Nifty Option Chain

What is a covered option strategy?

A covered option strategy is one where you own the asset on which you are selling the call option. So if you are selling or writing a call option on the stock of Reliance, then you already own the stock of Reliance at the time of selling the option.

Is it riskier to trade in options than in stocks?

Options are complicated to understand. One should trade in options only when one clearly understands them. If you are selling or writing an option, then there are margin requirements. The advantage of options is that you can take exposure to a stock or asset with much lesser investment through options. If you are buying an option then there is no margin requirement. Buying an option does not put any obligation or risk on you. But selling an option puts the obligation on you to deliver in case the buying party decides to exercise the option.

What is the meaning of 5% stock rule?

5% stock rule means that more than 5% of one’s portfolio of investments should not be in one asset or security. The rule is meant to avoid concentration of risk and achieve diversification.

What is a forward contract?

A forward contract is same as a futures contract, except for one difference. A futures contract is listed and traded on a stock exchange. A forward contract is entered into privately between two parties. There is no involvement of an exchange in a forward contract.

Credit risk or default risk is there in a forward contract. But it is not there in a futures contract. Credit risk is the risk of one of the parties not fulfilling its contractual obligations. In a futures contract if the other party defaults, the exchange fulfills the contractual obligation of the defaulting party.

What is a futures contract?

A futures is a contract between two parties to exchange an asset or security on a future date at a predetermined price. A futures is a contract. Therefore, both the parties are obliged to fulfill their obligations under the contract. Suppose X enters into a futures contract with Y for buying 1 share of Reliance for Rs 100 , 1 month from now. At the end of 1 month, X will have to buy 1 share of Reliance from Y for Rs 100. And Y will have to sell 1 share of Reliance to X for Rs 100. It does not matter whether it is profitable for 1 of the parties to do so or not.

What are European & American Options?

A European option is one that can be exercised only on the day of its exercise. It cannot be exercised on any day before the exercise date. An American option, on the other hand, can be exercised on any day up to the exercise date. So if the exercise date of the option is 31^st December, and the option is European, then the option can be exercised only on 31^st December. But if the option is American then it can be exercised on any day up to 31^st December.

What is a put option?

A buyer of the put option gets the right (but not the obligation) to sell an asset or security to the seller of the option at a predetermined price at a given date in future. For example, X buys from Y a put option to sell 1 share of Reliance for Rs 100 , 1 month from now. At the end of 1 month, the market price of 1 share of Reliance is Rs 90. So it is profitable for X to exercise the put option and sell the share of Reliance to Y for Rs 100. So X will exercise the put option. He will sell the share of Reliance to Y for Rs 100. On the other hand, suppose at the end of 1 month the market price of Reliance share is Rs. 110. Now it is not profitable for X to exercise the option. He can sell the share of Reliance at a higher price in the market for Rs 110. So X will not exercise the put option. He will let the option expire.

For buying this put option, X will have to pay a price to the option seller, Y. This price is known as option premium. For example, for buying the put option on the share of Reliance, in the above example, X may pay a premium of Rs 2 to Y.

What is a call option?

A call option gives buyer of the option the right (but not puts the obligation) to buy an asset or security at a pre-determined price at a given date in future. For example, X buys from Y the call option to buy 1 share of Reliance for Rs 100 at the end of 1 month from now. At the end of 1 month, the market price of Reliance is Rs 110. So it is profitable for X to exercise the call option. So he will exercise the call option and buy 1 share of Reliance from Y for Rs 100. On the other hand, suppose the market price of the share of Reliance at the end of 1 month is Rs 90. Now it is not profitable for X to exercise the call option and buy the share of Reliance for Rs 100 from Y. He can buy the share from the market at a cheaper price of Rs 90. So he will not exercise the call option. He will let it go expired.

For buying this call option, X will have to pay a price to the option seller, Y. This price is known as option premium. For example, for buying the call option on the share of Reliance, in the above example, X may pay a premium of Rs 2 to Y.

What are the OTM (out-of-the-money) strikes of Nifty 50 Industries?

Out-of-the-money strikes for Nifty 50 are strike prices above the prevailing index level for the call option, while they are lower for put options. These do not have an intrinsic value and accrue lower premiums.

What are the ITM (in-the-money) strikes of Nifty 50 Industries?

ITM strikes for the Nifty 50 are those strike prices below the current index level for call options and above the index level for put options. These strikes carry intrinsic value and are more likely to get exercised, giving higher premiums.

What is the ATM (at-the-money) strike of Nifty 50 Industries?

Nifty 50 ATM is the nearest strike price available in the market to the prevailing market price of the Nifty 50 index. It is considered crucial for traders as it indicates where the intrinsic value of the option crosses over from OTM (out of the money) to ITM (in the money) and vice-versa.

Can I succeed in options trading?

Yes, you will be successful as long as you have a strong understanding of risk management and proper market analysis skills. Remember to implement the right strategies to increase your chances of profitability.

What is the lot size of the NIFTY Option Chain?

The lot size of the Nifty Option Chain is 50 shares. It has been standardised by the National Stock Exchange of India.

What are the benefits of using the Nifty 50 Option Chain?

The Nifty 50 Option Chain offers benefits like real-time insights into market sentiment, tracking open interest for liquidity, comparison of premiums, and implied volatility assessment. It assists the trader in identifying strategic opportunities for hedging, speculation, and income generation through options.