How can I successfully earn money by trading options of NIFTY?

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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 how to trade with options in nifty and therefore know 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 how to trade with options in nifty 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. How to trade with options in nifty 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 how to trade with options in nifty, once we understand this example we will extrapolate the same to stock markets. Consider this situation; there are two good friends, Ajay and How to trade with options in nifty. Ajay is actively evaluating an opportunity to buy 1 acre of land that Venu owns.

The land is 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 how to trade with options in nifty 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 such 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 months.

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 how to trade with options in nifty much higher in the open market, is forced to sell it how to trade with options in nifty a how to trade with options in nifty 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 how to trade with options in nifty do now? Clearly it does not make sense to buy the land, 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, he 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 at 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 would 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 what are binary options and how do binary options work 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 Rs. 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 how to trade with options in nifty 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.

How to trade with options in nifty 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 how to trade with options in nifty. However the problem with leaps in India is that they are not liquid, there are hardly any trading activity here.

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35 comments How can i start trade with binary options youtube

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I have 2 brothers and both dabble in the stock markets and was lucky that one of my brothers mainly invests and the other trades options actively. I started my stock market career day trading in stocks with margin and also small bits of short-term trades. So I would have to thank my brothers for introducing me to the markets. Had a few lucky trades to begin with, but was never successful trading equity, blowing up my account a few times in the process.

Most of the trades were based on guts and some on tips given on TV. How did you manage to continue trading when you made these losses and for how long? I was having a good job and that allowed me to stay active in the markets, adding trading capital from my salary at the end of every month, it was a blessing in disguise. I started trading in early and this method of trading continued till May when there was a sudden fall in the market which was a big setback not only for my day trades but also on my delivery trades, which I exited in panic.

This incident was an eye opener on how trading based on news, watching TV or on a hunch can never really be profitable unless I had the news before everyone else did. This is when I got introduced to Technical Analysis and it started off with learning candlesticks. As and when I learnt more about technical analysis, I suddenly felt that it is possible to have systems based on strategies which can run like a money making machine removing all human emotions.

It also helped that I was good at shell scripting and the automation background helped me put up a few systems. You could say that I have tested over strategies from then to now. Most of the results were based on open price, but the open price that you see to what you can actually get while trading the markets has a huge variance. What also adds to this are the slippages, brokerage costs and other taxes. Around the same time I also got introduced to Futures and Options and found out that I was better at intraday trading and hence most of my positions were never carried overnight.

This is what I have been following for the last couple of years and it has been doing well for me. Most of my trades are option trades and hence along with looking at technical charts, I also started mixing it with a strategy based on open interest, implied volatility and option prices. Basically the strategy using the data predicts which side of the option is skewed to move up, either calls or puts and also the strike price best positioned for this.

Since the strategy revolves around spotting traps or option skews as mentioned above, typically most of the trades would be counter trend trades. I personally find that being long options really works well for such a counter trend system.

There are some gut based trades, but I mostly stick with trades given by the system that I follow. But the critical thing is to accept that we as humans can make mistakes and can get carried away, so it is best to keep only that much money in your trading account that you can afford to lose, especially when trading in options.

When you hold options overnight, the time decay happens faster and if you trade in-the-money options, the absolute return when you are right on your trades is not much. Also one of the things that I avoid as an option buyer is to pyramid, that is add to existing open option positions as and when it goes in my favor. When you buy options you are fighting time, volatility and price moves, so I personally never liked pyramiding and always lost when I did.

There are times when I do carryover options, but I reduce the size significantly. Also the option position carry forwarded is not because it has made a loss, so let us hold it to the next day hoping that it recovers.

It is mainly because the gut sometime says that there is more in the trade left to play out. Out of the money options only? That is very high leverage, are there any money management rules? Leverage is a double edged sword, but a very important part of the business.

One book which was an eye opener for me was on Position Sizing by Van Tharp. In terms of how much trading capital, I follow a unique strategy.

I come up with an assumptive trading size for my account based on my risk appetite, assume this is 10 lakhs. But as and when there is profit added to this Rs 1. Usually I will withdraw profits from the trading account if the account size reaches between 2 to 3lks to bring it back to 1. Today I can afford to take this risk having a cushion of a full time job; I might change this strategy by a small bit if I were trading full time. My trading activity picks up quite a bit as and when the market approaches expiry and is mostly in Nifty options because of the higher liquidity.

It is very important to not treat this as lottery money and spend it. I look at it as a normal income and use it to supplement my financial goals. There is no system that can guarantee you return, in the last 1. It is important to understand this and hence manage your risk accordingly.

Trading is like a profession, people take it lightly especially because of the low entry barrier. To be able to reach that assumptive trading size where I can quit my job and become a full time trader.

Thanks, Rajesh, for the insights and hopefully your good run in the current day challenge continues and be able to trade full time soon. Love playing poker, basketball, and guitar. Thanks Zerodha for sharing this …. It contains Lots of Value and very helpful for the people who are there in this market…. Congrats and Thanks for sharing your thoughts Rajesh!!! Wish you all the best for your future plans. Because of his natural talent he is gonna achieve greatness. I see him as a teacher.

You say correctly that Full Time job is a blessing in a disguise. But how you are able to do Day Trading with FT job? How you are able to manage daily screen time required for day trader along with FT job? How about charts-on mobile? Most of the time, the major moves happen within the first one hour of market open and again in the last one hour. Being in software industry where you have flexible timing helps a lot here and the day is still long after market hours!

For tracking other parameters on the OI and IV skew, I use the system built inside my website tripleint. An iitan is paid atleast 30 lakhs per annum sal.. He does it because he has the potential. He gets satisfaction from it. Why do you play chess? I am retired aged 61, earning a pension. And i trade options. Because i am not yet brain dead. Money is not always the main motive. Wish you all the best for your future trading plans.

I hope this article is very inspiring for all of us! My problem is getting uninterrupted internet connectivity and reliable tick by tick charts for intraday trading. I am based in Mumbai western suburbs. I use the live proprietary system developed to track OI and IV skew defined in my website tripleint.

Most of the analysis is based on EOD charts, levels, traps and research is to select the right day for placing the trades. During the day the live Option system and price levels are used for timing the entries. Thanks to Zerodha for publishing my interview!!!

For people who have been asking details on the option trading system and methodology, please visit my website at tripleint. Thanks again for all the likes, shares and encouraging words!!! I almost have similar background as yours IIT, M. I am interested in building a trading system. Can you throw some light on how to proceed. Did you build your own trading system? Is there a mechanical way using which you search for traps? Will be very grateful of you can share your technique. Rahul — For traps, not using a mechanical way of finding it out and I have explained the details in my blog http: Under Categories you can find articles for bull and bear traps.

Please find some scholarly articles at http: Each have their own advantage and disadvantage as has been explained. The articles might help you to understand how each of the parameters of OI, IV and direction decides the option price and you can then decide on which strike suits best for what you are looking for. Best wishes to you! Mr Shirish — Thanks for your message! Expecting a return of risk free rate is far too less to consider for any business and to maximize that we use the power of leverage.

Trading is to be considered more of a business and to begin with, one needs to start off only with the capital one can afford to lose. In all probability there will be multiple times when one goes bankrupt in the trading account and it is continuous learning and perseverance and might take a few years before one could zero-in on the strategy and markets that one would be trading profitably. Derivatives as a product itself is designed to factor in leverage and so handling risk: Being a personal trading account, one would not want to reveal the absolute value and that is the reason why returns are talked in terms of percentages.

I have been trading from past 1. I always end up losing money just because of these traps. The most common mistake i always do is i carry my position overnight, that has killed my account literally.