STOCK MARKET

BASICS ( FNO-
Futures and
Options)
NK@STOCKTALK Academy
There are Trading Instruments in Stock
Market

1. Equity/Stock (Underlying asset) and

2 . T h e d e r i va t i ve o f t h e u n d e r l y i n g a s s e t i s c a l l e d :

• Futures

• Options

D e r i v a t i v e s m e a n t h a t t h e y d o n o t h a v e a ny v a l u e o f t h e i r o w n b u t t h e i r v a l u e i s d e r i v e d f r o m a n
underlying asset.

F o r exa m p l e , o p t i o n s a n d f u t u r e s o n Ko ta k M a h i n d ra b a n k w i l l b e l i n ke d to t h e sto c k p r i c e o f Ko ta k
M a h i n d ra B a n k a n d w i l l d e r i v e t h e i r va l u e f ro m t h e u n d e r l y i n g a s s e t t h a t i s t h e sto c k o f Ko ta k
M a h i n d ra B a n k .

Underlying symbol denotes the underlying security in the Capital Market (equities) segment
of the Exchange
What is Future
of a Stock?

A Future is a right and an

obligation to buy or sell an
underlying stock (or other
assets) at a predetermined
price and deliverable at a
predetermined time (Expiry
date)
Expiry or
trading cycle:
Expiry date identifies the date of expiry
of the contract

Index Futures and Stock Futures both

have Monthly Expiry

Futures contracts expire on the last

Thursday of the expiry month. If the last
Thursday is a trading holiday, the
contracts expire on the previous trading
day.
Types of Expiry:

Supposed we are on 11 th Of January 2021 and we have to buy a

contract of a stock or Index we can choose one of the following
expiries:

1. Near : Current months last Thursday.( 28 th Jan 2021

2. Next : Next Months Last Thursday( 25 th Feb 2021)

3. Far: Next to Next Month last Thursday(25 th March 2021)

It is advised to choose near month Expiry which has highest

liquidity.( it means it will have more buyers or sellers)
What happens on the date of
Expiry?
➢ L e t ’s s a y i f w e b u y a l o t o f 5 0 0 S h a r e s @ 1 0 0 0 p e r s h a r e o f a p a r t i c u l a r
stock. On the last Thursday of every month there can be only 4
possibilities.

➢ S c e n a r i o 1 : I t s t a y s a t 1 0 0 0 o n t h e d a t e o f e x p i r y. S o y o u r c o n t r a c t
e x p i r e s . Yo u h a v e t w o o p t i o n s . Yo u h a v e t o p a y t h e f u l l m o n e y f o r
5 0 0 N o s * 1 0 0 0 R u p e e s ( a f t e r a d j u s t i n g t h e m a r g i n ) t o t a k e t h e d e l i v e r y.

➢ Scenario 2: The underlying price closes higher lets say at Rs 1200/-

➢ I n t h i s c a s e y o u l e t t h e c o n t r a c t e x p i r e . Yo u w i l l g e t t h e b e n e f i t o f R s
2 0 0 / - p e r s h a r e * 5 0 0 = R s 1 0 0 , 0 0 0 / - t o b e c r e d i t e d t o y o u r l e d g e r.
What happens on the date of
Expiry?

➢ Scenari o 3: The share p ri ce falls to Rs 8 0 0 on th e date

of expir y. So You have to settle the c ontact and bear the
loss or take the deliver y as per the original price of Rs
1000/- at the date of buying of the contract .

➢ Scenari o 4: Rol l Over, in this case sell this contact at the

present price on or before the date of expir y and buy the
next or far month contract .
 Number of Future
Contract available in
National Stock
Exchange

Futures contracts are available

on 140 securities stipulated by
the Securities & Exchange Board
of India (SEBI). These securities
are traded in the Capital Market
segment of the Exchange.
Different types
Futures Contracts:

Index Futures:

1. Nifty Bank

2. Nifty 50

3.Nifty Financial Services

Stock Futures
Lot Size

Future and options both needs to

Stock you can buy in multiple of 1.
be bought in lots

One lot consists of x number of

Lot size depends on the price of
stock pre decided by Exchange and
the stock.
it may change from time to time
Contract Size
or Lot Size
The value of the futures contracts on
individual securities may not be less than
Rs. 5 lakhs at the time of introduction
for the first time at any exchange. The
permitted lot size for futures contracts &
options contracts shall be the same for a
given underlying or such lot size as may
be stipulated by the Exchange from time
to time.
Examples of Lot Size In Index Futures

NEAR EXPIRY NEXT EXPIRY FAR EXPIRY

UNDERLYING ASSET SYMBOL 21/01/2021 21/02/2021 21/03/2021

NIFTY BANK BANKNIFTY 25 25 25

NIFTY 50 NIFTY 75 75 75
NIFTY FINANCIAL SERVICES FINNIFTY 40 40 40
How to Interpret
Futures Symbol?
This is how a Future of ACC Cements Stock
will appear on your watch list?

The Future of ACC Cements will appear

as ACC JAN FUT

Underlying FUTURE
Asset
In this case
ACC

Month of
Expiry
Derivatives on Individual Securities/Sto ck and their lot size

NEXT
NEAR EXPIRY EXPIRY
21/01/2021 21/02/20 FAR EXPIRY
UNDERLYING ASSET SYMBOL and Lot Size 21 21/03/2021
AARTI INDUSTRIES LTD AARTIIND 425 425 425
ADANI ENTERPRISES LIMITED ADANIENT 2000 2000 2000
APOLLO HOSPITALS ENTER. L APOLLOHOSP 500 500 500
ADANI PORT & SEZ LTD ADANIPORTS 2500 2500 2500
ACC LIMITED ACC 500 500 500
AMARA RAJA BATTERIES LTD. AMARAJABAT 1000 1000 1000
APOLLO TYRES LTD APOLLOTYRE 5000 5000 5000
ASHOK LEYLAND LTD ASHOKLEY 9000 9000 9000
AMBUJA CEMENTS LTD AMBUJACEM 3000 3000 3000
AUROBINDO PHARMA LTD AUROPHARMA 650 650 650
BAJAJ AUTO LIMITED BAJAJ-AUTO 250 250 250
BAJAJ FINANCE LIMITED BAJFINANCE 250 250 250
ASIAN PAINTS LIMITED ASIANPAINT 300 300 300
BANK OF BARODA BANKBARODA 11700 11700 11700
BATA INDIA LTD BATAINDIA 550 550 550
BERGER PAINTS (I) LTD BERGEPAINT 1100 1100 1100
BHARTI AIRTEL LIMITED BHARTIARTL 1851 1851 1851
BOSCH LIMITED BOSCHLTD 50 50 50
BHARAT PETROLEUM CORP LT BPCL 1800 1800 1800
BRITANNIA INDUSTRIES LTD BRITANNIA 200 200 200
Derivatives on Individual Securities( Numbers are
Lot Size)

NEAR EXPIRY NEXT EXPIRY FAR EXPIRY

UNDERLYING ASSET SYMBOL 21/01/2021 21/02/2021 21/03/2021
CADILA HEALTHCARE LIMITED CADILAHC 2200 2200 2200
CHOLAMANDALAM IN & FIN CO CHOLAFIN 2500 2500 2500
CIPLA LTD CIPLA 1300 1300 1300
COAL INDIA LTD COALINDIA 4200 4200 4200
CONTAINER CORP OF IND LTD CONCOR 1563 1563 1563
CUMMINS INDIA LTD CUMMINSIND 1200 1200 1200
DABUR INDIA LTD DABUR 1250 1250 1250
DIVI'S LABORATORIES LTD DIVISLAB 200 200 200
BHARAT ELECTRONICS LTD BEL 7600 7600 7600
DLF LIMITED DLF 3300 3300 3300
DR. REDDY'S LABORATORIES DRREDDY 125 125 125
EICHER MOTORS LTD EICHERMOT 350 350 350
ESCORTS INDIA LTD ESCORTS 550 550 550
EXIDE INDUSTRIES LTD EXIDEIND 3600 3600 3600
FEDERAL BANK LTD FEDERALBNK 10000 10000 10000
GAIL (INDIA) LTD GAIL 6100 6100 6100
GODREJ CONSUMER PRODUCTS GODREJCP 1000 1000 1000
GODREJ PROPERTIES LTD GODREJPROP 650 650 650
BHEL BHEL 21000 21000 21000
HDFC LTD HDFC 300 300 300
CANARA BANK CANBK 5400 5400 5400
HERO MOTOCORP LIMITED HEROMOTOCO 300 300 300
HINDUSTAN PETROLEUM CORP HINDPETRO 2700 2700 2700
HINDUSTAN UNILEVER LTD. HINDUNILVR 300 300 300
Derivatives on Individual Securities

NEAR EXPIRY NEXT EXPIRY FAR EXPIRY

UNDERLYING ASSET SYMBOL 21/01/2021 21/02/2021 21/03/2021
ICICI BANK LTD. ICICIBANK 1375 1375 1375
ICICI PRU LIFE INS CO LTD ICICIPRULI 1500 1500 1500
VODAFONE IDEA LIMITED IDEA 70000 70000 70000
INDRAPRASTHA GAS LTD IGL 1375 1375 1375
INTERGLOBE AVIATION LTD INDIGO 500 500 500
INFOSYS LIMITED INFY 600 600 600
INDIAN OIL CORP LTD IOC 6500 6500 6500
JSW STEEL LIMITED JSWSTEEL 2700 2700 2700
JUBILANT FOODWORKS LTD JUBLFOOD 250 250 250
KOTAK MAHINDRA BANK LTD KOTAKBANK 400 400 400
LIC HOUSING FINANCE LTD LICHSGFIN 2000 2000 2000
LARSEN & TOUBRO LTD. LT 575 575 575
LUPIN LIMITED LUPIN 850 850 850
MARICO LIMITED MARICO 2000 2000 2000
MARUTI SUZUKI INDIA LTD. MARUTI 100 100 100
MOTHERSON SUMI SYSTEMS LT MOTHERSUMI 7000 7000 7000
MRF LTD MRF 10 10 10
INFO EDGE (I) LTD NAUKRI 250 250 250
NESTLE INDIA LIMITED NESTLEIND 50 50 50
NMDC LTD. NMDC 6700 6700 6700
NTPC LTD NTPC 5700 5700 5700
OIL AND NATURAL GAS CORP. ONGC 7700 7700 7700
PIRAMAL ENTERPRISES LTD PEL 550 550 550
POWER FIN CORP LTD. PFC 6200 6200 6200
Derivatives on Individual Securities

NEAR EXPIRY NEXT EXPIRY FAR EXPIRY

UNDERLYING ASSET SYMBOL 21/01/2021 21/02/2021 21/03/2021
PIDILITE INDUSTRIES LTD PIDILITIND 500 500 500
POWER GRID CORP. LTD. POWERGRID 4000 4000 4000
THE RAMCO CEMENTS LIMITED RAMCOCEM 850 850 850
REC LIMITED RECLTD 6000 6000 6000
SIEMENS LTD SIEMENS 550 550 550
SUN PHARMACEUTICAL IND L SUNPHARMA 1400 1400 1400
TATA CHEMICALS LTD TATACHEM 2000 2000 2000
TATA MOTORS LIMITED TATAMOTORS 5700 5700 5700
TATA STEEL LIMITED TATASTEEL 1700 1700 1700
TECH MAHINDRA LIMITED TECHM 1200 1200 1200
TITAN COMPANY LIMITED TITAN 750 750 750
TORRENT PHARMACEUTICALS L TORNTPHARM 250 250 250
TORRENT POWER LTD TORNTPOWER 3000 3000 3000
TVS MOTOR COMPANY LTD TVSMOTOR 1400 1400 1400
HDFC AMC LIMITED HDFCAMC 200 200 200
UNITED BREWERIES LTD UBL 700 700 700
ULTRATECH CEMENT LIMITED ULTRACEMCO 200 200 200
VOLTAS LTD VOLTAS 1000 1000 1000
WIPRO LTD WIPRO 3200 3200 3200
ZEE ENTERTAINMENT ENT LTD ZEEL 3000 3000 3000
ITC LTD ITC 3200 3200 3200
AXIS BANK LIMITED AXISBANK 1200 1200 1200
JINDAL STEEL & POWER LTD JINDALSTEL 5000 5000 5000
BAJAJ FINSERV LTD. BAJAJFINSV 125 125 125
Derivatives on Individual Securities

NEAR EXPIRY NEXT EXPIRY FAR EXPIRY

UNDERLYING ASSET SYMBOL 21/01/2021 21/02/2021 21/03/2021
BANDHAN BANK LIMITED BANDHANBNK 1800 1800 1800
L&T FINANCE HOLDINGS LTD L&TFH 8300 8300 8300
DR. LAL PATH LABS LTD. LALPATHLAB 250 250 250
COFORGE LIMITED COFORGE 375 375 375
MAHINDRA & MAHINDRA LTD M&M 1400 1400 1400
M&M FIN. SERVICES LTD M&MFIN 4000 4000 4000
MANAPPURAM FINANCE LTD MANAPPURAM 6000 6000 6000
MAX FINANCIAL SERV LTD MFSL 1300 1300 1300
NATIONAL ALUMINIUM CO LTD NATIONALUM 17000 17000 17000
HAVELLS INDIA LIMITED HAVELLS 1000 1000 1000
PAGE INDUSTRIES LTD PAGEIND 30 30 30
HCL TECHNOLOGIES LTD HCLTECH 700 700 700
HDFC BANK LTD HDFCBANK 550 550 550
ICICI LOMBARD GIC LIMITED ICICIGI 425 425 425
IDFC FIRST BANK LIMITED IDFCFIRSTB 19000 19000 19000
INDUSIND BANK LIMITED INDUSINDBK 900 900 900
INDUS TOWERS LIMITED INDUSTOWER 2800 2800 2800
PVR LIMITED PVR 407 407 407
PETRONET LNG LIMITED PETRONET 3000 3000 3000
Derivatives on Individual Securities

NEAR EXPIRY NEXT EXPIRY FAR EXPIRY

UNDERLYING ASSET SYMBOL 21/01/2021 21/02/2021 21/03/2021
STEEL AUTHORITY OF INDIA SAIL 19000 19000 19000
STATE BANK OF INDIA SBIN 3000 3000 3000
GMR INFRASTRUCTURE LTD. GMRINFRA 22500 22500 22500
SRF LTD SRF 125 125 125
PUNJAB NATIONAL BANK PNB 16000 16000 16000
SHRIRAM TRANSPORT FIN CO. SRTRANSFIN 800 800 800
RBL BANK LIMITED RBLBANK 2900 2900 2900
TATA CONSUMER PRODUCT LTD TATACONSUM 1350 1350 1350
TATA POWER CO LTD TATAPOWER 13500 13500 13500
TATA CONSULTANCY SERV LT TCS 300 300 300
RELIANCE INDUSTRIES LTD RELIANCE 250 250 250
BALKRISHNA IND. LTD BALKRISIND 400 400 400
BHARAT FORGE LTD BHARATFORG 1500 1500 1500
MAHANAGAR GAS LTD. MGL 600 600 600
BIOCON LIMITED. BIOCON 2300 2300 2300
COLGATE PALMOLIVE LTD. COLPAL 700 700 700
GLENMARK PHARMACEUTICALS GLENMARK 1150 1150 1150
GRASIM INDUSTRIES LTD GRASIM 950 950 950
HDFC LIFE INS CO LTD HDFCLIFE 1100 1100 1100
HINDALCO INDUSTRIES LTD HINDALCO 4300 4300 4300
UNITED SPIRITS LIMITED MCDOWELL-N 1250 1250 1250
MUTHOOT FINANCE LIMITED MUTHOOTFIN 750 750 750
SBI LIFE INSURANCE CO LTD SBILIFE 750 750 750
SHREE CEMENT LIMITED SHREECEM 50 50 50
UPL LIMITED UPL 1300 1300 1300
MINDTREE LIMITED MINDTREE 800 800 800
INDIABULLS HSG FIN LTD IBULHSGFIN 3100 3100 3100
VEDANTA LIMITED VEDL 6200 6200 6200
SUN TV NETWORK LIMITED SUNTV 1500 1500 1500
Price of Future Contracts

Futures will trade at a Futures price which is normally at a premium to the

spot price due to the time value. See the following Example: The future
price can be higher or lower than the spot price
What is Spot Price?

The present price @time of any index or stock (Underlying asset)

at the time of contract is called the Spot Price.
Preparing and understanding your watch list
ACC is name of the underlying asset and its
trading at 1761.25 per share

➢ ACC Jan FUT is its Future with January expiry @ Rs

1761 per share

➢ ACC FEB FUT is the Future with Feb Expiry @Rs

1765.55 per share

➢ Market believes that in Feb the price of ACC will go

up in FEB and the difference between the current
underlying asset is the premium for the future.

➢ ACC Mar FUT is its Future with March Expiry

@1752.45

➢ Market Believes that in March the Price of ACC will

be lower than present price
Advantages of Futures and Options

Assume that you

want to buy 500
shares of ACC
Cements at the
present price of Rs
1761.25 it will cost
you Rupees
8,80,625
 Advantages of Futures

Alternatively, you can also buy 1 lot

(consisting of 500 shares) of ACC
Cement. The advantage is that when
you buy futures, you only pay the
margin which (let us say) is around
20% that is Rs 1,79,627.50/ of the
full value. That means your profits
will be five-fold that of when you are
invested in equities. But, the losses
could also be five-fold and that is
the risk of leveraged trades.
Almost in the same money you are getting the profits
or loss of 5 times more share. This is the benefit, and
this is also the risk.
 MTM (Mark to
Market)SETTLEMENT
• I n a fu tur e c on ta ct a t the e n d o f e a c h t ra di ng day th e cl o si ng
p ri ce o f t he co n t ra ct i s c o nsi de r e d t o c a lc ul a t e yo ur pr o f i t o f
l o s s f o r t h a t d a y a n d i t i s c r e d i te d / de bi te d t o / f r o m yo u r l e d g e r.

• S upp o s e t he co n t ra ct P ri c e i s R s . 1 0 0 0 / sh a re f o r a l ot si ze o f
5 0 0 sha re s a n d t he pri ce c l o se s f o r tha t da y a t 1 1 0 0 ru pe e s
yo ur M TM cre di t w oul d be 500Nos*100=50,000/- fo r tha t
t ra d i n g d a y.

• S ub se que n tl y y o u r ne x t d ay O pe ni n g c o nta c t p ri ce w oul d the

c l o s i n g c o n t ra c t p r i c e o f p r e v i o u s d a y t h a t i s R s 1 1 0 0 / -
 MTM (Mark to
Market)SETTLEMENT
• Assuming the contract price moves to Rs1050/- so 50 rupees that is Rs
Closing price-Opening price =1050-1100/-=-50 *500=Rs 25000/- would
be debited to your account.

• This will be done on the daily basis on the market open days till the
contract expires.

• Make sure you have sufficient money in your account to cover the margin
for the contracts along with mark to market debits.

• If sufficient margin is not maintained the risk management team of the

broker will call you for the margin to deposit margin to deposit the
shortfall and they would close the contract and credit remaining money
to your account.
Options: Options are a right without an obligation
to buy or sell equity or index. A Call Option is a right
to buy while a Put Option is a right to sell.
 UNDERSTANDING CALL OR PUT

C=CALL= चढ़े गा
P=PUT=पड़ेगा

When you believe the When you believe the

market will go down from market will go up from
present situation you buy a present situation you buy a
Put Option Call Option
 Understanding Strike
Price and Option Symbol

The current price of the underlying asset is

called strike price
This is how you search a Strike price in your
trading Platform, add them to your watchlist.
 How to
Interpret
Options Symbol?

Options Symbol will appear

in your trading platform like
this
Meaning of the symbol-CE

The index Closing on 8 th Jan is 14347.25

The Call is Written as
NIFTY 14TH JAN 13000 CE

Underlying Month of CALL

Asset Expiry European
In this case
Nifty
Date of Strike
Expiry Price
Meaning of this symbol-PE

The index Closing on 8 th Jan is 14347.25

The Call is Written as
NIFTY 14TH JAN 13000 PE

Underlying Month of PUT

Asset Expiry European
In this case
Nifty
Date of Strike
Expiry Price
 Observe the Premium at different
expiry on the call side as per closing on
8 th January 2020

Spot Price is 14,347.25

You can See the premium of the Index
Option for 14 th Jan Expiry for the same
strike price of 14350 is lower (Rs 108/-
per share)than the Premium of 21st Jan
expiry (Rs183.50/Share)
Premium of expiry away from the present
date is higher compared to immediate
next expiry.
Different types
Options Contracts:

Index Options:

1. Nifty Bank

2. Nifty 50

3.Nifty Financial Services

Stock Options
What you pay for is Just a Premium

In o p ti o n you d o n’ t h ave to o w n a s h a r e a t th e e n d o f th e e xp i r y b u t yo u
g e t th e b e n e f its o f th e p r i ce i n cr e a s e o r d e cr e a s e o f th e o p ti o n p r e m i um .

L i ke a ca r In s u ra n ce p r e m iu m b e co m e s ze r o a f te r th e co n tra ct p e r i o d th e
O p ti on p r e m i um a l s o b e co m e s ze r o.
What drives the Option Price?

Option is driven by the future price of the underlying Security(

Stock) and not that of the security price. This is an important
price to note. It means that you will take your strike price based
on future price and the option chart is driven by the future
chart.

This is why it is also called Future and Option together.

Only on the date of expiry from 12 noon onwards the price of

future is driven by the spot price of the Security.
How you can trade an option?

• You can either buy call and Put? Margin required is less in this
case.

• You can also Sell call and put and in this case you will have to
pay a margin almost like buying or selling a future. See the
example in following slides and observe the margin
requirement
How you can trade an option?

When you buy an option for one lot When you sell an option for one lot of
of ATM you pay a premium of Rs same strike price you pay a premium of
8163.75 and that is the margin Rs 152,261.28/- and that is the margin
Advantages of
Trading
option
(Specially
Buying)
You don’t need bigger capital and
potential gain can be multifold.
 Risk of Option Buying

You may erode your capital rapidly. From the date of purchase till the date of expiry the
premium goes on decreasing towards the expiry date.
Expiry or trading cycle:
➢ Expiry date identifies the date of expiry of the contract
➢ Index Options have both weekly on every Thursday
and Monthly Expir y on last Thursday.
➢ Stock Options have got Monthly expiry on last
Thursday.

➢ Stock Options contracts also expire on the last Thursday of

the expiry month. If the last Thursday is a trading holiday,
the contracts expire on the previous trading day.
What happens on an expiry
day:

ON the Expiry day your premium become zero and if

you don’ t make an exit at the right time you may
loose all the premium paid. Which is the gain of the
option seller.

So the maximum risk can be only to the extent of

premium that you pay.
Strike Price

The current price of the underlying asset is

called strike price
Different type
of Strike Price
ATM-At the Money – Present Tense

OTM- Out of the Money – Future Tense

ITM- In the money – Past Tense

Check the following link at NSE Website

for the Option chain:

https://www1.nseindia.com/live_market/d
ynaContent/live_watch/option_chain/optio
nKeys.jsp
This is how you Interpret
an option Price

ACC is name of the underlying asset and its

trading at 1761.25 per share:

➢ ACC Jan 1760 its Option Expring in Jan of 1760

Strike Price on call Side ( the number is the
strike price.
➢ Strike price of 1760 ( Close to current) is called
At the Money.
➢ Strike price less than 1760 will be called In the
Money.
➢ Please note Strike price of 1700 is deeper in the
money than Strike price 1750
➢ You can see that the deeper you go in the
money premium increases.
Underlying Asset Price is Nif ty SpotPrice that is 14347.25
But check this price in the live market it will be driven by
the future price
Strike Price in Nifty changes as follows:

The first white strike

price below the yellow
which is closes to the
14347.35 is 14350 is
called At the Money
(ATM)on the Call
side,any Strike price on
the Yellow mark is
called In the money,
Further down on the
white side is out of the
money.
Strike Price in Nifty changes as follows:

The first white line

above the yellow strike
price which is close to
the 14347.35 is 14300
is called At the Money
on the Put side, Any
Strike price on the
Yellow mark is called In
the money, Further
down on the white side
is out of the money
How to
Choose
Strike
Price
What does a premium of an options
consists of

An option price has two values:

1. Time Value : The time that you have from the time you buy till
the time of Expir y

2. Intrinsic value

So, an option's time value is equal to its premium (the cost of the option)
minus its intrinsic value (the difference between the strike price and the
price of the underlying asset). As an equation, time value might be
expressed as: Option Premium - Intrinsic Value = Time Value
To Given an example of a real life

Time value is = Hawa ( air)

Intrinsic Value is = Chips
How to understand the chips
and Hawa concept.

➢ More Deep ITM means more chips less air.

➢ Near ITM lesser chips

➢ ATM and More Deep and OTM is only Hawa.

➢ More IV means higher premiums but more hawa

➢ Less IV means lower premiums less hawa

➢ More far the expir y more is the hawa in the

premium.
जो चिप्स है वो अपना है ,
जो हवा है वो सपना है
What we do in Option
selling?

We sell strike prices which has got

more and more hawa so that we can
make premium as a profit.
When is the best time
to sell an option?

➢ Whe n m a r ke t is si d e way s o r ra n g e b o u nd

➢ W h e n VIX i s l o w a n d r u n n i ng i n a n a r r o w
b a n d i n th e B o l l in ger b a n d .
 Changing role of Strike Price
On the Call Side:
If the Market goes up ATM can become
ITM,
If Market goes down ATM can become
OTM
In the above example is the market
goes from 14347.25 to 14,447.25 /-
the previous strike price will become
ITM.
If the Market becomes 14237.25, the
previous strike price becomes Out of
Money
On the Put Side:
If the Market goes up ATM can become
OTM,
If Market goes down ATM can become
ITM
In the above example is the market
goes from 14347.25 to 14,447.25 /-
the previous strike price will become
OTM.
If the Market becomes 14237.25 the
previous strike price becomes in the
Money
How to Calculate the Chips and Hawa?

It is calculated with Reference to the

Future Price and not spot. So if the
future price is 14355 then in that case

Observe the following Strike Prices and its Last

Traded Price:
Strike Price Last Traded Price (LTP)
14350 108.85
14300 138.00
14250 169.05
14200 208.00
13500 853.00
As you go deeper in the money your premium
has more Intrinsic value than time value.
 How to Calculate the Chips and Hawa?

In the Above Example we have seen the Strike Price and relation with Premium.

Strike Price Last Traded Price (LTP) Chips Hawa

ATM 14350 108.85 Rs 0 108.85
ITM 14300 138.00 Rs 88 50
ITM 14250 169.05 Rs 100 69.05
ITM 14200 208.00 Rs 150 58
ITM 13500 853.00 Rs 850.00 3

The Calculation of chips is done by Deducting number arrived by (ATM-

ITM) at that strike price from the premium, when ITM is 14300 and ATM
is 14350 the difference is 50 do deduct 50 from the premium @14300
ITM (138-50)=88Rupees
 Liquid Options List: You must trade in
only list of Liquid options as given below.
What is Vix?:

Vix is Volatility Index.

You can add India Vix in your watch list.

Lower the vix less is the volatility.

Higher the vix higher is the volatility.

Never sell an option when volatility is high.

The Hawa Component of Option keeps changing based on the vix

Movement.
What vix can do?

Even if the spot and future price does not change but if the vix
changes it can impact the cost of premium.
Relationship with VIX and Option
Behaviour

Index option price is directly related to India Vix ( Volatility

index)

Higher VIX= Rising and Higher Premium /beneficial for the buyer

Lower VIX: Reducing and lower Premium /Beneficial to the seller.

What is Hedging:
•H ed g i ng i s a tec h n iq ue to e n s u re yo u r p o s i t i on i n
t h e m a r ket i s n o t affe c te d by a ny a d ve rse m ove m e nts

•Yo u r p o r tfo l io i s ve r y i m p o rtant f ro m i nve stm e nt

p o i nt o f vi ew.

•To p reve nt yo ur m a r ket p o s i ti ons f ro m l o s i n g m o n ey

yo u co n stru ct a p o r t fo li o h e d ge by e m p l oy i ng f u t u re s
o r o pt i o ns.

•T h i s i s e q u i val e nt to e re c t i n g a fe n c e a ro und yo u r
fa r m to p reve nt t h e catt le f ro m g ra zi ng yo ur f i e l d
 What is Hedging:

➢ I t i s a t h o ught p ro c e s s a n d i t i s f l ex i b l e
a n d ke e ps a d j u sti ng a ga inst t h e
d y n ami c m a r ket co n d it ion a n d i t s
b e h avio r.

➢ I t a l s o em p o wers yo u to ta ke d e c i s i on
a b o ut h o w to b o o k p ro f i t a n d l o s s a s
the

➢ Fi rst l o s s i s a l ways t h e s m a l l e st.

➢ Yo u ca n m a ke a r i g ht d e c i s i o n wh e n
yo u r t ra d e go wro n g
Why Hedging?

In the investment world there are three categories of

participants:

1. Speculators-3-4% of the trading community, people like

Rakesh Jhunjhuwala and waren Buffet

2. Hedgers-5%,FII’s and DII’s and BIG/Smart Money.

3. Arbitrageurs-92%, common Investors.

Example of Simple Hedging

So one can buy one lot of 32000 CE

Say is the Future price of Bank Nifty
if he believes that the market will go
is 32163
up

In this case sell equal lot of an ATM

Call of Monthly expiry. This works in
But in case market goes down from
uptrend mkt, rangebound market
here you will losse money.
and also protects you against swing
low of upto 800 points.
Do you know?

➢ M os t of t he m one y i s m a de b y
t he f i r st tw o c a t e gor i e s a nd t he
9 2 % Ar b i t r a ge u r s l oo s e t he i r
money to the Hedgers.

➢ H e d ge r s a r e e x p e r t s of a l l t he
I ns t r u m e nt s l i k e s t oc k s , f ut ur e s
a n d opt i ons a nd a r e c a pa bl e t o
m a k i ng m on e y m os t of t he t i m e
a s t he y k now how t o pr ot e c t t he i r
c a p i t a l a n d m i t i ga t e r i s k .
Benefits of
Hedging

Margin requirement is
reduced.

Limited Risk
Total margin needed would be

➢ Suppose you buy just January future on a positional basis of SBI Bank one lot you
will have to pay a margin of Rs 3,02,591.25/-
➢ Then to Hedge buy a put of SBI @300 Strike price, the margin needed is Rs
54,450/- if you buy separately.
➢ But when you buy it together and hedge it you will be able to get both the
Derivatives just at Rs 84,611.25
➢ This is the same margin that you would pay for an intraday.
➢ Its like a magic Isn’t it?
How to Understand a Chart

Though there are endless types of chart components for to start

with we can simplify it to the following important ones:

1. Price: Candlesticks

2. Indicators

3. Time frame
Component of a Chart:

Time Frame
Price

Candle Sticks

Indicators
How to Understand a Chart

Though there are endless types of chart components for to start

with we can simplify it to the following important ones:

1. Price: Candlesticks

2. Indicators

3. Time frame
Basics of Candle Stick
Candle Stick Formation
Information on a candle Stick
Types of candle Stick
Basic Indicators that you need to know

1. Candlesticks
2. RSI (Relative Strength Index)
3. Moving Average and its type Indicators are made of
4 components:
• Simple Moving Average, ➢ Price
• Exponential Moving Average, ➢ Volume
➢ Strength
• Weighted Moving Average ➢ Momentum
4. Vwap (Volume Weighted Average Price )
5. Bollinger Bands
Do self study on
these Indicators
from available
resources on the
Net before next
class
Thank you for your attention