Top 4 options strategies for beginners

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As with any of the previous modules in Varsity, we will again make the same old assumption that you are new to options and therefore trading in futures and options tutorial for beginners nothing about options.

For this reason we will start from scratch and slowly ramp up as we proceed. Let us start with running through some basic background information. The options market makes up for a significant part of the derivative market, particularly in India. Internationally, the option market has been around for a while now, here is a quick background on the same —.

Clearly the international markets have evolved a great deal since the OTC days. However in India from the time of inception, the options market was facilitated by the exchanges. The badla system no longer exists, it has become obsolete. Here is a quick recap of the history of the Indian derivative markets —.

Though the options market has been around sincethe real liquidity in the Indian index options was seen only in ! I remember trading options around that time, the spreads were high and getting fills was a big deal. However inthe Ambani brothers formally split up and their respective companies were listed as separate entities, thereby unlocking the value to the shareholders. In my opinion this particular corporate event triggered vibrancy in the Indian markets, creating some serious liquidity.

However if you were to compare the liquidity in Indian stock options with the international markets, we still have a long way to catch up. There are two types of options — The Call option and the Put option. You can be a buyer or seller of these options. In fact the best way to understand the call option is to first deal with a tangible real world example, once we understand this example we will extrapolate the same to stock markets. Consider this situation; there are two good friends, Ajay and Venu.

Ajay is actively evaluating an opportunity to buy 1 acre of land that Venu owns. The land trading in futures and options tutorial for beginners valued at Rs. Ajay has been informed that in the next 6 months, a new highway project is likely to be sanctioned near the land that Venu owns.

If the highway indeed comes up, the valuation of the land is bound to increase and therefore Ajay would benefit from the investment he would make today. So what should Ajay do? Clearly this situation has put Ajay in a dilemma as he is uncertain whether to buy the land from Venu or not. While Ajay is muddled in this thought, Venu is quite clear about selling the land if Ajay is willing to buy. Ajay wants to play it safe, he thinks through the whole situation and finally proposes a special structured arrangement to Venu, which Ajay believes is a win-win for both of them, the details of the arrangement is as follows —.

So what do you think about this special agreement? Who do you think is smarter here — Is it Ajay for proposing trading in futures and options tutorial for beginners a tricky agreement or Venu for accepting such an agreement?

Well, the answer to these questions is not easy to answer, unless you analyze the details of the agreement thoroughly. I would suggest you read through the example carefully it also forms the basis to understand options — Ajay has plotted an extremely clever deal here! In fact this deal has many faces to it. Now, after initiating this agreement both Ajay and Venu have to wait for the next 6 months to figure out what would actually happen.

However irrespective of what happens to the highway, there are only three possible outcomes —. Remember as per the agreement, Ajay has the right to call off the deal at the end of 6 trading in futures and options tutorial for beginners. Now, with the increase in the land price, do you think Ajay will call off the deal? This means Ajay now enjoys the right to buy a piece of land at Rs.

Clearly Ajay is making a steal deal here. Venu is obligated to sell him the land at a lesser value, simply because he had accepted Rs. Another way to look at this is — For an initial cash commitment of Rs. Venu even though very clearly knows that the value of the land is much higher in the open market, is forced to sell it at a much lower price to Ajay. The profit that Ajay makes Rs. It turns out that the highway project was just a rumor, and nothing really is expected to come out of the whole thing.

People are disappointed and hence there is a sudden rush to sell out the land. As a result, the price of the land goes down to Rs. So what do you think Ajay will do now? Clearly it does not make sense to buy the trading in futures and options tutorial for beginners, hence he would walk away from the deal. Here is the math that explains why it does not make sense to buy the land —. Remember the sale price is fixed at Rs.

Hence if Ajay has to buy the land he has to shell out Rs. Which means he is in effect paying Rs. Clearly this would not make sense to Ajay, since he has the right to call of the deal, trading in futures and options tutorial for beginners would simply walk away from it and would not buy the land. However do note, as per the agreement Ajay has to let go of Rs. For whatever reasons after 6 months the price stays trading in futures and options tutorial for beginners Rs.

What do you think Ajay will do? Well, he will obviously walk away from the deal and would not buy the land. Why you may ask, well here is the math —. Clearly it does not make sense to buy a piece of land at Rs. Do note, since Ajay has already committed 1lk, he could still buy the land, but ends up paying Rs 1lk extra in this process.

For this reason Ajay will call off the deal and in the process let go of the agreement fee of Rs. I hope you have understood this transaction clearly, and if you have then it is good news as through the example you already know how the call options work!

But let us not hurry to extrapolate this to the stock markets; we will spend some more time with the Ajay-Venu transaction. I trading in futures and options tutorial for beginners suggest you be absolutely thorough with this example. If not, please go through it again to understand the dynamics involved.

Also, please remember this example, as we will revisit the same on a few occasions in the subsequent chapters. Do note, I will deliberately skip the nitty-gritty of an option trade at this stage. The idea is to understand the bare bone structure of the call option contract. Assume a stock is trading at Rs. You are given a right today to buy the same one month later, at say Rs. Obviously you would, as this means to say that after 1 month even if the share is trading at 85, you can still get to buy it at Rs.

In order to get this right you are required to pay a small amount today, say Rs. If the share price moves above Rs. If the share price stays at or below Rs.

All you lose is Trading in futures and options tutorial for beginners. After you get into this agreement, there are only three possibilities that can occur. Case 1 — If the stock price goes up, then it would make sense in exercising your right and buy the stock at Rs. Case 2 — If the stock price goes down to say Rs. Case 3 — Likewise if the stock stays flat at Rs. This is simple right? If you have understood this, you have essentially understood the core logic of a call option.

What remains unexplained is the finer points, all of which we will learn soon. At this stage what you really need to understand is this — For reasons we have discussed so far whenever you expect the price of a stock or any asset for that matter to increase, it always makes sense to buy a call option!

Now that we are through with the various concepts, let us understand options and their associated terms. Hi Sir, Options is like greek and latin to me.

Thanks for the analogies. No, all derivative contracts are routed via the exchanges. You cannot enter into an OTC arrangement, even if you do, it would not be regulated hence quite dangerous. What benefit would Ajay get by calling off the deal before the expiry of 6 months? He will instead wait for the whole 6 months for any chance of the highway project. My first question Karthik is this: The dropdown value on the NSE website does not contain all months expiries — after 18th May we have 25th June followed by 24th Sept and then 31st Dec What happened to the other months?

For to only June and Dec contracts are available. What happened to the remaining? Saurabh, glad you noticed it! For all stocks options the expiry is very similar to futures. Hence we have current month, mid month, and far month contracts. However for Nifty there are several different expiry options.

Leaps are good if you have a super long term view on markets. However the problem with leaps in India is that they are not liquid, there are hardly any trading activity here.

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Binary option benefit for active stock index traders

E-mini futures trading is very popular due to the low cost, wide choice of markets and access to leverage. In this E-mini futures tutorial we explain definitions, history and structure, before moving on to the benefits of day trading E-mini futures vs stocks, forex and options. Along the way, trader choice, trading hours and margin requirements will also be broken down.

Sorry, there are no matching brokers for your criteria and location Germany. You can see the list without the location filter. So the contract size is reduced while still following the same index. Contracts rollover to the next active contract. However, as expiration calendars show, expiry takes place each quarter, normally on the third Friday of March, June, September and December. Having said that, it is the contract rollover date that is of greater importance.

Although if the date is to be a Friday, the first Thursday will be the rollover instead. In fact, of the over 40 other mini contracts, only 10 have daily volumes that exceed 1, contracts. Also note price, volume, volatility, contract size and other specifications will all vary between each product and market.

Both the pros and cons of these futures have been explained. You have gold contracts, major currency pairs, copper futures, binary options and so much more. So how do you know which market to focus your attention on?

Of course, these requirements will vary among brokers. However, there are three important rates that matter:. Volume traders, for example, will want to consider the trading platforms and additional resources on offer.

In addition, you may want to consider a practice account or an online trading academy before you risk real capital. Both will help you develop effective trading strategies while building market confidence. Finally, you may want to consider margin rates in conjunction with other rules and regulations.

For example, will low margin requirements lead to you trading more and then running into pattern day trader regulations? However, there is a minute trading gap between In addition, daily maintenance takes place between Having said that, data releases prior to the open of the day session also trigger significant activity.

On top of that, any major news events from Europe can lead to a spike in trading. Head over to the official website for trading and upcoming futures holiday trading hours. A little E-mini context can give meaning to trading systems used today. These futures contracts were first implemented by the CME on September 9th, Unsurprisingly, the E-mini swiftly rose to be the most traded equity index futures contract on the globe. Hedge funds also want some of the action, as the latter relies on a frequently delayed open outcry pit system.

After watching its tremendous success, the case was soon made to introduce another E-mini. Furthermore, more mini products aimed at smaller traders and investors were introduced. But unfortunately, regulatory requirements meant the margin needed per contract was almost fives time that of the bigger E-mini contract. As a result, the product never really took off with daily volume remaining under 10 contracts a day.

There are a couple of interesting recent events in the timeline of E-mini. Firstly, there was the Flash-crash sale. The US government found a single trader was responsible for selling the 75, E-mini contracts. On December 7th, , another major event took place. This was thought to be a series of stop orders caused by just one contract trading at This series of new high trades was quickly followed by a fierce market rally for the remaining day and the following two days.

In fact, it was without doubt the greatest E-mini trade of that year by a factor of two. It is unsurprising then that analysts were quick to compare it with the Flash-crash sale six years earlier. E-minis are a fantastic instrument if you want exposure to large-cap companies on the US stock market. You benefit from liquidity, volatility and relatively low-costs. Brokers Reviews 24Option Avatrade Binary. Reviews 24Option Avatrade Binary. Go to the full list of brokers.