exchanged will raise the ratio’s value. Reduced call purchases without an increase in puts can raise the ratio. This is significant. To put it another way, the ratio doesn’t have to climb dramatically in order for it to do so.

    As more bullish traders remain on the sidelines, the market becomes more negative as a result. However, this does not necessarily mean that the market is bearish, but rather that the market’s bullish traders are waiting for a future event, such as the impending elections or RBI meetings.

    A Sign of Unpredictability:

    In India, the Put-Call Ratio is a common Contrarian Indicator. The market is due for a trend reversal if the readings are excessively high or low.

    Market players are overly pessimistic, and the market trend is likely to turn around soon. Similarly, exceptionally low levels signal that market participants are overconfident, and the market could turn red shortly if this trend continues.

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  • How To Rollover Futures Contracts

    The term “rollover” refers to the process of transferring a near-expiring front-month contract to a futures contract in a further-out month. What this means is that you’ll close out your current contract and open a new one in the same time frame.

    The expiration date of any futures contract or option you purchase will be clearly marked on the contract (last day until which you can trade that contract). So, for example, you can only trade the Nifty 28th August future until August 28th.

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    If you want to hold your position till September, you will need to sell your August Nifty futures and buy a new September futures contract, which will be valid until September 29. Rolling over refers to the act of transferring from one month’s pay to the next. Before the market closes on August 28th, you can perform this rollover at any moment.

    So, for example, if you bought Nifty August futures at 17070 and imagine Nifty futures is 17000 on 20th August, you now opt to roll over your position to September since you want to continue your nifty futures purchase position. This means that the Nifty August future will be sold and you will instead purchase the Nifty March future, which you can now hold until March 29th.

    You must pay brokerage and costs when you sell the August futures and you must pay brokerage and charges again when you buy the September futures. As with a typical buy-and-sell, there are fees involved.

    This SEBI circular and comments from the exchanges state that rollover of contracts during the ban period is not permitted. In the event that you hold a contract job that is currently in a ban, you will only be able to exit that contract.