The options market has thousands of call options and put options it 's difficult to keep a track of all of them. Option movements are unpredictable, news-driven or out of premium for at the money stock also. As an expert, not only do you have to pick up the exact strike price, you have to pick the correct call option or put option also. NIFTY is an index computed from performance of top stocks from different sectors listed on the National Stock Exchange (NSE). It is a collective of 50 companies and is an abbreviation for National Stock Exchange 's Fifty. The companies forming the index of NIFTY may vary from time to time based on many factors put forth by NSE. NIFTY will always rise if the market does well and go down then the market is on the low.
Why trade in Nifty Options and Futures?
Liquidity - Not all the nifty options are liquid, we need to find out the at the money call option or put option. Only in the at the money call option and most probable the nearest in the money and out of money option are volatile others are illiquid and we cant trade in that.
Mostly buy-in option: A normal trader mostly Buy option, because, in buy, we will pay the premium only while if we are looking to sell the option, we need to pay the Full margin amount.
Low Brokerage - It was seen that brokerage will be charge per trade only in options which means if you buy 1 lot or 50 lots only Rs 20/- will be charged to you and Rs 20/- for sell.
What is an 'Option'
An option is a derivative that represents a contract sold by one party to another party. The contract offers the buyer the right, to buy (call)or sell (put) a security or other financial asset at an agreed-upon price during a certain period of time or on a specific date. However, this is not an obligation. Call options give the option to buy at a certain price, so the buyer would want the stock to go up. And put options give the option to sell at a certain price, so the buyer would want the stock to go down. In the case of an index option, its value is based on the underlying Index value.
NIFTY Options Pricing
Options prices are set after the buyers and sellers negotiate and settle on a price. Prices of options are influenced mainly by the expectations of future prices of the buyers and sellers and the relationship of the option's price with the price of the instrument.
An option price or premium has two components- intrinsic value and extrinsic value. The intrinsic value of an option is a function of its price and the strike price. Strike price or exercise price is the predetermined price upon which the buyer and the seller of an option have agreed. Each option on an underlying instrument shall have multiple strike prices. The intrinsic value equals the in-the-money amount of the option.
The time value of an option is the amount that the premium exceeds the intrinsic value. Time value = Option premium - intrinsic value.
There are four major factors that influence the price of an option.
- The price of the underlying Stock
- The strike price of the option itself
- The time remaining until the option expires
- The volatility of the underlying Stock
Lack of trading education is a dangerous state to be in. Thoroughly educating yourself in all aspects of NIFTY Options is crucial to excelling in this profession. Be wary of the psychological aspects of the market, correct risk management techniques, and the correct entry and exit methods.
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