Once you are well versed and acquainted with trading in financial instruments like stocks, mutual funds, etc., you can attempt to explore the other avenues like trading derivatives. Options trading is one such avenue, which is highly complex but can give you good returns if you are someone who can learn it with interest and execute well.
What is Options Trading?
An option is a contract that provides you (the investor) the right (but no obligation) to buy or sell an underlying asset (which can be stocks, commodity, currency, index) at a special price as well as the date to the holder. The option trading is carried out on the options market, where trading of contracts is done based on securities. This form of trading allows you to decide whether to exercise your right to buy or sell for a particular options contract.
For example, say you feel that the share price of company XYZ (currently trading at INR 1,000) will fall in future. So, you buy an options contract to sell the share at INR 1,000. Now, if the share price falls and goes to INR 980, you will be in a favourable position making INR 20 per option. However, if the XYZ share price rose to INR 1,020, you may not wish to sell it at INR 1,000 and suffer a loss. Here, you can choose not to take the loss by not opting to exercise the right.
How to trade options?
• You can trade these options by trading through your agent or broker, or you can log in to the trading portal or app that allows you to buy and sell options.
• But while doing so, you will have to provide some of the essential information to prove your credibility for the trade.
• You will need to submit documents such as your salary slip, income tax return, bank statement, identity-proof, etc. for the website to verify your background and approve your trade.
• You need to learn about the call option and put option before you start implementing various options trading strategies.
What is the F&O stock list?
It is vital for every investor interested in carrying out options trading to check out the F&O stock list. This is the list of company stocks that are available for trading in options.
On the National Stock Exchange portal, you can find the F&O stock list with lot size, giving you a brief idea as to which enterprise has the highest future and options stored in its repository. This list indicates the permitted lot size for options contracts as well as futures contracts. E.g., Adani enterprise has a stock list of 4,000 for Jan, Feb and March (2020). Similarly, Adani Power Ltd. has the stock list of 10,000 for Jan, Feb and March.
Final Word:
Options trading is not difficult; you can acquire the right method and can surely excel in it. But before you delve into that do not forget to check the stock list and size before beginning to buy or sell an option or future, because it might seem easy but how to trade options sometimes becomes a task.
