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Tag: put options

  • Here’s How Volatility Impacts Put and Call Prices Equally

    What does it mean to say that something is volatile? Volatility, in simple terms, is a way to measure risk. But in technical terms, what does volatility mean? It can be thought of as the average difference between returns and the mean. Every investor wants a way to put their money to work that will give them predictable returns over time. When returns are too unstable, they can’t be predicted. At that point, the asset is worth less than it did before. Investors usually don’t like stocks that are too volatile, and those stocks tend to be worth less. But did you know that when it comes to options, it’s the other way around? In fact, volatility makes both call options and put options worth more.

    As we all know the market is volatile, but your platform does not have to be. Zebu, one of India’s top brokerage firms provides our users with a seamless online trading platform that can help them create the best trading accounts.

    Usually, volatility and the prices of assets go in opposite directions. The risk is higher when the volatility is high, and when the risk is high, the returns are lower than expected. Investors are always willing to pay more for stability than for risk. But things are very different when it comes to call and put options. When the market gets more volatile, both call and put options are worth more. So, let’s figure out why volatility makes the price of options go up. Let’s also look at the relationship between how volatile an option is and how much it costs. How does this affect the implied volatility between a call and a put?

    First, let’s look at what it means for call options.
    Volatility means that the stock’s returns are likely to be very different from the mean. It also means that there is too much uncertainty in this situation. But why does that make the put option worth more money? Let’s start by looking at the basic Black-Scholes model.

    According to the Black Scholes model, the price of an option is affected by 5 main factors:

    Market Price of the Stock: When the stock price goes up, the value of the call option goes up, but the value of the put option goes down.

    Strike Price of the Stock: When the strike price goes up, the value of a call option goes down, but the value of a put option goes up.

    Interest rates: When interest rates go up, the present value of the strike price goes down. This makes the call option more valuable and the put option less valuable.

    The value of a call option and a put option goes down if the time until maturity or expiration goes down.

    The value of both the call option and the put option increases when the stock’s volatility increases.
    As you can see from the points above, volatility is the only thing that affects both call and put options in the same way. The time to expiration is the same, but it is a subset of volatility because a longer time to expiration makes people expect more volatility. But why does volatility have the same effect on calls and puts?

    It’s not hard to figure out why. Both calls and puts on an option are not the same. This means that the person who bought the option will only use it when it is good and will not pay the premium when the price goes down. This rule is true for both call and put options. The risk of going up or down is high when volatility is high. When there is a risk of going down, the person who bought the call option won’t pay the premium. When there is a chance of going up, the person who bought the call option will make a lot of money. Put options are also subject to the same rule. This is why call options and put options are worth more when the market is volatile.

    This shows that the value of the call option and the put option goes up when volatility increases, as long as all other factors stay the same.

    Zebu, one of India’s top brokerage firms provides our users with a seamless online trading platform that can help them create the best trading accounts. Visit us for more information.

  • 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.