Zebu blog

Tag: stock market

  • Let’s Make Sense Of Option Greeks – Part 1

    A lot of factors influence an option’s pricing, which can benefit or hurt traders depending on their positions. The “Greeks” are a set of risk metrics named after the Greek letters that identify them, which reflect how sensitive an option is to time-value decay, changes in implied volatility, and movements in the price of its underlying security.

    Theta, vega, delta, and gamma are the four basic Greek risk measurements. Here’s a closer look at each.

    Before we begin…
    Options trading can be extremely profitable if done with the right trading system and with discipline. However, you need to back up your strategy with the best Indian trading platform like Zebull from Zebu. We provide one of the lowest brokerages for intraday trading and are one of the top brokers in the share market right now. And we would love to help you with your options strategy execution.

    Why option Greeks
    For the uninitiated, options can be exercised, or converted into shares of the underlying asset, at a set price. Every option has an expiration date and a premium connected with it. One of the most popular option pricing models is Black-Scholes, which leads to price fluctuations. Greeks are frequently viewed alongside an option price model to properly assess risk.

    Volatility
    Volatility refers to how much an option’s premium (or market value) changes before expiration. Financial, economic, and geopolitical risks can all create price changes.

    Implied volatility measures the market’s expectation of price movement. Investors use implied volatility (or implied vol) to forecast future price movements in a securities or company. If implied volatility is predicted to rise, the premium on an option will likely rise as well.

    Profitability
    Several words describe a profitable or unprofitable option. The intrinsic value is the difference between the strike price and the price of the underlying stock or asset.

    At-the-money options have the same strike price as the underlying asset. An in-the-money option has a profit because the strike price is higher than the underlying price.

    In contrast, an out-of-the-money option has no profit when compared to the underlying’s price. In the case of a call option, the underlying price is less than the strike price. A put option is OTM when the underlying price exceeds the strike price.

    Influences on an Option’s Price
    Assuming other variables stay constant, an increase in implied volatility increases an option’s price.

    Traders that are long or short will have different returns. If a trader is long a call option, increased implied volatility is beneficial since it increases the option premium. For traders holding short call options, an increase in implied volatility has the opposite (or negative) effect.

    A surge in volatility would not assist a naked option writer because they want the option’s price to fall. Writers are option sellers. If a writer sells a call option, the buyer will exercise the option if the stock price rises above the strike. That is, if the stock price rose enough, the seller would have to sell shares to the option holder at the strike price.

    Sellers of options are compensated for the risk of their options being exercised against them. This is called shorting.

    A decrease in implied volatility, shorter expiration time, and a decline in the underlying security’s price favour the short call holder.

    Increasing volatility, time left on the option, and underlying will benefit long call holders.

    Indicated volatility decreases, time till expiration increases, and the price of the underlying security rises for short put holders, whereas long puts profit from an increase in implied volatility, time until expiration increases, and the underlying security price decreases.

    During the life of most option deals, interest rates play a little influence. Its impact on an option’s price is measured by rho, a lesser-known Greek. Generally, higher interest rates make call options more expensive and put options cheaper.

    All of this sets the stage for examining the risk categories used to assess these variables’ relative impact.

    Remember that the Greeks help traders forecast price fluctuations. In this article, we have laid a foundation on what moves an option price. In the next article, let’s take a closer look at the different Greeks in an option.

    At Zebu, we strive to provide our customers with the lowest brokerage for intraday trading. Zebull is our proprietary trading platform that lets you analyse option greeks to perfection and is growing fast to become the best Indian trading platform. As one of the top brokers in share market, we believe that we have the right products and features to help you make the best trades. Please get in touch with us to know more.

  • Here’s How Arbitrage Trading Works

    Every day, thousands of traders and investors participate in the capital markets. All of the participants’ primary goal is to make a profit. To trade in the stock market, you can use a variety of techniques and strategies. A trading strategy, on the other hand, becomes applicable only if the asset’s price moves in a favourable direction. Arbitrage is a unique but simple method of profiting from the capital markets.

    Before we get into arbitrage trading… To do any form of trading, you need a reliable brokerage trading firm that gives you thebest stock trading platform that helps you analyse the right trading opportunities. Zebu gives you one of the best online trading platforms in the country with a fast-growing customer base. Please get in touch with us to know more.

    What exactly is arbitrage? To understand how arbitrage works, it is essential to first define arbitrage. Arbitrage is defined as the simultaneous purchase and sale of the same asset in different markets in order to profit from the price difference in both markets. While arbitrage opportunities can arise in any asset class that is traded in different markets in a standardised form, currency and stock markets are the most common. Arbitrage opportunities are frequently fleeting, lasting only seconds or minutes. Contrary to popular belief, markets are not completely efficient, creating arbitrage opportunities. As you may know, the price of an asset is determined by the supply and demand for it. A price difference arises as a result of a difference in supply and demand for an asset in different markets, which can be used for arbitrage trading.

    What is the process of arbitrage trading? As mentioned earlier, arbitrage trading is based on the trader’s ability to capitalise on the price gap of the same asset in different markets. Because arbitrage opportunities are limited, most traders use algorithms to execute arbitrage trades. Let us look at a stock market example to see how arbitrage works. Assume XYZ is a stock that is traded on the National Stock Exchange and the New York Stock Exchange. On the NYSE, the price of XYZ is quoted in US dollars, while on the NSE, it is quoted in Indian rupees. On the NYSE, the share price of XYZ is $4. The share price on the NSE is Rs 238. If the USD/INR exchange rate is Rs 60, the NYSE share price of XYZ in INR will be Rs 240. If the USD is converted to INR, the same stock is quoted at Rs 238 on the NSE and Rs 240 on the NYSE. To take advantage of the arbitrage opportunity, a trader will purchase XYZ shares on the NSE at Rs 238 per share and sell the same number of shares on the NYSE for Rs 240, earning a profit of Rs 2 per share. While participating in arbitrage trades, traders must consider certain risks. The price difference is the result of a favourable exchange rate, which is constantly changing. Any significant change in the exchange rate while the trade is being carried out can result in losses. The transaction fees are another important factor to consider. If the transaction cost exceeds Rs 2 per share, the price gain will be lost.

    In India, how does arbitrage work? There is a scarcity of companies that are listed on both the Indian and foreign stock exchanges. However, India has two major exchanges—the BSE and the NSE—and the majority of companies are listed on both, creating an opportunity for arbitrage. Even if the price of a particular share differs between the NSE and the BSE, an arbitrage trade cannot be conducted. On the same day, traders are not permitted to buy and sell the same stock on different exchanges. For example, if you buy XYZ shares on the NSE today, you cannot sell them on the BSE the same day. So, how exactly does arbitrage work? One can sell shares that he or she already owns on one exchange and buy the same amount on another. For example, if you already own XYZ shares, you can sell them on the BSE and purchase them on the NSE. If you already own the stock, you are not engaging in an intraday trade on different exchanges, which is not permitted.

    Conclusion Because the price differential does not last long, automated systems are commonly used for arbitrage trading. Though spotting arbitrage opportunities is simple, profiting from them manually is extremely difficult. As we mentioned earlier, arbitrage trading needs the best online trading platform for you to instantly capitalise on any price difference between NSE and BSE. Zebull from Zebu is the fastest growing and best stock trading platform that comes with a mind-boggling number of features to help traders. Zebu is also becoming the fastest-growing brokerage firm in the country – please get in touch with us to know more about our products and services.

  • A Beginner’s Guide To Hedging

    Hedging is a beneficial investment strategy that every investor should know about. Hedging in the stock market provides portfolio safety, which is often as important as portfolio growth. Hedging is commonly discussed but not explained. But it’s not a mystical term. Even a novice investor can benefit from learning about hedging.

    Before hedging

    When it comes to trading and investment, you need to choose the right one from a plethora of brokerage firms . One of the important factors you need to look for while executing hedging strategies is the lowest brokerage and someone with a fast-growing online brokerage background.

    Hedging

    Consider hedging as a type of insurance. By hedging, people protect themselves from the financial consequences of an unfavourable event. This does not stop all bad things from happening. However, if a negative event occurs, properly hedged, the damage is lessened.

    Hedging happens very universally. For example, buying a homeowner’s insurance protects you against fires, burglaries, and other unanticipated events. Portfolio managers, investors, and organisations employ hedging to decrease risk. In the financial markets, hedging is not as straightforward as paying an annual insurance premium.

    Hedging investment risk involves strategically using financial instruments or market tactics to offset price risk. Traders hedge one investment by trading in another. To hedge, you must conduct counter-trades in securities having negative correlations. Of course, you must still pay for this type of insurance. For example, if you own XYZ stock, you can buy a put option to protect your investment from large declines. However, to buy an option, you must pay a premium.

    Less risk means less possible profit. So, hedging is a practice used to decrease prospective losses (and not maximise potential gain). If the investment you’re hedging against is profitable, you’ve usually lowered your prospective profit. If the investment fails, your hedging will have decreased your loss.

    Hedging Explained

    Derivatives are commonly used in hedging strategies. One of the most common derivatives is options. In trading techniques involving derivatives, a loss in one investment is compensated by a gain in another.

    Assume you hold Tata motors stock. You believe in the company’s long-term success, but you are concerned about recent losses. Put options let you protect yourself against a decline in CTC by selling it at a predetermined strike price. This is called a married put. If your stock price falls below the strike price, the gains from the put option reduce your losses.

    Hedging Drawbacks

    Every hedging approach has a cost. So, before you utilise hedging, consider whether the possible benefits outweigh the costs. Hedging is used to safeguard against losses, not to create money. The cost of hedging, whether it’s an option or lost earnings from a futures contract, is unavoidable.

    While hedging is similar to insurance, insurance is more precise. With insurance, you are fully paid. Portfolio hedging isn’t exact. Things can get unpredictable. The perfect hedge is a goal that risk managers strive for but rarely accomplish.

    Hedging and You

    Most investors will never trade a derivative. In fact, most long-term investors overlook short-term volatility. Hedging has little value for these investors because they let their investments expand with the market. So why hedge?

    In order to understand how it works, you should hedge your own portfolio. Many large corporations and financial funds will hedge their protfolio. Examples of hedges include oil companies. For example, an international mutual fund may protect against currency swings. Understand and assess these investments with a rudimentary understanding of hedging.

    Forward Hedge Example

    A wheat farmer and the wheat futures market are two examples of hedging. The farmer sows in the spring and harvests in the fall. In the interim, the farmer faces the danger of decreased wheat prices in the fall. While the farmer wants to maximise his harvest’s profit, he does not want to bet on wheat’s price. At the present price of $40 per bushel, he can sell a three-month futures contract. It’s called a forward hedge.

    After three months, the farmer is ready to harvest and sell his wheat at market price. It is now only $32 per bushel. They buy wheat for that price. Simultaneously, he buys back his short futures contract for $32, netting $8. His wheat sells for $32 + $8 hedging profit = $40. When he planted his crop, he locked in the $40 price.

    Assume now that wheat is $44 a bushel. Sells his wheat at market price and buys back his short futures for $4. His net profit is $40 ($44 – $4). Both his losses and gains are reduced.

    The Verdict

    Investing involves a certain amount of risk. A fundamental understanding of hedging methods can help any investor understand how corporations and investors protect themselves.

    Whether or not you decide to start using complex derivatives, learning about hedging will improve your market knowledge and make you a better investor.

    At Zebu, we are one of the best brokerage firms in the country. We provide one of the lowest brokerages and are becoming one of the most sought-after online brokerages in India. Please get in touch with us to know more about our services and products.

  • Here’s How Bond Yields Affect The Market

    On Wednesday, India’s benchmark 10-year government bond yields soared to a high of 6.66 per cent before falling to 6.60 per cent.

    What has caused this increase? Rising crude oil prices, inflationary threats, and earlier-than-expected interest rate hikes indicated by the US Federal Reserve have all contributed to bond yields hardening. Rising bond yields, logically, have sparked anticipation that the Reserve Bank of India (RBI) may eventually abandon its accommodative policy and begin increasing interest rates.

    What is the difference between a bond and a bond yield?

    Bonds are simply loans made to a firm or the government. Throughout the loan’s term, the interest payments are virtually unchanged. Furthermore, if the borrower does not default, the principle is returned after the loan term.

    Bond yield is the rate of return that an investor receives on a certain bond or government instrument.

    Bond yields and prices are linked.

    Bond prices rise and fall in response to changes in interest rates in an economy. Bond yields, on the other hand, fall/rise in response to this.

    Bond yields and inflation expectations

    As money moves from relatively safer investment bets to riskier equities, a stock market boom tends to raise yields. When inflationary pressures rise, however, investors tend to return to bond markets and sell shares.

    What impact do bonds have on stock markets?

    Before we get into how the share market is impacted by bonds and bond yields, you need one of the best trading accounts from a leading online stock broker like Zebu to capitalise on market changes. With a leading online trading platform, you can anticipate market moves and maximise your profits.

    More on how bond yields affect the stock markets:

    To calculate the expected rate of return, investors add the equity risk premium they seek to a risk-free rate when pricing equities. Defaulting to the long government bond yield is usually the simplest way to estimate the risk-free rate. Long bond yields are important to equities because of this.

    Given that the risk-free rate is the long bond yield, a higher bond yield is unfavourable for equities, and vice versa. However, it’s important to recognise why bond rates are changing, not just the direction in which they’re changing.

    Long bond yields reflect the economy’s growth and inflation mix. Bond yields normally rise when growth is robust. They also rise in response to rising inflation. However, the impact of these is different for stocks.

    When growth is strong, the positive impact of larger cash flows or, more accurately, dividends more than outweighs the negative impact of higher yields, resulting in higher equity share values.

    The difference between actual GDP growth and the 10-year bond yield corresponds well with stock prices. Indeed, share prices should be fine if GDP increases faster than bond yields in the next month.

    If growth accelerates from here equities are likely to break this range on the upside, in line with the fundamental relationship.

    How Should Investors Play It?

    In the scenario that growth accelerates, investors can opt for rate-sensitive instruments like mid- and small-cap stocks and funds. However, if inflation makes a rapid return, you can go with reliable companies in solid sectors like technology, healthcare and FMCG.

    Whatever your take is on bond yields and their correlation to the Indian markets, you need the best online trading platform to change your game plan. At Zebu, we have taken our expertise as one of the leading online stock brokers in India and created the best trading accounts and investment platform to seamlessly capitalise on any economic macro and invest in the best stocks and funds that you find reliable. To know more about our products and services, please get in touch with us.

  • Everything That Zebu Was Upto In 2021

    Being one of the fastest-growing brokerage firms in India, we feel that it is our responsibility to educate investors and traders and empower them with the right technological tools they need to make informed financial decisions. In that aspect, we have been our end-user tools like Zebu and Smart Trader.
    constantly updating

    Here are the products and services that were updated to become more feature-packed for our customers.

    1. Zebu Web
    Zebu is the web application from Zebu that allows traders and investors to make use of a plethora of indicators and screeners to form their biases for intraday trading, swing trading or long-term investments. With our latest upgrade to the mobile version, users can now view and make use of the average MTM to exit a trade properly.

    2. Smart Trader Web
    This is a standalone trading application that can be downloaded and installed on a PC. This year, we launched the mobile version of the same to help traders access their trades very quickly. These web and mobile versions come with additional functionalities like advanced charting and screening, as opposed to the ones you can find in the regular apps from Zebu.

    3. New eKYC system
    Opening an account with Zebu has never been easier with our new eKYC system that enables paperless and real-time customer onboarding. With frictionless digital onboarding in place, any customer can quickly open an account online in a few hours.

    4. Online ReKYC
    With our new paperless systems, you can do a reKYC at specific intervals to stay compliant with SEBI’s regulations. You can even effortlessly change or update your personal information in a few clicks.

    5. Online SGB
    Sovereign Gold Bonds are Government securities denominated in multiples of gram(s) of gold. They are substitutes for investment in physical gold. On redemption, cash is deposited into the investor’s registered bank account. These Bonds are issued by the Reserve Bank of India on behalf of the Government of India and are traded on a stock exchange. Zebu makes it easy for you to make an investment in SGB.

    6. Upgraded Website
    With an extremely easy-to-use UI and improved usability, we have launched a new and responsive website for Zebu. You can access more information about the products and stay up-to-date on any updates from us.

    7. Single sign-on
    An SSO component adds an additional layer of security to your trading account with us. API users can also use this to log in to their accounts without their credentials.

    8. UPI fund transfer
    Users can now use their default UPI gateways to add funds to their accounts. The money will be added to the customers’ ledger without any latency.

    9. Online pledge
    Our customers can use our highly secure online platform to pledge their securities without providing any physical documents.

    10. Span calculator
    Clients can now easily calculate margin requirements for their trades and investments through a real-time calculator.

    Outreach through financial education


    Our Founder & CEO Mr. Vijaykumar has written information-rich articles for Vikatan, a regional magazine in Tamil Nadu. These articles contain insights and information that will allow readers to connect the dots between news events and their impact on the share market.

    Here are a few titles of the articles he has authored.

    1. The Reserve Bank ordered the dissolution of the board of directors of SREI and recommended a three-member panel to run the company.
    This article follows the measures taken by the RBI to restructure SREI and bring it back on track to become more accountable to its employees, customers and shareholders.

    2. What’s the problem with China’s Evergrand real estate company?
    This one outlines the problems of the company Evergrand in China. The debt-ridden company suddenly seemed to put on a clown show for the public by constantly shifting its business focus.

    3. T1 settlement from SEBI
    This is his take on SEBI’s new rule to change settlement duration from T+2 to T+1. He shares his insights on what this means for traders and investors.

    4. Can start-up companies invest when it comes to IPOs? Lessons from Zomato
    In this article, Mr. Vijaykumar analyses the IPO of Zomato and drives a few lessons that can empower retail investors going in for the next few IPOs of the year.

    5. Can I buy a stock just by looking at the PE ratio? Attention investors
    PE ratio forms an integral part of fundamental analysis and in this article, he explains its relevance in today’s investment decisions.

    6. Recession… But why is the stock market rising? Answer to the question of investors
    In this article, he helps new traders and investors understand the relationship between inflation and market movements.


    At Zebu, we work constantly to improve our products and services. We always appreciate any feedback that we can incorporate to improve your experience with us. We would love to hear from you at grievance@zebuetrade.com