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Tag: options trading

  • These 5 Factors Save Your MONEY in Options!

    Why Do the Most Option Owners Fail to Make Money? Also, safety precautions you can take Making money on the financial market can be done well by engaging in options trading. It is, however, one of the riskiest types of dealing, particularly for newcomers. Options trading has become more common in India recently, but many traders there have lost a lot of money because they lack information and experience. In this blog article, we’ll look at the main reasons why most option traders—especially option buyers—lose money on the Indian stock market.

    Absence of expertise and knowledge

    The dearth of information and expertise is the primary factor behind why the majority of people lose money when trading options. Options trading is a smart and complicated financial tool, and success in it necessitates a certain degree of knowledge. Many dealers in India begin trading options without having a thorough grasp of the risks involved, the workings of options, or the various tactics available. This dearth of expertise and understanding frequently results in expensive errors and losses.

    Selling for a profit

    The majority of option traders also lose money because they are dealing speculatively. Speculative trading refers to the practise of buying options without a thorough knowledge of the underlying commodity or market in the hopes of making a fast profit. Many traders in India participate in speculative trading, frequently purchasing options with high fees in the hopes of receiving a sizable payout. However, this strategy is dangerous and frequently leads to sizable loses.

    Using technical analysis too much

    In India, many dealers use technical analysis to evaluate the stock market before making trading choices. Overrelying on technical analysis, however, can be an error when buying options. When buying options, it’s important to consider other variables in addition to the stock price, such as implied volatility and time decay. Overreliance on basic analysis may result in a limited viewpoint and a poor trading approach.

    Insufficient risk management

    Options dealing is naturally risky, and those who engage in it without a solid risk management plan run the risk of losing money more frequently. Many traders in India don’t establish stop-losses or position boundaries because they don’t comprehend risk management well. Large losses caused by this poor risk management have the potential to empty entire trading accounts.

    Lack of mental endurance

    Options dealing takes perseverance, self control, and a long-term outlook. In India, many dealers lack discipline and act too quickly when entering and exiting trades. This impatience frequently causes buying decisions to be founded on feelings rather than reason, which results to losses.

    In summation, if done properly, options trading can be a lucrative type of trading. However, on the Indian stock market, most traders lose money, particularly option purchasers, because they lack knowledge and experience, engage in speculative trading, rely too heavily on technical analysis, fail to control risk, and lack discipline. To be effective in options trading, it is crucial to educate oneself, have a solid trading plan, and handle risk appropriately.

    FAQs

    1. What is the most successful strategy in options trading?

      The most successful options trading strategies often focus on hedging and managing risk, like covered calls or spreads, rather than trying to chase big wins.

    2. How can I reduce losses while trading options?

      Option trading for beginners should start small, set stop-losses, and avoid overleveraging to minimize potential losses.

    3. What common mistakes should I avoid in options trading?

      Options trading tips include avoiding emotional decisions, not understanding contracts fully, and ignoring risk management.

    4. Is options trading safer with proper risk management?

      Yes, making money with options is much more realistic when you manage your position sizes and have a clear plan.

    5. Which type of options (call or put) is better for beginners?

      Beginners often start with call options, as they’re simpler to understand, but both calls and puts can be used once you learn the basics.

  • Combining Open Interest Analysis With Other Indicators

    Trading on the stock market can be difficult and unpredictable, but if you have the right tools and knowledge, you can make smart decisions and possibly make a lot of money. Indicators, which are mathematical calculations used to analyse and predict how the market will move, are one of the most important tools for traders. In this blog post, we’ll talk about what indicators are and how they can be used with open interest analysis to learn more about the market and make better trading decisions.

    First, let’s talk about what signs are. Indicators are numbers that are calculated based on a security’s price and/or volume. There are many ways to do these calculations, such as using moving averages, the relative strength index (RSI), and stochastic oscillators. Each indicator is made to tell you a certain thing about the security being looked at, like its trend, momentum, or volatility.

    The moving average is one of the most used kinds of indicators. A moving average is a calculation that uses the average closing price of a security over a certain number of periods (e.g. days, weeks, or months). The result of this calculation can then be plotted on a chart to show the trend of the security. For example, a 50-day moving average shows the average closing price of a security over the last 50 days, while a 200-day moving average shows the average closing price over the last 200 days. Traders often use two moving averages, one with a shorter time period and one with a longer time period, to spot possible changes in trend.

    The relative strength index is another widely used measure (RSI). RSI is a momentum indicator that looks at how big a stock’s recent gains are compared to how big its recent losses are. The result is a number between 0 and 100. A value of 70 or above means that a security is overbought, and a value of 30 or below means that it is oversold. RSI can be used to figure out when it might be a good time to buy or sell.

    Stochastic oscillators are another tool that traders use a lot. These indicators compare the closing price of a security to its price range over a certain time period. The result is a number between 0 and 100. Readings above 80 show that a security has been bought too much, while readings below 20 show that it has been sold too much.

    Open interest analysis is one of the most important tools for traders. Open interest is the total number of contracts that are still open in a market. This is important because it can show how busy the market is with buying and selling. When open interest goes up, it’s usually a sign that more money is coming into the market, which is a bullish sign. On the other hand, when the number of open positions goes down, it is usually seen as a sign that investors are pulling money out of the market.

    When indicators and open interest analysis are used together, they can give a more complete picture of the market. For example, if a trader sees that a stock’s RSI is overbought but that open interest is going up, this could mean that the stock is in a strong uptrend and that it is not yet time to sell. On the other hand, if a trader sees that a stock’s RSI is oversold but that open interest is falling, it may mean that the stock is in a weak downtrend and that it is not yet time to buy.

    In the end, indicators and open interest analysis are powerful tools that can help stock market traders make better decisions. By knowing how to use these tools and how to read the information they give, traders can learn more about the market and maybe make more profitable trades. But it’s important to keep in mind that indicators and open interest analysis should be used with other types of analysis, like fundamental and technical analysis, to get a full picture of the market. Also, it’s important to remember that indicators and open interest analysis don’t guarantee profits, and it’s important to have a well-rounded trading strategy that takes into account different market conditions.

    It’s also important to remember that no indicator is perfect and that all of them have a certain amount of lag. Traders shouldn’t rely on a single indicator; instead, they should use multiple indicators and combine them with other types of analysis to confirm the signals they give. Also, you should try out different indicators and settings to find out which ones work best for a particular market or security.

    In conclusion, traders can use indicators and open interest analysis to learn more about the stock market. Traders can learn more about the market and make better trading decisions by using a combination of indicators, open interest analysis, and other types of analysis. But it’s important to remember that indicators and open interest analysis don’t guarantee profits, and it’s important to have a well-rounded trading strategy that takes into account different market conditions.

  • Which Is Riskier: Trading Futures Or Trading Options?

    Futures vs options trading always seem to be up for discussion. Traders talk and talk about whether futures or options are riskier. In any case, it’s important to think about how much risk you can handle before you take a side in the ongoing debate. Also, once you know exactly what futures and options are, it will be clear which one has more risks than the other.

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    A Brief Explanation of Options

    A contract between a buyer and a seller is an option. It gives the owner the right, but not the obligation, to buy or sell an asset at an agreed-upon price within a certain time frame. Options are contracts that are parts of a larger group of financial instruments called derivatives. They can be used on indices, stocks, and exchange-traded funds (ETFs).

    On the stock market today, options get their value from the underlying securities, such as stocks. When you trade stocks, all you are doing is trading ownership in a publicly traded company. Options contracts, on the other hand, let you trade the right or obligation to buy or sell any underlying stock. If you own an option, you do not automatically own the thing that the option is based on. Also, it doesn’t give you any rights to dividends.

    Futures: A Short Explanation

    Futures are also contracts or agreements to buy or sell certain stocks or commodities at a certain time in the future. In a futures contract, the buyer and seller agree ahead of time on prices, quantities, and the dates of future deliveries.

    You can either buy or sell in a futures contract. If the price goes up, buyers make money because they bought the asset when it was cheaper. If the prices go down, the people who sold at higher prices will make money.

    A Quick Look at Futures, Options, and Risks

    If you do online trading, you may know some things about how the markets work. For example, if you trade and invest in stocks, you know that you need to open a demat account. In the same way, you would know that futures and options are derivatives if you knew anything about them. They also use leverage, which makes them riskier than trading stocks. Futures and options both get their value from the asset that they are based on. Futures and options contracts make money or lose money based on how the price of the asset they are based on changes.

    There is enough risk in the share market today. Your risk tolerance may be a factor in deciding between futures and options, but it’s a given that futures are riskier than options. Even small changes in the price of an underlying asset can affect trading. This is especially true when trading options. Even though both have the same amount of leverage and capital at risk, futures are riskier because they are more likely to change. You need to know that leverage is like a “two-edged sword.” You can make money quickly and lose it just as fast. In terms of futures, you can make money quickly or lose it in an instant. This is not the case with options trading.

    With options, you can buy either “put” or “call” options while you are trading online. The most you can lose is the amount of money you have put into the options. If your prediction is way off and your options are worthless by the time your contract is up, you may have some bad luck, but you will only lose the premium you pay for the options.

    With futures contracts, on the other hand, you have unlimited liability. You will have to make a margin call to add more money to your account to make up for the daily losses. If you lose money every day, you may have to keep going until the underlying asset stops going against the wind. If you put most of your money into futures contracts and don’t have enough money to cover your margin calls, you could even go into debt. Does all of this sound too risky? You don’t have to worry. Technically, futures are not inherently riskier. Instead, it is the fact that futures can use a higher level of leverage that makes both profits and risks bigger. You can easily borrow money to buy stocks and get 5:1 leverage. With futures, you could get 25:1, 50:1, or even more. So, even the smallest moves can lead to huge profits or huge losses, depending on what was invested.

    Things to think about

    If traders had to choose between trading futures and trading options in the world of online trading, options would be the more interesting choice. In options, the most you can lose is what you put in the first place. Options trading might be the better choice, especially if you use the spread strategies that options give you. If you plan to hold on to trades for a long time, bull call spreads and bear put spreads can increase your chances of success. Futures are riskier because they use a higher level of leverage and a smaller amount of cash to control assets with a higher value. This means that the amount you can lose may be higher than the amount you put in at first. Also, some things about the market could make it hard or even impossible to sell or hedge a certain position.

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  • How Traders Earn Passive Income From Cash Covered Puts

    Futures and options are two types of derivatives contracts. They are used not only to protect the equity position but also to make a steady income. Many traders and investors combine futures, call options, and put options to make regular money from the stock market. They do this by using their holdings and balance margin to start trades.

    In this blog post, we’ll look at how selling cash-secured puts can be used as a way to make money on the stock market.

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    How do cash-secured puts work?

    As part of an option-selling strategy called “cash-secured put selling,” you set aside enough money to buy a stock at a certain price and then sell the put option for that price. The goal is to buy the stock for less than what it is worth on the market.

    There are, however, some risks involved. The first risk is that the price of the stock may never drop to the level where the trader wants to buy it. This could make it impossible to buy the stocks in the long run. The second risk is that the price of the stock could fall way below the strike price.

    Why selling cash-secured puts is a good idea

    To make money from the option premium, cash-secured puts are usually sold. How much you get depends on the value of the security and how much you are willing to pay for it.

    Gains Invested Quickly

    Cash-secured puts can give you cash right away. It can make option income more appealing and can also help reduce risk.

    You can get paid to invest

    A cash-secured put strategy is a great way to get paid to buy the stock you want to buy. This strategy lets you choose from a number of strike prices and expiration dates.

    Low-dividend stocks can be profitable

    If you want to increase your cash flow but don’t want to be limited by a low dividend yield, you can do so by selling cash-secured puts.

    Risks involved in this strategy

    Multiples of the Lot Size
    Futures and options, which are examples of derivatives, can only be traded in lots. This method won’t help you if you want to buy stocks in a very small amount or a fraction of the lot size.

    Not being able to profit from price correction
    Most investors who want to own shares of a company in the long run shouldn’t use the cash-secured put strategy. If the price of shares stays high, they may never be able to buy any.

    Repeated Actions
    Most investors are more interested in a simple “buy and hold” strategy. In this strategy, you sell cash-secured puts so that you can buy stocks when the person who bought the put options decides to sell. Since the option doesn’t have to be used, it takes more time to go through the same process every time it expires.

    Effects on tax
    When you sell cash-secured puts, the money you make is considered business income and is taxed based on the trader’s tax slab. If the trader owned the stock, he or she would get money from dividends and the increase in value of the stock. Together, these two types of income might have a lower tax rate.

    Getting to Know with an Example
    Let’s say that the price of Stock XYZ is Rs. 250 right now. Stock XYZ’s derivatives contract has a lot size of 100 shares, and you want to buy 100 shares of XYZ for Rs. 235.

    You can make money by selling the 235 strike price put option every month and keeping the premium. Let’s say that for the current month, the premium for 235 put options is Rs. 8. You get Rs. 800 when you sell that put option (Rs. 8 x 100 shares).

    This means that you are willing to buy 100 units of the stock XYZ for Rs. 235 at the end of the expiration period if the price at that time is Rs. 250 or less. For this obligation to buy, you need to keep an account balance of Rs. 23,500 (Rs. 235 x 100 shares).

    If the stock price goes above Rs. 235, you get to keep the entire premium you got for selling the put option with a strike price of Rs. 2350.

    The Bottom Line: Cash-secured put selling is a strategy that involves buying a security at a price that you would be willing to pay. This method works for people who want to make more money or feel safer without spending too much. You might not want to sell cash-secured puts because the deal is complicated and you don’t want to own the security. This strategy could be better for investors and traders who want to make money on the stock market without doing much work.

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  • Why You Should Know Time Value Before Trading In Options

    When it comes to trading options, the time value of an option is one of the most basic and important things to understand. In technical terms, it is called “Theta,” which shows how an option’s value decreases over time. Before we get into the details of time value and time decay, let’s take a quick look back at what options are and how they work.

    Before we get into understanding the importance of time value in trading, we should understand that the right technology is equally important. As a share broking company, we offer our clients a seamless online trading platform and also provide them with the lowest brokerage on intraday trading, to make their journey as a trader as smooth as possible.

    So, what are options really all about?

    As the word “option” suggests, it is a right that doesn’t have to be used. Unlike a futures contract, which is both a right and a duty, this is not the case. The buyer of the option has the right to buy or sell the underlying asset at an agreed-upon price (strike price). If the price change goes in the buyer’s favour, he will make money, but if the price change goes against him, he will not use the option. That doesn’t seem fair to the person who sold the option, does it?

    Not at all! Since the person who buys the option has a right but no obligation, the person who sells the option has a duty but no right. The seller won’t do that for free, that much is clear. The person who buys an option pays a certain fee to the person who sells the option for the right to do something without having to do it. This fee is called an “option premium,” and it is what gets traded on the NSE when you buy and sell options. The buyer of the option pays the option premium to the seller of the option as a reward for taking on the obligation without the right.

    Options can be either “call” or “put.”

    Call options give you the right to buy something, while put options give you the right to sell something. You buy a call option if you think the price of a stock will go up. If you think the price of a stock will go down, on the other hand, you will buy a put option. Even though it sounds easy, it’s not as easy as it sounds.

    Getting to the heart of an option’s intrinsic value and time value.

    Before you can understand the idea of time value, you need to know about the three types of options below.

    1. An In-The-Money (ITM) option is a contract for an option that has an intrinsic value that is greater than zero. If the market price of the Nifty is higher than the strike price, a call option on the Nifty is in the money. If the market price of the 17000 Nifty call option is Rs.70 and the spot Nifty is at 17100, then the intrinsic value of the Nifty call will be Rs. 100 (17100-17000). The option’s time value will be the remaining value, which is Rs.30. So, of the Rs.70 option premium that is being quoted on the market, Rs. 100 is due to intrinsic value and Rs. 30 is due to time value. If the spot price of the Nifty is lower than the strike price of the put option, the option is in the money.

    2.An “at the money” (ATM) option is a contract for an option that has a value of zero. If the market price of the Nifty is the same as the strike price, it will be an ATM for a call option on the Nifty. Since there is no intrinsic value, the time value is the only thing that makes the option worth anything.

    3. Out-of-the-Money (OTM) options are option contracts where the market price is lower than the strike price for a call option or higher than the strike price for a put option. According to our formula, the intrinsic value will be negative, but since the intrinsic value can’t be negative, we’ll treat it as zero. So, only time value will make up the option premium.

    At the beginning of the month, ATM options have the highest time value, followed by ITM options and then OTM options. In the long run, the time value of all three options will tend toward zero as the expiration date gets closer. Even though the OTM and ATM options themselves have no value, the option premium for ITM options will still be positive because they have intrinsic value.

    Why is time value such an important part of trading options?

    An option is a wasting asset because its time value tends to go to zero as its expiration date gets closer. This loss of time is also called “Theta.”

    Time and volatility are two of the most important parts of time value. For both call options and put options, the time value goes up as the time to expiration goes up. Even if the option is still Out of the Money, a rise in volatility can cause the time value to rise. The person who buys the options bets that volatility will make the time value go up, while the person who sells the option hopes that the time value will work in his favour so that the option expires worthless. This is the main idea behind trading with options.

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  • Buying Vs Selling Options

    Are there any tips and tricks for trading options that can help you decide when to buy and sell options. What should you do when trading call options? Here’s a guide for people who are just starting out with option trading. It tells you what factors can help you decide when to buy and when to sell an option.

    Price

    How do you decide if an option is priced too low or too high? Like with stocks, you will have to figure out what the option is really worth. Clearly, you can’t figure out the value of an option the same way you figure out the value of a stock. But there is a different model called the Black & Scholes model that has a complicated formula to help you figure out the intrinsic value of any option. If the price of an option is more than what it’s really worth, it’s overpriced and should be sold. If the price is less than what it’s really worth, it’s underpriced and you should buy it.

    Volatility

    This is an important thing to think about when deciding whether to buy options or sell them. Volatility is good for both call and put options because it makes the option more valuable if the price goes up, but it limits your risk if the price goes down. Even if the stock price stays the same, if volatility goes up, the value of the option can go up. When volatility is likely to go up, it is always best to buy options. When volatility is likely to go down, it is best to sell options.

    Events

    Can you imagine what would have happened if you had sold put options before the Lehman Brothers crisis or the Greek crisis? Before big events or important geopolitical risks, it’s always better to buy options instead of selling them. When you buy options, your loss is restricted to the premium you pay. If you sell options before something bad happens, you could lose all your money.

    Trend

    How you feel about the stock or index is a very important part of whether you should buy or sell an option. It would be ideal if you can determine if the stock will either go up decisively or go down decisively. In that case, you can buy either a call option or a put option, depending on what you want to do.

    Time decay

    This is a very important thing to think about when deciding whether to buy or sell an option. Remember that every option contract has a set date when it ends. Time hurts the person who buys the option and helps the person who sells the option. Most of the time, time decay is pretty stable in the first few days of the month. But as the expiration date gets closer, the time decay starts to happen more quickly. That means the value of the option starts to drop quickly. So, it’s not a good idea to buy options close to their expiration date unless you really want to take a risk and bet on volatility.
    A big choice is whether to buy the option or sell it. The more you think about a choice, the better your chances of making the right one.

  • 5 Things To Keep In Mind Before Trading In Futures and Options

    Those who want to become derivative traders have a lot to gain from trading options and futures. Most of the time, people jump into FnO trading without knowing how it is different from trading on the spot market. If you’ve been thinking about trading futures and options, here are 5 things you need to know before entering the derivative markets.

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    1. Your losses aren’t limited to the money you put up as a margin
    When you trade on the spot market, the most you can lose is the amount of money you put in. In futures trading and options trading, on the other hand, you pay margins that are a lot smaller than the amount of capital you are putting at risk. This makes it easier to lose track of how big your possible loss really is. Before you start FnO trading, it’s helpful to remember this.

    2. Liquidity is easy to forget about

    When they first start trading options and futures, many traders don’t realise how important liquidity is. So, be careful not to make the same mistake. Even though it’s important to have a good options trading strategy or futures trading strategy, it’s just as important to make sure that the derivatives you’re trading in are liquid enough to support an exit.

    3. Moneyness of options

    This is something you really need to know before you start trading options. Out-of-the-money (OTM) options may be cheaper, but they often aren’t liquid enough, which is a big problem. So, the best chance isn’t always the one that costs the least. Make sure you find a good balance between affordability, profit, and cash flow.

    4. You can use FnO trading to hedge

    There are risks that come with trading in FnO. Beginners should always use a futures trading strategy or an options trading strategy along with a regular trade so that the FnO trade can protect the regular trade. This way, you can lessen the risk and learn more about how the derivative market works at the same time.

    5. Trading plans are important

    In derivatives trading, FnO trading strategies are very important. Different plans work best in different situations. For example, you can use covered calls if you’re worried about how much it will cost to keep a call on hold. On the other hand, if you want to make more money if the price goes down, you can use protective puts. Also, keep in mind that complicated and multi-layered plans are usually more expensive.

    So, before you start trading FnO, make sure you remember these things. For beginners, it’s helpful to have a reliable tool or platform to use, especially when it comes to making and analysing strategies. Here, our advanced options trading platform, Zebull, can come in handy. If you want to get into the derivatives market, you should check it out and use the helpful features.

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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.

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    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.

  • 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.