Options to trade kotak securities

While Option contracts offer immense trading possibilities since these products can be used in tandem with stock futures or equity shares for the construction of various derivative strategies. Here are some commonly used strategies that deal with options alone. Options offer immense trading possibilities as they can be used in tandem with stock futures or equity shares for the construction of various derivative strategies. Read through this mailer, we have simplified Options for you. While Option premiums are largely a function of the strike price, spot price and the time to expiry, there are other major factors that affect the pricing of an Option. Option on the basis of a number of variables. These models also enable a trader to track the changes in pricing of Options as the parameters and variables used in the model change. For example, in the derivatives market, you cannot buy a contract for a single share. The exposure margin is used to control volatility and excessive speculation in the derivatives markets.

Had the price remained unchanged, you would have received nothing. Select your stocks and their contracts on the basis of the amount you have in hand, the margin requirements, the price of the underlying shares, as well as the price of the contracts. Then, you will be able to purchase 600 shares of the same company at the same price with your capital of Rs. They do not have any overnight exposure to the markets. Speculators, unlike hedgers, look for opportunities to take on risk in the hope of making returns. The same rise of Rs. This is called hedging. You will have to first make sure that your account allows you to trade in derivatives.

This is why margin trading results in a high leverage factor in derivative trades. They contribute to the overall efficiency of the markets. Similarly, derivatives trading can be conducted on the indices also. It varies for different positions as it takes into account the average volatility of a stock over a specified time period and the interest cost. At the same time, in case the price rises above Rs. It is unique to every investor and trader. You are expected to deposit the initial margin upfront. Your goal is to sell these shares in six months. Then again, while you believe that the market will go up, there will be people who feel that it will fall. In return for giving you relief from this risk, he wants to be paid a small compensation.

Options contracts are traded on the stock exchange. If not, you will make losses. However, remember that the strategies need to differ from that of the stock market. This can be seen from the fact that the daily turnover in the derivatives segment on the National Stock Exchange currently stands at Rs. This initial margin is adjusted daily depending upon the market value of your open positions. If the share price rises by Rs. Simply put, you are taking advantage of differences in prices in the two markets. While many in the cash segment too use margins to conduct trades, this is predominantly used in the derivatives segment. For example, you may wish you buy stocks that are likely to rise in the future. These could be stocks, indices, commodities, currencies, exchange rates, or the rate of interest. There are all kinds of participants in the market.

However, there are times when the price of a stock in the cash market is lower or higher than it should be, in comparison to its price in the derivatives market. They can also cause losses. In this case, you conduct a buy transaction. This covers the daily difference between the cost of the contract and its closing price on the day of purchase. The derivative market offers products that allow you to hedge yourself against a fall in the price of shares that you possess. This does not hold true for forward contracts. Stock market rules require you to constantly maintain your margin amount.

However, your payoff in the derivatives market would be much higher. This is how a margin trader, who is basically a speculator, benefits from trading in the derivative markets. In the derivative market, there will be a speculator who expects the market to rise. The leverage factor is fixed; there is a limit to how much you can borrow. This way, you reduce your losses, and benefit, whether or not the share price falls. This makes the trade unique to you. This mandatory deposit, which is called margin money, covers an initial margin and an exposure margin.

It is prescribed as a percentage of the total value of your outstanding position. They take and carry position for overnight or a long term. It is linked to the demat account, and thus ensures that YOUR shares go to your demat account. So, always keep extra money in your account. This is because, the basic market idea is that risk and return always go hand in hand. This is only one instance of how a speculator could profit from a derivative product. Ensure all this fits your budget. Futures and forwards: Futures are contracts that represent an agreement to buy or sell a set of assets at a specified time in the future for a specified amount.

Thereafter, the MTM margin covers the differences in closing price from day to day. Margin traders: Many speculators trade using of the payment mechanism unique to the derivative markets. They are so keen to rid themselves of the uncertainty associated with price movements that they may even be ready to do so at a predetermined cost. Yes, you do have to pay a small amount to buy the contract. Some might be averse to risk, while some people embrace them. This way, the risk is transferred. Instead, you are only required to deposit only a fraction of the total sum called margin. The speculator to buy three to five times the quantity that his capital investment would otherwise have allowed him to buy in the cash market.

The account number can be considered your identity in the markets. In the earlier example, suppose the cash market price is Rs. Arbitrageurs exploit these imperfections and inefficiencies to their advantage. This means, you make a profit of Rs. This way, he earns the compensation even if the price does not fall and you wish to continue holding your stock. Forwards are futures, which are not standardized. These could be employed to meet a variety of needs. These are done when the same securities are being quoted at different prices in two markets. It is always for a lot of specified shares and expiry date. You are, thus, hedging your risks, and transferring them to someone who is willing to take these risks.

They can be tailored to suit your needs. This margin is also stipulated by the exchanged and levied on the value of the contract that you buy or sell. Nifty Futures is a very commonly traded derivatives contract in the stock markets. In such a case, you can pay the whole amount outstanding, or you can enter into an opposing trade. Swaps are complex instruments that are not available for trade in the stock markets. It also offers products that protect you from a rise in the price of shares that you plan to purchase.

This means, you cannot withdraw this amount from your trading account at any point in time until the trade is settled. These margins act as a risk containment measure for the exchanges and serve to preserve the integrity of the market. It could help you make additional profits by correctly guessing the future price, or it could act as a safety net from losses in the spot market, where the underlying assets are traded. Once you buy an options contract, you are not obligated to hold the terms of the agreement. So, their value is derived from that of the underlying asset. An arbitrageur would purchase 100 shares at Rs. This means, even if you hold a contract to buy 100 shares by the expiry date, you are not required to. IT company currently in the spot market.

Options: These contracts are quite similar to futures and forwards. Hedgers: Traders, who wish to protect themselves from the risk involved in price movements, participate in the derivatives market. Higher the risk, greater is the chance of high returns. Similarly, if the stock price fell by Rs. When you buy low in one market and sell high in the other market, it called arbitrage trading. When you trade in derivative products, you are not required to pay the total value of your position up front. The derivative market in India, like its counterparts abroad, is increasingly gaining significance. These changes can help an investor make profits. However, there is one key difference. But why someone do that?

If not, consult your brokerage or stock broker and get the required services activated. This is because they try to hedge the price of their assets by undertaking an exact opposite trade in the derivatives market. This is more important for the derivatives market. Also remember that the margin amount changes as the price of the underlying stock rises or falls. Once you do this, you can place an order online or on phone with your broker. The value of the underlying assets changes every now and then. Conduct the transaction through your trading account. Speculators: As a hedger, you passed on your risk to someone who will willingly take on risks from you. How much you have to deposit is decided by the stock exchange.

However, you worry that the price of these shares could fall considerably by then. In the derivatives market, this would need you to enter into a sell transaction. As said earlier, trading in the derivatives market is very similar to trading in the cash segment of the stock markets. They are not traded on a stock exchange. These differences in risk profile and market views distinguish hedgers from speculators. Demat account: This is the account which stores your securities in electronic format. Arrange for the requisite margin amount. Thus, buying stock futures and options contracts is similar to buying shares of the same underlying stock, but without taking delivery of the same.

With a small deposit, you are able to maintain a large outstanding position. In the case of index futures, the change in the number of index points affects your contract, thus replicating the movement of a stock price. First do your research. However, for the time being, let us concentrate on the first three. These financial instruments help you make profits by betting on the future value of the underlying asset. Since the time derivatives were introduced in the year 2000, their popularity has grown manifold.

Trading in the derivatives market is a lot similar to that in the cash segment of the stock market. Thus, they pass on this risk to those who are willing to bear it. There are a wide variety of products available and strategies that can be constructed, which allow you to pass on your risk. This is where derivatives come handy. Accordingly, he will enter into an agreement with you stating that he will buy shares from you at Rs. Unlike purchasing stocks from the cash market, when you purchase futures contracts you are required to deposit only a percentage of the value of your outstanding position with the stock exchange, irrespective of whether you buy or sell futures. Trading account: This is the account through which you conduct trades. You can wait until the contract is scheduled to expiry to settle the trade.

You are very clear about the fact that you would like to receive a minimum of Rs. Here we decode it for you. So the method would differ. They are called hedgers. You can use derivative instruments to do so. In the Indian markets, futures and options are standardized contracts, which can be freely traded on exchanges.