Options are bringing heavy interests in the plans of the investors to trade these days. Besides “Options” have been the most ascertained word used in the public figure. But have you anytime heard about “Index Trading With Options” ?? Then be connected with us, because this article is about to portray you with “what is Index Options” and “what is the difference between Index & Stock Options.”
Beginning with ...
Options are the contracts of derivatives where the value of the investment depends on the Underlying assets. Here the Option Buyer has the right but not an obligation to buy or sell the Options contract. With the ample of jargon on the web for Options no doubt, an individual's mind may be trapped to walk on the correct knowledge. Therefore, here is the more to Options, Index Options, & Options Trading. Yet if you still want to dive deeper into the concept of Options, we have a rescue for you. You can run through an article on our website for “What are Options.”
Before directly moving onto the understanding of Index Options, let us be first clear with what is Index ?? The index in the Stock Market is nothing but the average of many Stock Prices. For instance, NIFTY & SENSEX being tagged as the Indexes of the Indian Stock Market. Similarly, the Index Options are the Options for NIFTY & BANK NIFTY in India that are traded on Stock Exchanges. To be more clear, Index Options are the derivatives whose value depends on the underlying assets. Offering the traders with a wide range of speculative strategies, Index Options are similar to Stock Options in India.
Moreover, Index Options are also the financial derivative, wherein the value of their contracts rely on NIFTY & BANK NIFTY. Besides, the rise and fall factors of the Index Options Corley depends on the value of the underlying asset. It includes time until expiration, Strike Price, Dividends, volatility, and interest rates. Let us headway with the points that depict...
Commencing with the Index Options. As said in the above concept of What Is Index Options, here Index Options are based on NIFTY & BANK NIFTY. Holding the variety of the stocks/companies that are tagged under NIFTY & BANK NIFTY, you have a broad area to conclude your results. Whereas, speaking about Stock Options, you get to trade only in one particular company and the results are out based on that.
However, you can stamp Index Options as Broad-based Indexes and recognize Stock Options as Narrow-based Options. To be more precise, your results depend only on one company while trading in Stock Options. Whereas, you have a basket of companies or stocks tagged under NIFTY & BANK NIFTY to deliver you with your Index Options outcome.
For Instance:-
There you have XYZ Co. on your mind to invest in for Options. Therefore, this would be considered as “Stock Options.” You can also mark these options as “Narrow-Based Options.”
Now you are noticing NIFTY with the 50 companies listed in it. And if you seek to invest in it then this would be recognized as “Index Options.” One can also label these options as “Broad-Based Options.”
We are sure that if you understand this concept of the difference between Index & Stock Options, you would be overjoyed. Now here with the 100% concentration, read the further point. We assure you would be undeniably satisfied with the concept. We would like to explain to you through an example.
For Instance:- At the time of Exercise, Reliance being the Stock Option, and if you find this to be “In The Money” by showcasing the Stock Value @ Rs.2050 and you can buy it @ Strike Price of Rs.2000. Then here you are at profit. Hence you are open to 2 choices. You may either sell it or buy it. However, if you are buying Reliance Stock Option at Rs.2000 then you will need to buy the delivery of Reliance too. And if you are selling Reliance Stock Options @ Rs.2050 then you will need to sell the Reliance delivery.
Whereas, when at the expiration of the Index Options, you can simply get them settled through CASH. There is no interference with the Delivery lots.
Basically, the Stock Options are tagged as American-Style Options & most of the Index Options are labeled as European-Style Options. Where American-Style Options can be settled at any time before expiration & European-Style Options can be settled only on the day of Expiration. But, mostly these days, whether it be Stock Options or Index Trading with Options, the trade is done on the basis of European Style. This further means that a trader can settle the contract before expiration.
However, throughout the life of the contract, regardless if it is an Index Or Stock Options, you can buy or sell the options to close your position.
The last THURSDAY of every month is determined as the last day for trading Stock Options. Whereas, the Index Options are further bifurcated in Weekly Options & Monthly Options. Wherein, Weekly Options expire on every THURSDAY & Monthly Options expire on the last THURSDAY of every month.
Beginning from 9:15 IST and closing off for the day by 15:30 IST, the Stock Option or Narrow-Based Options and the Index Options or Broad-Based Options are transacted.
Tip:- If there seems to be any news outbreaking post Stock market closure, the Stock Options are highly impacted since they are an individual based Stock Options. Another way round, there are no major impacts seen in Index Options, the reason being they are Broad-Based Options.
To let you understand more precisely for Index Trading With Options, we at Lakshmishree Investment & Securities Pvt Ltd had a webinar on this by Mr. Sunny Batra. You may access it for free on youtube and clear a crystal view for the calculations on your profit for Index Options.
Moreover, if you want to be a part of the upcoming webinars for free, you can read out the list of the webinars which are to be Live on the Home Page and drop your email ids in the comment section for what webinar you would like to book yourself. And we will make sure to invite you for the same. Stay Tuned...
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