NIFTY OPTIONS

An option is a pact between two parties (buyer and seller) that give rights to the buyer, but not the obligation to buy or sell in the derivatives market. Buyer has to pay a predefined fee (premium) for buying the rights and the seller accepts the obligation for which fee is being paid to him. Premium is the price which is fixed at the time of buying or selling the option. The one who sells the option is recognized as the act of going short in option while the buyer is recognized as long in the option.

• Why one should invest in Nifty?

Nifty options can be used to mitigate risk by paying a minimal fee and purchasing a short position on large positions in order to mitigate risk under a certain price. The Nifty option lots are generally bought with an applicable 20-25% margin with the full payment required on the date of maturity of the option or in the case of rollover. Thus with the same amount of funds an investor can buy enjoy 4x or 5x their usual capacity to purchase shares. Exposing investors to such a leveraged position can be dangerous in case the market goes against the held positions, thus an investor should enforce great caution in dealing with Nifty Options.

Buying the market is always a good option since your investments are diversified over the 50 top companies of India.

• Types of Options available in the Derivatives Segment?

There are basically 4 main types of options:

- Buying a Call Option: With the purchase of a call option an investor is anticipating the market to rise, thus would purchase the rights to hold the options buy paying a premium
- Selling a Call Option: With the selling of a call option, an investor is anticipating the market to fall, thus would be obliged to collect the premium.
- Buying a Put Option: With the purchase of a put option, an investor is anticipating the market to fall, thus would purchase the rights to hold the options buy paying a premium
- Selling a Put Option: With the selling of a put option an investor is anticipating the market to rise, thus would be obliged to collect the premium.

• Different Strategies of Options Trading

The call options and put options can be used to develop option strategies based on the anticipation of the movement of the underlying Nifty Index. Immense amount of experience and reading on derivative strategies is essential to come up a profitable option strategy and leverage positions to maximize these gains over a long term.