in options trading is the process where the terms of an options contract are
resolved between the holder and the writer. In options trading, the holder is
the one who owns an options contract and a writer is the person who sold the
holder that options contract. Settlement in call options contracts involve the holders
of the options contracts paying the writers for the underlying asset at the
strike price. Settlement in put options contracts involves the holder of the
options contract selling the underlying asset to the writer at the strike
price. After settlement, the options contract will cease to exist and all
obligations between the holder and the writer would be resolved.
Settlement can happen under 2 circumstances; Voluntary exercise by the holder
or automatic exercise upon expiration.
The holder of an American Style Option could choose to voluntarily exercise
their options any time prior to expiration. Once that happens, settlement takes
place between the holder and the writer and the options contract is resolved.
For an investor who understands how to read the option market’s tea leaves,
investing becomes like playing poker with an opponent who always holds his
hand face up. This might seem too good to be true, but in fact, option prices
contain within them the market’s consensus estimates for the future price
of a stock. If you know where to look, you can easily decide if the market’s
consensus price for a stock is near or far from your own idea of its value.
Value investors who revel in finding differences between stock prices and intrinsic
values will love what the option market can tell them about future expectations
for stocks. What Option Can Tell
an Intelligent Investor? Option pricing models are,
first and foremost, statistical models of how stocks are likely to move in
the future. The option pricing bit is almost an afterthought once the hard
work of stock price forecasting is done. all option pricing models under the
general term “Black-Scholes Model” or “BSM.” All subsequent models are
basically tweaks of the BSM, in fact.) For all the mathematical complexity
people associate with option pricing, it’s actually a pretty blunt tool. It’s
based on a few, almost laughably simple assumptions: 1.The market is “efficient”, so a stock’s market price represents
its true value. 2.Stock prices drift upward at the same rate as the rate of return
for risk-free bonds. 3.New positive and negative information relevant to the stock’s
price comes in randomly, so the stock is as likely to go up as it is to go
down. 4.Stock returns follow a bell curve distribution.
BAPPA BONANZA OFFER HURRY OLD RATES ARE BACK GET ANY PACKAGE @ 5000 PM OR 10000 QUARTERLY TO PAY visit www.wealthwishers.com or call on 07225909997, 09179333088
Puts, calls, strike price, in-the-money, out-of-the-money — buying and
selling stock options isn't just new territory for many investors, it's a whole
Options are often seen as fast-moving, fast-money trades. Certainly options can
be aggressive plays; they're volatile, levered and speculative. Options and
other derivative securities have made fortunes and ruined them. Options are
sharp tools, and you need to know how to use them without abusing them.
Stock options give you the right, but not the obligation, to buy or sell shares
at a set dollar amount the "strike price" before a specific
a "call" option hits its strike price, the stock can be called away.
Conversely, with a "put" option the shares can be sold, or
"put," to someone else. The value of puts and calls depends on the
direction you think a stock or the market is heading. Stated simply, calls are
bullish; puts are bearish.
The main fundamental difference
between options and futures lies in the obligations they put on their buyers
and sellers. An option gives the buyer the right, but not the obligation
to buy (or sell) a certain asset at a specific price at any time during the
life of the contract. A futures contract gives the buyer the obligation
to purchase a specific asset, and the seller to sell and deliver that asset at
a specific future date, unless the holder's position is closed prior to
expiration. Another key
difference between options and futures is the size of the underlying position.
Generally, the underlying position is much larger for futures contracts, and
the obligation to buy or sell this certain amount at a given price makes
futures more risky for the inexperienced investor.
The difference between futures and options as financial
instruments depict different profit pictures for parties. The gain in the
option trading can be obtained in certain different manners. On the contrary,
the gain in the future trading is automatically linked to the daily
fluctuations in the market. This is to say that the value of profit positions
for investors is dependent upon the market position at the close of the trading
every day. Therefore, every investor should have a prior knowledge of both
futures and options before they enter the financial market operations.
1. A future is a contract which is governed by a pre-determined
price for selling and buying at a future period. In options, there is the right
to sell or purchase of underlying assets without any obligation.
2. A future trading has open risk. The risk in option is limited.
3. The size of the underlying stock is usually huge in future trading. Option
trading is of normal size.
4. Futures need no advance payment. Options have the advance payment system of
Starting out by buying out-of-the-money (OTM) call options
It seems like a good place to start: buy a call option and see
if you can pick a winner. Buying calls may feel safe because it matches the
pattern you’re used to following as an equity trader: buy low, sell high. Many
veteran equities traders began and learned to profit in the same way.
Using an “all-purpose” strategy in all market conditions
Option trading is remarkably flexible. It can enable you to
trade effectively in all kinds of market conditions. But you can only take
advantage of this flexibility if you stay open to learning new
strategies.Buying spreads offers a great way to capitalize on different market
conditions. When you buy a spread it is also known as a “long spread” position.
All new options traders should familiarize themselves with the possibilities of
spreads, so you can begin to recognize the right conditions to use them.
Upto 10000 Buy any package OPTION, FUTURE, NIFTY, CASH CALLS by Best Research House CALL US NOW ON 07225909997 08109060248 08982086510 To pay through net banking/debit/credit card visit www.wealthwishers.com
Hedging is the practice of purchasing and holding securities
specifically to reduce portfolio risk. These securities are intended to move in
a different direction than the remainder of the portfolio - for example,
appreciating when other investments decline. A put option on a stock or index
is the classic hedging instrument Options are a great way to hedge against your
existing positions to decrease risk When properly done, hedging significantly reduces the uncertainty
and the amount of capital at risk in an investment, without significantly
reducing the potential rate of return.
Hedging is what separates a professional from an amateur trader. Hedging is the
reason why so many professionals are able to survive and profit from stock and
option trading for decades Downside Risk The pricing of hedging instruments is related to the potential downside
risk in the underlying security. As a rule, the more downside risk the
purchaser of the hedge seeks to transfer to the seller, the more expensive the
hedge will be. Spread Hedging
Index investors are often more concerned with hedging against moderate price
declines than severe declines, as these type of price drops are both very
unpredictable and relatively common. The Bottom Line
Hedging can be viewed as the transfer of unacceptable risk from a portfolio
manager to an insurer. This makes the process a two-step approach
Delta is probably the first Greek an
option trader learns and is focused on. The ratio comparing the change in the
price of the underlying asset to the corresponding change in the price of a
In fact it can be a critical starting point when learning to trade options. A
positive delta means the position will rise in value if the stock rises and
drop in value of the stock declines. A negative delta means the opposite. The
value of the position will rise if the stock declines and drop in value if the
stock rises in price. Delta is one of four major risk measures used
by option traders. Delta measures the degree to which an option is exposed to
shifts in the price of the underlying asset. Delta tends to increase as you get closer to expiration for
near or at-the-money options.Delta
is not a constant
Whenever you are long a call option,
your delta will always be a positive number between 0 and When the underlying
stock or futures contract increases in price, the value of your call option
will also increase by the call options delta value.
Put options have negative deltas, which
will range between -1 and 0. When the underlying market price increases the
value of your put option will decreases by the amount of the delta value.
Conversely, when the price of the underlying asset decreases, the value of the
put option will increase by the amount of the delta value.
Nifty options in bearish market, in bearish people traders say they lose money
but fact is bearish markets offer best money making opportunity as panic is
higher in these markets so markets react fast. In case of bearish market you
always look for selling opportunities or selling signals in technical
indicator. We are talking about nifty option so we
will be buying out of money put options if time of expiry is greater than 15
days, or else we will go with at the money or in the money put option. After
selecting the type of put option now we will completely focus on the price
action of the underlying i.e. nifty future and wait for pullback to buy that
nifty put option. Target will be 50% of the
total premium paid while purchasing put option and stop loss will be 25% of the
total premium. In trading nifty options always remember a golden rule that you
will never risk more than 10% of your total trading capital at any point of
time. Also it’s very dangerous to trade Nifty Options
without proper guidance & knowhow. So, why don’t you leave the dangers to
us and take yourself the most lucrative profit margin in the stock market.
A bear market is defined as a
drop of 20% or more in a market average over a one-year period, measured from
the closing low to the closing high. Generally, these market types occur during
economic recessions or depressions, when pessimism prevails .Bear markets reflect slowing economic growth and
corporate financial problems. Fearful traders panic and dump their holdings at
a loss, which pushes stock prices down further and ignites a fresh round of
selling. Investors can use several bear-option strategies to profit from a
market-wide selling frenzy
Buying put options is a straightforward bear strategy with low
risk/high reward potential. The goal is for the stock price to drop below the
put option strike price so the option is in the money prior to expiration. The
amount of risk is limited to the option price plus the commission.
GDP data one of the main reasons behind today's sharp
fall in Sensex was the lower-than-expected GDP growth figure. Data released by the Central Statistics Office (
CSO) on Monday showed the Indian economy grew by 7% in the June quarter, slower
than the previous quarter's 7.5% expansion. Growth in the June quarter of
2014-15 was 6.7%. While the 7% growth rate matches the June quarter
growth of China and still places India in the league of fastest growing
economies in the world, economists said more measures are needed to step up the
acceleration. 2.Foreign investors sell
record amount of Indian shares in August Foreign investors sold a record amount of Indian
shares in August, offloading even more than in the midst of the global
financial crisis, as turbulent markets in China led many funds to reduce their
holdings in riskier emerging markets. Foreign institutional investors sold a net 168.77
billion rupees ($2.55 billion) in Indian shares in August, more than the
previous monthly record of 153.47 billion rupees in October 2008, according to
data from National Securities Depository Limited. The sales helped push the Nifty down 6.6 per cent
in August, its worst monthly performance since November 2011. Analysts said the sales were largely a result of
the overweight positions in India by foreign investors, who have been heavy
buyers since 2012. Foreign investors had been net buyers as early as
July when India was seen as benefiting from outflows from China. They remain
net buyers of 275.2 billion rupees this year. 3.Rate cut by HDFC Banking and financial stocks led the decline after
reports of HDFC Bank's steep base rate cut on Monday sparked fears that other
lenders will be able to match it only at the cost of margins. HDFC Bank cut its base rate by 35 basis points to
9.35 per cent from September 1 in a move to capture wider market share,
according to media reports on Monday. The move stoked fears that pricing pressure would
lead to other banks taking a hit on their net interest margins as most banks
would have a base rate of 35-65 basis points higher than that of HDFC Bank.