Trading in index options commenced india
Hence, in the early months, individual stock trading was synonymous with options trading. Individual stock futures trading only began in November Options trading is intellectually more complex than futures trading, so it is to be expected that market participants took more time to gain comfort, and build skills and systems to cope with options trading.
In addition, the disproportionate aversion to options trading was influenced by two features of the institutional framework. NSE's tariff structure disadvantaged options, and there was a feature in the securities transaction tax a turnover tax used in India which penalised options trading.
NSE modified its tariff structure in in order to address this. More importantly, the provisions of the securities transaction tax were modified on 1 June From late onwards, global financial market volatility went up dramatically, which might have increased interest in options trading where payoffs can be controlled as opposed to futures trading where profits or losses are potentially uncontrolled.
The share of options in are understated to the extent that currency futures trading began, which bolstered futures turnover, but currency options trading was prohibited. Hence, the true shift in favour of options trading by the market is bigger than that portrayed in the graph.
The second interesting feature in the evolution of derivatives trading at NSE is the share of index derivatives in equity derivatives trading.
In the early days, index underlyings had a head start because trading in index futures from June and index options from June started first. However, the magnitude of derivatives trading present at this time was very smal. In June , only 0. When stock options trading commenced July and individual stock futures trading started November , they tapped into the pre-existing knowledge, interest, capability and order flow for badla, the mechanism for leveraged trading on individual stocks which had been banned with effect from July This order flow immediately switched to individual stock futures and options, and the share of index derivatives dropped sharply, all the way to In early , the market had a new technique options and futures for expressing old ideas views on individual stocks.
The idea of trading an index was something new. The third dimension in which we can obtain insights into derivatives trading at NSE is the shift away from equity derivatives. Currency derivatives trading commenced at NSE in August with a limited form of currency futures trading. At the time, trading was permitted in only futures on the rupee-dollar rate, options and swaps were banned, participations by FIIs and NRIs was banned.
In other words, roughly one-tenth of the business of the typical NSE member firm is now currency futures trading. Sir, I have a suggestion, Zerodha has branches in Southern Zone. In India with increase in awareness about financial markets in public, it has become indispensable to enlarge the knowledge horizons about financial markets.. It would help the masses to acquire skills in financial field as well as to have optimum leverage of the available opportunities and skill-oriented labs in achieving their goals of investment.
We are not really looking at expanding physically, but we are trying our bit to educate via various online initiatives. It is seen in your website that Zerodha has launched automated trading in the year Can you pl brief me about automated trading regarding its operation, technical analysis etc.
Automated trading is not allowed for a retail trader. Can you pl brief me about automated trading regarding its operation, technical analysis etc? Hi, First let me introduce myself, I am Sundar from Chennai, trading only in options and making lot of money, at least Rs 10 lakh a month.
Second, let me appreciate your effort in making low brokerage venture a reality. Third, everybody want to buy options ahead of elections to make money. That is actually a wrong strategy. So the buyer usually makes money when there is something surprise.
For example, in , nobody expected Congress coalition to get majority without Left support, that happened, so the markets shot up, option buyers made money. You may check, option prices for May series onwards are really very high. Assuming that one buys May series Put and Call, he has to pay Rs He will make money only when Nifty crosses or fall below Let us see what happens next month.
Option buyer pays only premium, option seller pays margin money which is very high. Option buyer has limited risk, seller has unlimited risk. So think basically why should any body want to be on sell side with everything is favorable on the buy side? The answer is simple. If you want high profit, you have take high risk Example: Buy lottery ticket, your investment is only Rs 10 or 20, you may get Rs 1 crore if you are lucky, no risk absolutely, but probability is very low So, the fact is that the probability of seller winning is very high.
I have not seen anybody making good amount of money consistently by buying options. I am a living example for making money consistently by selling options. What I mean to say, the amount of money which you are prepared to loose completely, only must be deployed in buying options. Last but not the least, option seller has the advantage of hedging his positions and can continue to apply delta hedging in order to come out if market goes against him. Option buyer has no options if his views go wrong, except getting out with stop loss.
Hope option buyers understand all the risks involved. You want to get married. You have two girls. One, beautiful, well educated and has lot of money. The other girl is ugly, not educated and very poor. Which girl will you choose? A common sense will tell you that every one will choose the first one and nobody will choose the second one.
Come to option buying and option selling. Option buyer has limited risk, unlimited profit and low margin money like beauty, education and money all three working in buyers side. Then logically everybody should be on the buy side and no one should be on the sell side. But the fact is that for every contract buyer there is one contract seller. This equality is in amount not the number of people people may buy options but one person will sell the equivalent options.
Let us rob a bank, investment is very low, reward is very high, but corresponding risk is very high, if you are caught you will be spending rest of your life in Jail. You buy a lottery ticket, risk is limited to Rs Reward can be as high as Rs 1 crore. But what is the probability? It is very low. But people are aware of that.
This is why most people do not buy lottery tickets. But buying of options is the same. But people do not realise this. Against lottery ticket awareness is created, some states like Tamil Nadu even has banned the sale of lottery ticket. On the other hand brokers make big money out of these people and make sure that these innocent people do not get any awareness.
Options are introduced for the purpose of hedging for that matter even futures are also introduced for the purpose of hedging , but being used by people for gambling. At the very outset,kindly excuse me for taking your precious time to read this note in your busy schedule. Shorting in current scenario after hiking of lot size by sebi ,will it b a smart choice? Had recently answered this query, check this video. Yeah, tape reading is essentially looking at market depth window and price and trading.
Have you checked out http: Why IndiaVIX has risen by 13 vol points in the last weeks 2. Now, do you think shorting the IndiaVIX future 29 Apr expiry make sense given the future is trading at So, you are protected till the spot level rises to As I said, shorting 29th April VIX future would have made sense as in just a week span of time it has fallen from So, my forecast of IndiaVIX spot and its future levels turned out to be the absolutely accurate.
Given the spot level of IndiaVIX at At the same time, this is one of the most crucial events in the last 5 yrs, yet IndiaVIX is no where close to its highs of 50 level. So, from risk-reward perspective, it makes sense to long 13th May VIX future. I still think it has more to go in the remaining 2 trading days, so I would advice to continue holding it. Thanks Nitin for your prompt response. What will be the impact of election result on these two stocks?
This move might not be sufficient to make profit. On the other hand, if third party gains majority, market fall will be unstoppable. Fail to understand why is India VIX expiring on May 20, trading at significant discount to underlying. It is around Hi, India VIX was trading around 15 few months before.
VIX shot up due to election. Election results will be announced on 16 May. By 19 May, the results will be fully priced in the market. So volatility is likely to go down drastically by 20 May. It is a contract that requires a margin of around 7 lakhs.
Still people are ready to short at 10 points lower. So they are informed people who take calculated risk. Hope the India Vix spot price may not cool to 2x. Hi Sundar,Could you please suggest me how to pick right strik price call or put based on market trend and implied volatility for write option.
Hi Hi Sundar,I am very impressed with your comments,could you please guide me how to pick right strik price call or put for write option based on market trend and implied volatility. H, Choosing the right strike price is the skill required by the trader.
You go too long, your return will be very low, if you go too close, your risk will be very high. So this is a game of risk-reward. As you have already mentioned, implied volatility is the most important thing to consider. In addition price movement, time value also to be considered.
Option buyers are gamblers, they invest a small amount of money, if they loose, they loose only a little, if they gain though probability is low they get huge profit. Option sellers are business people, they expect a decent return for their investment. Most option writers have agreement with brokers so that they do not pay exposure margin.
The margin money that you pay for writing an option consists of two margins, one span margin and the other one is exposure margin.
So most heavy traders pay only half the money when it comes to selling options, compared to normal retail investors, so their return doubles.
Hence they can reduce their risk and yet can get good return. So there is no fixed formula to choose the strike price if there is any, by this time every one would have been following that , there are a number of other factors like doubling your return by making the broker to agree for exposure margin waiver, diversifying not selling options only in one counter, sell in many counters so that your risk is diversified , using the wing strategy For eg, Nifty is trading around , one may sell Put and Call, but what I do, since I invest huge money, I sell , , , Put and , , , Call, I call this wing strategy , etc.
For your kind information, I have made Rs 1 Crore in the month of May, considered to be very difficult month for option traders due to election results uncertainty. Thanks P R Sundar. Nitin-is it true that Zerodha exempt exposure margin. If yes what should be lot size for selling options on Nifty. Zerodha is a low cost brokerage, they can not afford to waive exposure margin.
If you do not know what is the lot size for selling options on Nifty, I would advise you to stay away from selling options. This is a high risk game and only knowledgeable people should enter. Otherwise you will end up loosing your entire wealth.
Mr Kamath a quick question: Yes should drop proportionately, around 3lks https: Could you please explain what is delta hedging in option writing and how to use it practically? Delta hedging is all about creating balance in hedging positions. It is difficult to explain here in the blog everything. We conduct one day workshop to explain all these.
Hi,I want to know that the implied volatility which is used in calculating price of nifty options is same as this VIX? When i use the implied volatility as And when i calculate implied volatility putting call option price as 54 than it comes as I generally write nifty options so this factor to be exact is very much important for me. All options have different volatility…like in your example the option volatility for call option is This will give you further insight in options.
It is freely available. Dear Nithin, In Back office, noticed some thing wrong in the options turnover calculation. Can you just verify? I did 4 option trades in one of my account. It is showing correct. Check this link on how we are calculating turnover. This is the most compliant way of calculating turnover. But, options player would easily reach lakh turnover though they do very less.
I am going to eliminate options trading to avoid the auditing. Why there is no trading in India Vix? Is this open for trading for retailers? Mark it is open for trading, but somehow is not getting any trading activity. The interest has been continuously dropping in this contract. Thanks Nithin for your prompt reply. And thank you for this detailed article on Indiavix. I found it quite helpful. So Is their any index to identify volatility of commodity market?
Yes you can look at India VIX and gauge the market expectation of volatility — both for Nifty Index and individual stocks. Have a question with regards to order placing. Hmm that is your making incorrect statement in General. VJ they are not really Good till cancelled orders, GTC orders ideally have to stay on the exchange servers until they are cancelled.
So it is like a hack, and not really GTC. We are also looking at doing something similar to this, but it will not really be a GTC order. Is India VIX available to trade in the forms of futures only? Secondly it is understood from the comment above that if it reaches 22 level…nifty will lilely to move upwatds so buying call option or selling put option will be the two possible scenarios.
And if VIX reaches around 15, buying put or selling call will be the two ways. Even futures contract has become illiquid. If India VIX is above 22, then markets are likely to go up and down in an unpredictable manner but eventually markets will go down. So selling Call option on every rise should be the right strategy.
If India VIX is below 15, then markets will be stable and likely to move higher slowly. So the right strategy is to sell Put option on every dip. Buying of option is only for very short term traders who can judge the market movement. Usually people who buy options and hold until maturity will loose money most of the time. But risk associated with buying of option is very less and correspondingly the chances of winning is also very low.
Selling of options carry unlimited risk, but if you know how to manage your risk and if you have more capital, you can make decent return. You need more capital to sell options as you are required to pay margin money as well as Marked to Market MtoM losses. Whereas if you are a buyer of option, then just pay the premium and that is it.
But option seller wins most of the time and loose lot of money when loosing if does know how to manage the risk. P R Sundar http: Yes currently India vix available only in terms of futures. Read from the start, especially the volatility basics. Because in the buy or sell window a good deal of space is available to add this margin calculations.
As the available funds for each segment for each user is accessible from with in the individual user account. If you put the margin calculation or calculator to each user account then the user can easily calculate how much they can trade for each segment with out moving out of kite and can make quick decisions on what to trade and how much to trade.
Hope you under stand my suggestions. Vismadev, your suggestion in our list of things to do. Actually something cooler than what you are asking for. But one thing I am sure of a that a good number of people do trade in the stock market in these areas both in intraday and delivery trades. As most of them are not accustomed with online trading advantages. As this existing sub-brokers are more inclined to be a sub-broker rather than they becoming a client of Zerodha.
If I want to buy an option, I would want to buy it when the volatility is low. So how do I decide if it is justified to enter into the trade, ignoring other things as of now time, direction etc. For eg Implied Volatility for CE is 8.
Hi, My trading account id is DP Till recently I only had trading account with zerodha but in the month of december i got zerodha demat account but the problem with the demat account is that i am not able to do BTST and the stock comes in my account after 4 to 5 days due to which i am losing.
And your hyderabad office guys they have no clue that i have two demat accounts linked to my account and they say that everything is fine with my account.
Hi Prem, Sorry for the inconvenience. Dear Sir, I find this is the best article on the internet. Zerodha is the best Broker according to every view. Volatility has been explained on Zerodha Varsity module here: Could you please guide me how to do this. You will need to transfer all the shares from your indiainfoline demat to Zerodha demat. Hi, vix has to be created in realtime for Nifty future and traded in intraday. I read a book where it explains all http: My id is RS have been trying to reset my password for past three days and not fixed till now please do the needful Recent ticket number is Your ticket has been closed, passwords have been emailed.
We see your request received at 8. This link gives IV only for today: Please let me know the process.. You can use Pi our desktop for this. Btw, there is no trading that happens on Indiavix currently. Has India futures stopped trading? Are there no options for VIX? Hi Just to inform you that there are some unauthorized trades are happning in my account knowledge plz solve urgently.
Login and click on new topic https: You can post this question on Varsity here: Thought it would get sorted during the weekend. What could be the reason behind it? Right from when it was launched, no liquidity came through for this contract. People not interested generally I guess. Sad there are no traders.. Thank you for giving responses to each such queries.. From what I have perceived from day trading for 1 year, it is generally advised to refrain from day trading during high volatility days, because higher volatility implies deeper retracements…..
So in terms of VIX , what percent in your opinion is risky for intraday trade?