Options
What is Open Interest? Does FYERS have any set OI limit?
Open Interest (OI) is a number that signifies the number of open Derivatives contracts currently available in the market. The OI is essential since it measures liquidity in the market and enables one to track and predict price changes, allowing you ...
Can I place market orders in commodities options?
No, you will not be able to place market orders in the MCX Options segment. In India, commodities derivatives (Especially Options) are traded in very low volumes and most of them are illiquid ones. The availability of Market orders in these options ...
What are Options?
An option gives the buyer the right, but not an obligation, to buy or sell the underlying asset at a predetermined price (Strike Price) on a specified date in the future (Expiry). The buyer pays the seller a premium at the time of entering into the ...
What does Strike Price mean in options?
It is the price at which the underlying asset is agreed to be bought/sold at the expiry of the contract.
What does Premium mean in options?
Premium is the downpayment that the buyer is required to make to the seller for entering into the options contract.
How is options trading different from trading futures?
In the case of futures trading, the buyer and seller have unlimited profit potential as well as loss potential. Whereas in options, the buyer has unlimited profit potential with limited downside, and the seller has limited profit potential and ...
What is a Call Option?
An option which gives the buyer the right, but not an obligation, to buy the underlying asset at a predetermined price on a specified date in the future. The date specified in the contract is known as the expiration date or the maturity date. The ...
What is a Put Option?
An option which gives the buyer of the options contract the right, but not an obligation, to sell the underlying asset at the strike price on a specified date in the future. The date specified in the contract is known as the expiration date or the ...
What is the effect of buying a Call Option?
The buyer of the call option has the right, but not an obligation, to buy the underlying asset at the strike price at expiry. The buyer of a call option has to pay a ‘Premium’ to the seller for the privilege.
When does the buyer of a call option benefit?
The buyer of the call option benefits when the price of the underlying asset is above the strike price at the expiry of the contract.
What is the effect of selling a Call Option?
The seller of the call option has an obligation to sell the underlying asset at the strike price if the buyer of the call option chooses to execute his right. The seller receives a ‘Premium’ from the buyer.
When does the seller of a call option benefit?
The seller of the call option benefits when the price of the underlying asset is below the strike price at the expiry of the contract.
What is the effect of selling a Put Option?
The seller of the put option has an obligation to buy the underlying asset at the strike price if the buyer chooses to execute his right. The seller receives a premium from the buyer.
What is the effect of buying a Put Option?
The buyer of the put option has the right, but not an obligation, to buy the underlying asset at the strike price at expiry. The buyer of a put option has to pay a premium to the seller for the privilege.
How is the margin calculated for buying options?
To buy either calls or puts, the margin requirement is only to the extent of the premium. Margin for buying options = Premium * Total Quantity
Can the buyer of the option execute his right at any time during the lifetime of the contract?
No, the buyer of the option can execute his/her right only at the expiry of the contract.
How is the margin calculated for selling options?
Since the seller of the option is exposed to a greater risk than the buyer, the margin requirement is greater for the seller. The exchange stipulates margin requirements based on the volatility of the underlying asset. Check our Margin Calculator.
What is moneyness of an option?
Moneyness is a term describing the relationship between the strike price of the option contract and the current market price of the underlying asset. There are three types of moneyness, In-The-Money (ITM), At-The-Money (ATM) and Out-Of-The-Money ...
What does In The Money (ITM) options mean?
An option is said to be In-The-Money if upon exercising it, the option buyer gets positive cash flow.
What is In The Money (ITM) Call Option?
A call option is said to be ITM when the underlying security’s current market price is greater than the strike price of the contract.
What is In The Money (ITM) Put Option?
A put option is said to be ITM when the underlying security’s current market price is lesser than the strike price of the contract.
What is Out of the Money (OTM) options?
An option is said to be out of the money if upon exercising it, the option buyer gets a negative cash flow.
What is Out of The Money (OTM) Call Option?
A call option is said to be OTM when the underlying security’s current market price is lesser than the strike price of the contract.
What is Out of the Money (OTM) Put Option?
A put option is said to be OTM when the underlying security’s current market price is greater than the strike price of the contract.
What is At the Money (ATM) option?
An option is said to be at the money if the spot price of the underlying is equal to the strike price. Any movement in the spot price of underlying from this stage would either make the option ITM or OTM.
What is At the Money (ATM) Call Option?
A call option is said to be ATM when the underlying security’s current market price is equal to the strike price of the contract.
What is At the Money (ATM) Put Option?
A put option is said to be ATM when the underlying security’s current market price is equal to the strike price of the contract.
What is the impact of moneyness on options premium?
It is widely seen that ITM options command the highest premium, followed by ATM options and lastly by OTM options.
How can I exercise my options at expiry?
All ITM options will automatically be exercised by the exchange on the last day of contract expiry.
What is the Intrinsic Value?
Intrinsic Value is the difference between the underlying security’s current market price and the strike price of the option contract. Only In The Money options have intrinsic value.
How is profit exercised on expiry?
The profit/loss upon exercise is the difference between the exercise settlement price of the underlying asset and the strike price of the contract. The difference is then multiplied by the exercised quantity (Applicable statutory levies and taxes ...
Can only a portion of the quantity be exercised?
No, the exchange exercises the entire quantity
What does assignment mean in options?
Is a situation where the seller of the option will have to sell the underlying asset at the strike price, in case of call options, and buy the underlying asset at the strike price, in case of put options. However, in India, all options contracts are ...
Does the seller of the option have any control over the assignment?
No, the exchange has complete control over the assignment process.
What is options spread?
An options spread is when the investor buys as well as sells options of the same underlying security but of different strike prices and/or different expiries.
Is MTM settlement applicable for options trading?
Yes, but the MTM process is applied only for the sellers of the options contract.
What are horizontal spreads/Calendar spreads in options?
Horizontal Spreads or Calendar Spreads are created when the investor uses options of the same underlying security and the same strike prices but with different expiry series.
What are vertical spreads?
Vertical spreads are created when the investor uses options of the same underlying security and same expiry series but of different strike prices.
What is a bull spread?
If an option spread strategy is designed to be profitable when the price of the underlying security rises, it is known as a Bull Spread.
What are diagonal spreads in options?
Diagonal Spreads are created when the investor uses options of the same underlying security but with different strike prices and different expiry series.
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