You spend hours studying stocks that are expected to rise in value, and then you invest Rs 1 lakh in one of them. You can receive Rs. 5,000 a month if the stock increases by 5% in a month.
If a 5% return in a month does not appeal to you and you want to make more money for the same amount of money, options trading is the way to go. Options trading allows you to gain a double-digit return on your investment in as little as a day.
Note: Option trading carries the same high risk as it does the opportunity for high profits. If your trade fails, you may lose your entire investment. By learning how to trade options, you can reduce the risk.
- WHAT IS OPTIONS TRADING?
Buying and selling options is similar to betting on stock prices. If you want to bet on the price of HDFC stock, you’ll need to buy HDFC options; if you want to bet on the price of SBI stock, you’ll need to buy SBI options, and so on.
Options are financial derivatives that derive their value from an underlying asset such as a portfolio.
- HOW TO START OPTION TRADING IN INDIA?
To begin trading options in India, you must first open a trading account with a broker. You’ll also need to toggle the F&O segment of your account. Futures and Options (F&O) is a term that is not activated by default for all accounts.
We recommend that you open a trading account with Zerodha. In comparison to other discount brokers, Zerodha charges a fixed brokerage of Rs 20 per transaction and provides good service.
In order to integrate both accounts, Zerodha has collaborated with Sensibull. With the combination of Zerodha and Sensibull, you can position your trade in just a few clicks.
If you already have a trading account but F&O isn’t working, contact your broker online to have it enabled. To unlock the F&O account, you must apply proof of income, such as an ITR.
You’ll need to deposit money into your account after you’ve opened it. You can buy and sell options just like regular stocks once you’ve added funds.
All you have to do is type in the ticker for the option you want to buy or sell in your trading account.
- FUND REQUIREMENT FOR OPTION TRADING IN INDIA
To buy options, you’ll need money in your trading account.
The sum you’ll need is determined by the type of choice you choose. You may be able to purchase a single lot of index or stock options for as little as Rs. 2,000. Generally, the less expensive the options are, the less likely they are to result in profit.
To buy options with a decent chance of making money, you’ll need at least Rs. 20,000 to Rs. 25,000.
We recommend using a discount broker for options trading because the transaction costs of traditional brokers and discount brokers are vastly different.
For buying options, several full-service brokers charge about Rs. 50 per lot. So, if you buy ten lots, you’ll have to pay Rs. 500. Good discount brokers, on the other hand, charge about Rs. 20 per order. As a result, even though you buy ten lots, you will just have to pay Rs. 20.
- DIFFERENT WAYS TO DO OPTION TRADE IN INDIA
- Buying vs Selling
You can either ‘buy’ options or ‘sell’ options.
- If you are bullish – you should either buy Calls or Sell Puts.
- If you are bearish – you should either sell Calls or Buy Puts.
‘Selling’ calls or puts necessitates more margin and carries a higher risk.
The majority of options expire worthless. As a result, the value of the majority of the options on expiry day is zero.
This is because options are sold for a variety of Strike Prices, but only a small percentage of them would be profitable. As a result, option selling is thought to be more lucrative than option purchasing.
- Index vs Stocks
The constituent stocks determine the value of indices like NIFTY and Banknifty. The NIFTY value fluctuates based on the stock prices of the NIFTY 50 stocks, whereas the Banknifty value fluctuates based on the stock prices of the banks that make up Banknifty.
Option trading is also available for NIFTY and BANKNIFTY in India. Unlike stocks, which have a monthly expiration date, NIFTY and Banknifty options have a weekly expiration date.
Stocks are less volatile than indices. As a result, the potential for benefit is therefore greater. If your prediction is right, you could make 2-3 times your initial investment in a single day. It can, however, go to zero because it is unpredictable.
- Option Strategies
Options may also be used to build plans. Option strategies include purchasing two or more options of various kinds, strike rates, or expiration dates.
Option strategies allow you to make high-probability trades with limited risk. You may also set a cap on the amount of margin you need.
- SENSIBULL PLANS
Sensibull provides two separate plans, Sensibull Pro and Sensibull Lite, to meet the needs of different users.
Choice chain, tactics wizard, real-time Profit & Loss, 10 watchlists, open and interest analysis are all included in the Lite plan. Beginner option traders will profit from the Lite plan.
The Pro plan adds advanced resources and functionality to the Lite plan, including Implied Volatility (IV) charts, efficient statistical tools, currency options, and all of the Lite plan’s features. Advanced option traders will profit from the Pro plan.
When opposed to stock trading, options trading entails a higher level of risk. Options trading can be very profitable if the demand is high in one direction.
In the beginning, I would recommend starting with only one lot of stocks in order to learn and develop a sufficient skill set. You can pursue large trades as you gain experience.
Platforms like Sensibull will help you find the best options based on your business view and develop risk-mitigation strategies.