Alright retards, I've been laid off at work due to beervirus and I've been eyeing and toying with the idea to get back into options trading. I'm writing this post to raise the bar for discussion on this sub, I'm tired of seeing just memes. We'll never match WSB unless there is a healthy mix of dankass memes and geniass discussions.submitted by circuit_brain to IndianStreetBets [link] [comments]
Now, when it comes to options, I am completely self-taught (completely from first principles, back in 2008, before you autists came up with the idea of watching videos on youtube). Since I am completely self-taught, my perspective will be different from the people who learnt this stuff while studying MBA/finance courses/NSE accredited investing courses. So if what I'm saying is different from what you've heard from the dude who swindled you of 20K for two days of options education or your gay BF's live-in partner, remember when it comes to maths, there are many ways of approaching a problem, ultimately, all are the same - profit means account balance goes up, loss means a loss post on ISB goes up.
Now, I'm assuming that you understand how options work. If not, I suggest heading to Zerodha's Varsity to read up on options. If you're too lazy for this, get your micro-dick outta options, this is a man's game, surprise butt-sex awaits amateurs.
I'm also assuming that you've come to realise that the sustainable way to make money in options is to write options. Unless you've got Trump or Ambani on speed dial to get access to news before it becomes news, YOLOing whatever rent money you have on buying options will blow up your account, eventually.
Writing options also means the possibility of account balance going tits up is a real possibility. You gotta, gotta, gotta measure and manage your risk. You can do this only when you understand options as well as your dick.
Towards this, I intend to put up a bunch of posts (depending on many of you shit heads are still reading at this point) that comment about little things that are more of 'wisdom' than 'education'.
The example below talks about currency derivatives. Why currency? Read below:
Alright, to start off, here's the current spot rate of the USD-INR pair:
Here's today's USD-INR futures closing rate for Sep expiry:
The difference between spot and futures rates is due to differences in what is construed as 'risk-free' interest rates in the US and in India. Check out this video if you want to understand why the Sep futures is trading at a premium of 27 paisa to the spot rate.
Alright, so the deal is, if you buy 1 futures contract @ 74.49, unless the USDINR exchange rate rises by 27 paisa at the end of Sep (i.e. a spot rate of 74.49) you won't make a profit (ignoring brokerage and stuff). If the exchange rate were to remain the same without any change, you stand to lose (0.27 * 1000, currency derivatives have a lot size of 1000) Rs. 270 per lot. Even worse if the rupee were to appreciate (i.e. exchange spot rate goes down).
Now bear with me if the next few paras are exceedingly boorish, I need to spoon feed people who aren't used to currency derivatives. My strategies are mostly aimed at playing a more risk balanced play, something that yields consistent returns which can be compounded. 10% profit compounded monthly gives 314% growth per year, 3.5% profit compounded weekly gives ~600% growth per year.
Given how the USDINR rate is crashing, one way to profit would be to short a futures contract (duh!).
The orange line indicates the current USDINR exchange rate
As indicated above, if the exchange rate does nothing and remains as is till end of Sep, each lot of USDINR futures shorted yields about Rs. 250 in profit (for something that takes up Rs.3000 in margin, that's a >8% profit in return). Things look even better if the exchange rate were to fall further.
The problem is that things heat up quickly if the exchange rate were to go up. Ideally we would want to hedge against it (which also reduces the margin needed drastically). One way to hedge it would be to buy a at-the-money call (74.25CE @ rate of Rs. 0.555 -> Rs. 555 per lot (i.e 0.555*1000)).
Having purchased a call option, the P/L curve now looks like:
The max loss is now limited to Rs. 315
The keen-eyed among you will recognise the above P/L curve as one that matches that of a put option. By shorting a futures contract and buying a call option (both with same expiry), we have created a synthetic put option that would have costed us Rs. 315 (0.315*1000) for one lot.
Now, why go through all of this hassle if we can get the same returns by just buying a put option? Makes sense, as long as we can purchase the 74.25 strike put option at a price lesser than Rs. 0.315 (see above).
Let's see what the put options are going for:
Well, how about that...
The market price of 74.25 puts are exactly the same price as our synthetic put. While the synthetic put came in at Rs. 0.315, the put costs another 0.005 extra to avoid the trouble of shorting a futures contract and buying a call at the same time. This is not by chance, big trading desks have algos (trading bots for the virgins here) that keep an eye out for price disparities. In this case, if someone were to be willing to pay more, the algos would compete amongst themselves to sell the puts at any price above 0.32. And if someone were to be willing to sell a put for less than 0.315, the algos would immediately buy.
The price of the puts move in sync with the prices of the futures and call contracts. Conversely, we can create a synthetic call, and you will notice that the price of the synthetic call works out to be the same as the market price for the 74.25 strike call. We can also create a synthetic futures contract the same way.
The prices of derivatives aren't decided willy-nilly. They are precisely calculated at all times, which forms the basis for the best bid/ask prices. There is no room left for someone to come in and make free money via arbitraging using synthetic contracts.
If you found this insightful, and would like more of this sort of posts, let me know.
Options when used properly, can be used to generate risk adjusted returns that are commensurate with the amount of risk you are taking. If you are YOLO-ing, sure, you can double or triple your money, because you can also lose 100% of your margin. Conversely, you can aim for small, steady returns and compound the crap out of them. Play the long game, don't be penny wise and pound foolish.
submitted by TrueData48 to u/TrueData48 [link] [comments]
IntroductionReal Time Data from NSE, BSE & MCX is distributed to various data vendors as 4 different levels. These levels are mainly based upon the amount of RealTime Market depth (order book) provided by the exchanges. This precision and the knowledge of Market Pricing is far more important for the day Traders than for a long term investor.
The 4 Levels of RealTime DataThere are 4 different Levels of Real Time Data from NSE, BSE and MCX (vary from market to market) :
What is Market Depth?Market depth is the order book or an electronic list of buy and sell orders. This list is organized by price level and updated to reflect real-time market activity. Most of today’s trading platforms offer some type of market depth display. This allows the traders to see the “buy and sell orders”, waiting to be executed. This could include the best bid and ask prices and the size of all the bids and offers. The Market Depth, therefore, mainly segregates, the different levels of the real time data feed from the NSE, BSE & MCX.
Level I Real Time Data from NSE, BSE & MCXLevel 1 data includes only the Real Time Data of the first level in the order book. This includes the Best Bid and Best Ask, plus the total accumulated Volumes Displayed as Bid Size and Ask Size. Depending on the exchange the number of orders might also be made available for each side as order. Currently, the number of orders are not provided by any exchange in India. The Basic market data is known as level 1 market data, and mainly includes the following information:
If you trade a price action or indicator based strategy, then Level 1 market data should satisfy your informational needs. Level 1 Data is also sufficient for complex indicators, including Market Profile, Market Balance, Delta Divergence etc. If you are not doing Depth of Market Trading, Level 1 data is all you need. Scalpers who trade based on changes in how other traders are bidding and offering, will need Level 2 Market Data.
Level 2 Real Time Data from NSE, BSE & MCXThis type of quotation system is a step up from the Level 1. Data providers offer Level 2 market data at a premium to Level 1. It offers extra information that is neither useful for normal day traders nor for long term investors. Level 2 market data is also known as the ‘order book’. Level 2 market data shows the trader a bigger picture of the market order flow. This because it shows the orders that are currently pending for the market. It is also known as the ‘depth of market’ (DOM) or ‘market depth’. This is because it shows the number of shares or lots that are available at each bid and ask prices. In Level 1, the trader was only able to see the best prices for buying and selling. He could not look any deeper into the details of other less competitive orders on the system. The distribution of noncompetitive orders is important to institutional investors who plan to buy or sell large blocks of shares. Depending on the exchange the level of market depth (of the order book) can be 5, 10 or 20 levels. Normally the level of depth is 5 for Level 2, Real Time Data from NSE, BSE & MCX.
How can Level 2 Market Data be Viewed ?Market depth data can be viewed on a separate Level 2 window or on a price ladder. Because market depth is in real time, it changes constantly throughout the trading session. A “Price Ladder” or “DOM Display” shows each price level in the middle column. The number of buyers at each price level on the left, and the number of sellers on the right.
Another way to view market depth is to overlay it on a price chart, as shown in “Charting depth” (below). This is the same data that would appear on a Level 2 window or DOM. The only difference between the two is the visual presentation. In this example, the levels of market depth are displayed over the right-hand side of a price chart, next to the various prices.
Green bars represent the buy orders. The size of each green bar reflects the relative number of shares or lots that buyers would like to purchase. Red bars indicate market participants who want to sell. The size of each red bar reflects the number of shares or lots that traders would like to sell.
Level 3 Real Time Data from NSENSE Real-Time Data also provides a 20 level deep order book. Actually, this is a subset of the Level 2 Data, known as Level 3. Here, Level 2 provides market depth data up to 5 best bid and ask prices. Level 3 provides market depth data up to 20 best bid and ask prices. Everything else in Level 3, is the same as Level 2. More details of the various Levels Provided by NSE can be obtained from the NSE Website (Data Vending Info).
Tick By Tick Real Time Data from NSEThe Tick by Tick Feed is provided by the NSE. This feed consists of each and every order or a change in the order. It includes:-
And this much data is not easy to handle. It also needs better applications to churn out meaningful information from this data. This feed works best on collocated servers and LAN of the exchange. If you required this feed at your location, from a data vendor, you would need a leased line and also a specific software different from Amibroker or NinjaTrader, which is able to crunch the huge data flowing from the exchange with micro second-time stamps. And if you were able to do that, you would also need to be able to trade instantly. Therefore, this feed is not for the retails traders or fund houses. This feed is best suited for High-Frequency Trading (HFT) with servers co-located at the exchange.
Main Difference between Level 1 and Level 2 Market Data?If you are a new trader, then you only need level I market data. You can always add Level II data, later, if you wish. Level 1 market data provides all of the trading information that is needed to display the Price Charts. This is what you will use to perform Analysis and make trading decisions. For many traders, watching the constant flurry of changing bids and ask Prices on the Level 2 will result in information over-load. This could actually have a detrimental effect as opposed to a positive one.
Can Level 2 Data be useful?Yes, because it not only shows, where the price is now but where it is likely to be in the near future. Some trading strategies might require Level 2 market data. Typically, this data be used in a scalping strategy, where traders take advantage of short-term patterns are seen in the bidding/offering activities of other traders. Also, for example, if a big fund wished to sell 5 crore shares in a medium-sized company. Using level 1 data, they may see that the highest bid price on the market is Rs.2000 for 50k shares. The fund manager will now know that they can sell their first 50k shares at Rs. 2000. However, the fund managers will have to accept less in order to shift the rest of their holding. Therefore they would then trade at the next best bid price, and so on, receiving marginally less for their shares each time they exhaust an order in the market place. It would, therefore, benefit the fund manager to be able to assess how quickly the competitiveness of the bid prices trail off before they place a large block of shares for sale. This is called – being able to see the ‘depth’ of the market. If the competitive orders are thin on the ground then they may decide to delay their the sale or only sell a small batch. As a result of strong demand; the fund may be able to offload its shares without moving the share price down too much and achieving the best deal for their account holders.
ConclusionThis demonstrates why level 2 data is quite pointless for your average day trader. Trading in such small quantities will rarely exhaust the bid price or offer price which they could see on level 1. Other than very large institutions, the only other viable market participant who could fully utilize such data would be a high-speed, automatic trading the algorithm which pays extremely low commissions. Hope, I have been able to give you an insight on the various Levels of RealTime Market Data & their implications in trading.
The study also found out that if India followed only the SPAN margin system it would have been good enough to cover the risk for 99.44 percent instances of At-the-Money (ATM) and Out-of-the-Money (OTM) stock option contract. Simply put, there is no need to burden traders with extra margins.
Higher margins result in a lower return on investment (RoI) for a trader. Ironically, an FII who has an option of trading both in India as well as in Singapore Stock Exchange (SGX) has to pay the complete margin in India but only the SPAN margin if he trades the Nifty derivatives in SGX.
With the same amount of money the FII can get better leverage and higher return if he trades abroad. And we are not even talking of the advantage he has while trading in dollars. No wonder volume in SGX has picked over the years.
Not only are margins high in India, but the way they are charged on various option strategies defies logic. Take the case of spread strategies. Spread strategies do not carry any price risk but they take advantage of volatility. Yet NSE charges a full premium for the short options -- almost equivalent to the margin required if the trader was holding short futures position.
Globally, the maximum amount needed to pay as the margin is slightly over the maximum loss that the limited loss strategy would incur. The study has found how Indian traders are at a huge disadvantage in trading various option strategies as compared to traders globally.
Indian traders are restricted by many other margin requirements and ad-hoc increase in margin in order to protect from events like the recent election. The unfortunate part is that these margins are sticky and tend to stay longer, well past the event.
Apart from the margins, various statutory charges are imposed on traders. India has the highest transaction charges in the world and these do not include the taxes one has to pay if they are profitable despite these restrictions.
Despite these handicaps, volumes in Indian stock and index options are among the highest in the world. If Indian exchanges follow global margin methodology Indian markets volumes would be untouchable, not to mention the huge opportunity for collecting taxes.
The report submitted by the sub-committee to the market regulator makes a strong case for aligning Indian margin management practices with global exchanges. The ball is now in SEBI’s court.
Derivatives future and optionssubmitted by adomcruze to u/adomcruze [link] [comments]
Being a developing nation Indian stock market a being very shallow in late ’90s. In early 2000 India introduces the exchange-traded derivatives on NSE and BSE both. With the emergence of futures trading on NSE India witnessed huge spike in trading volumes and major chunk of new participants entered in the market. During 2000-2008 Bull Run Indian traders make a huge amount of money in futures and options trading.
It’s been 20 years since the derivatives have emerged in India and we have seen a lot of informed traders are trading derivatives market as their full-time career and many also based trading systems have been introduced in recent past. ? So why anyone needs to understand the derivatives and how it will going to help in improvising the trading strategies and profit margin we’ll try to understand this in this article.
Let first try to understand what are derivatives??Derivatives are the financial instrument which derives its value from the performance of some underlying assets. Any assets whose value are uncertain and cannot be determined can be an underlying asset for derivatives. For example, if we say what will be the value of Nifty in next trading session, intrinsically it is difficult to say where nifty trade will tomorrow at 1 P.M. So two people who hold the opposite view about Nifty can make bet on the moment on nifty and make a contract on this assumption. In derivatives scenario, these types of contracts are known as Futures Contract. Futures market follows the zero-sum game rule, which means one person loss will be the profit of other, financial assets such as share possess some value they create wealth but profit and loss from the derivatives market is being generated from the pocket of traders who are in a trade.
What is the importance of derivatives markets?
Most of the traders all over the world trade in options markets. In India, we have also witnessed that a large number of traders are trading in options markets. Although options trading is the most difficult and complex in all the above derivatives.
Let’s try to understand the options market.
Whenever we talk about directional trading, people are more fascinated towards options trading as it required very less capital and can generate a higher return. But as we discussed option trading and understating is not that much easy to implement. In the option market, there are basically two instruments which trader’s trader – which are known as Call option and Put options. Call options increase in value when the market goes upside and decrease in value market falls. On the other side, put options increase in value when the market falls and decrease in value when the market rise. With these, there are other complications which are attached to options which are known as Option Greeks, such as.
• Delta – shows the rate of change of premium with respect to change in option premium. For example, if Nifty rises from 11000 to 11100 how much the value of call and put options increase and decrease in value respectively that is determined by delta. • Theta – show the decrease in value of an option due to passage of time, if the time to expiry is high means the expiry date is for the option value decrease is less but as we approach the expiry value of option started decreasing at an increasing rate.
• Vega – shows the change in option premium with respect to change in volatility of the option. Option premium is also affected by an increase or decrease in the volatility of the market, higher the volatility the option premium will tends to be high and vice versa. • Gamma – Show the rate of change of Delta with respect to change in the underlying price. • Rho – Rho signifies the change in option premium with respect to change in interest rate in the economy.
Let’s take an example to understand options working.
Nifty is trading at 11000 and 11100 CE is trading at Rs.55. and the expiry is on 31st Oct. We are expecting that market will reach 11600 by the end of 31st Oct 2019.
Scenario 1. Nifty reaches at 11600 on 31 Oct 2019. Instead of buying the future contract we bought the call option of 11100 at 55.00. So we have paid Rs. 55 from our pocket that’s our outflow [i.e 55*75(75 is the lot size defined by exchange) = Rs.4125. (Total Investment).
First we need to cover out cost to be in profit.
So Strike price + Premium will be our break-even point in this case. i.e 11100 + 55 = 11155. We will start making money when the nifty will start trading above 11155.00 in our case. On 31st Oct Nifty trades above 11155 and closes at 11600 as we expected. P&L = 11600-11155 = 445 (So we earned 445 point on this trade. i.e = 445 *75 = Rs. 33,375.00 So with our expectation be right we make profit of 33,375 with just investing only Rs.4125.
Scenario 2. Nifty goes opposite to our view and closes at 10800. In this case, we didn’t close above 11155 which is our break-even point and we know that if the market goes the price of put options rise and price of call option falls. So, in this case, we’ll lose money. We will lose amount only equivalent to the amount paid which is equal to Rs.4125.00
Scenario 3. Nifty remains at 11000 only. In this case, when the market closes at the same price, the theta will play an important role here, as the expiry comes near our option value which we have bought at Rs.55 will start to decay and it will become zero if the market closes to below 11155. As in our case if stay at 11000 we’ll again loses money as it stays below 11115 and that will again be equal to Rs.4125.
The above calculation shows the simplest working of options trading, there is more and more complex addition to it.
The National Stock Exchange (NSE) and Multi Commodity Exchange of India (MCX) have held exploratory talks to combine their operations and provide a one-stop shop for trading in all kinds of products.
Two people close to the development said that the two exchanges have appointed global investment banks to help in the discussions. NSE has appointed Morgan Stanley while JPMorgan is advising MCX, these people said. The merger, if and when it happens, will help create a bigger exchange with 60 per cent market share spanning everything from equity derivatives to commodity futures.
Rather than setting up new segments by themselves, a merged entity offering all asset classes would be good for participants. For one, brokers will not have to maintain separate demat or trading accounts and margins to trade would be fungible, saving costs to broker and clients and contributing to higher volumes in a universal exchange.
For example, an equity trader having margin in his account could deploy the same to trade in gold or crude oil futures on the commodity segment offered by the merged entity. Since trading in these commodities entails currency fluctuation risk, those could be hedged by selling rupee (against the dollar) on the currency derivatives segment of the said exchange. NSE already offers a liquid currency derivatives platform.
The strengths of both exchanges makes such a merger expedient, according to industry experts. NSE offers the most liquid platform for trading shares in the cash market and derivatives on its futures and options platform. It also offers a liquid currency derivatives trading platform. MCX is the number one commodity bourse in the country, accounting for anywhere between 84 per cent and 90 per cent market share.
These are the fundamentals of trading. Enrich Commodities explains about the structure of commodities trading in India and trading strategies.submitted by Enrich_Broking to u/Enrich_Broking [link] [comments]
NSE Clearing has developed a comprehensive risk containment mechanism for the Futures & Options segment. The most critical component of a risk containment mechanism for NSE Clearing is the online position monitoring and margining system. SEBI review of margin framework which got Effective from today to bring down margin requirements for traders in the futures and options (F&O) segment. SEBI want to control risk of breaking down the system and hence is rewarding traders who play with Hedge. Margins on Hedged Futures and Options Strategies where the trading risk is Read more NSE New Margin requirement for Options Strategies Above displayed list lets you aware of the NSE F&O margin requirements for recent F&O Contracts by NSE and Wisdom Capital. Wisdom Capital FO Margin (Futures and Options) Margin/Exposure Calculator estimates the correct margin measure by evaluating the various input lines and thus, produces the required margin for the market segment selected. ProStocks is an online flat fee stock broker. ProStocks offers Equity Cash, Equity F&O and Currency Derivatives trading at BSE and NSE in India. ProStocks offers trading + demat (2-in-1) account. ProStocks is registered member of SEBI, BSE, NSE and CDSL. ProStocks is the cheapest online discount stock broker in india. Bank Nifty contracts allowed for trading Current Week- 23000 TO 23400 CE & PE Next week- 22300 TO 23800 CE & PE Next Month- 22300 TO 23800 CE & PE More information
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Demat and Trading Account : https: ... Episode 14 Important Stock market NSE data & report for trader & Investor ... Understanding Futures Margin ... Sharing my experience of last 11 years of trading and how to get benefited from share markets. ... High Margin Provider for F&O trading, option selling in NSE. Royal Securities ... Trade Futures ... Get our premium courses here. Use Coupon Code YOUTUBE for a 20% off https://learn-trading.sensibull.com/s/store For the next level of options trading experie... Episode 14 Important Stock market NSE data & report for trader & Investor ... BankNifty Future Trading Margin Requirement ... Futures Trading Explained ... Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube.