Option trading tools kotak

Options, unlike futures contracts, is flexible. This way, you are selling your liability. This is where we come to covered and naked options. If you do not expect the price of Reliance to go beyond Rs 950 per share, you may sell a Reliance call option at a strike price of Rs 950 for a premium of Rs 20. This becomes a covered call. So, they have limited scope for losses, as they are only subject to lose the amount they paid as premium. They could also consider taking up a position in the futures market that will nullify the losses made through selling a naked call or put. Suppose you actually hold 600 shares of Reliance in your demat account. Naked Options Why chose naked options?

When you sell a naked call or put option, you have no underlying assets or open position in the futures market to protect you from an unlimited loss of money, if the market goes against you. On the other hand, importers benefit from a strong rupee as they spend in dollars. This increases his potential liability. You can also square off your open position by selling the contracts that you previously brought. If you do not expect any major movements in the price of Reliance in the cash market and wish to reduce the cost of these shares, you could sell a call option to the extent of the shares that you hold. However, if it rises beyond the strike price, you could use the shares that you hold to settle off the buyer of the call option. And, if the market does go against them, they may try to salvage the situation by offsetting their options by purchasing identical but opposing options. For this reason, you can simply let the option mature without exercising it. You could sell call options in order to reduce the cost of your investments or hedge your investments. Speculators can also opt for covered options.

What are derivative contracts without the underlying assets? If all goes well and the price does not increase above Rs 950, your shares are safe with you and the premium that you receive goes towards reducing the cost of the shares that you hold by Rs 20 each. For example, IT companies benefit from an undervalued rupee as they earn money in dollars. Simply put, covered options are contracts sold by traders who actually own the underlying shares. However, if the price does go above Rs 950, you always have your shares to fall back on. They, thus, aim to transfer their risk. However, you do make a notional loss of money. However, this does not necessarily mean that a naked option does not have its perks.

The only requirement is that you must actually hold the underlying shares of the calls that you sell. So, instead, you may decide to sell a Reliance call option and receive a premium. As we read earlier, covered options are often used by hedgers or those looking to reduce prices of existing shares, while naked options are predominantly used by speculators. However, this is not necessary. Remember, when you sell a call option, you are actually agreeing to sell to the call option buyer. Naked options, on the other hand, could be settled predominantly by squaring off the position. In contrast, naked options are those where the writer does not own the underlying assets. However, since you are actually buying the two options at two different times, the prices will differ. This is the opportunity to make a profit.

In which case, you may have to borrow the underlying assets or actually buy it from the cash segment and sell to the option buyer. Sellers, on the other hand, are obligated to uphold the contract if and when the buyer chooses. The buyers are not actually obligated to exercise the agreement. You could also use the covered call method to limit the risk of an open position that you have in the futures market, by likening your long futures position to the long cash market position explained in the covered call illustration above. Covered options are commonly settled by upholding the agreements and physically selling or buying the underlying assets. What are covered and naked options? You could purchase a put option to benefit from this situation, but that would mean that you have to pay a premium. However, if you are the seller, and the option buyer has opted to exercise the option, you cannot ignore it. You could sell off your shares to settle off the buyer of the call. This helps when the option is exercised, as you do not make an actual loss of money.

This is because you are not able to benefit from selling your shares at a price higher than the strike price, although the market has crossed that level. It is assumed that you will have chosen a strike price that is above the cost at which you purchased the shares. So, does this mean that only traders who already own the underlying assets can trade in the market? This is the same as buying put option. How to settle covered and naked options? It allows traders to participate in the derivatives market even if they have relatively small holdings in the cash segment. Naked options are usually sold by speculators, who feel very strongly about the direction of an index or the price of a stock.

Why chose covered options? Thus, what is suitable to one investor may not be so for another. This would mean you lost the opportunity to make profits. Suppose the stock falls to Rs 930, you could think of exercising the put option. However, if the stock price actually rises and not falls as you had expected, you can ignore the option. This is called assignment margin.

In addition to these two, additional margins are collected. For put index options, you cannot physically settle, as the index is not tangible. You would thus earn a profit of Rs 10 per share once you have deducted the premium costs. There are three common ways to settle put options contracts. Remember, stock options can be exercised before the expiry date. This is because, shares, like indexes, cannot have negative values. Margin requirements typically rise during period of higher volatility. This could lead to a fall in the share prices from the current Rs 950 per share. This means, you will actually sell the underlying stocks as specified in the options contract agreement.

This is called squaring off. Put options on stocks also work the same way as call options on stocks. American options are more flexible; they allow you to settle the trade before the expiry date of the contract. In the case of Stock options, you can buy an opposing contract. You will thus choose to exercise your option and sell the index. Suppose the contract lot is 600 shares.

European options can only be exercised on the day of the expiry. That said, remember to take into consideration your premium costs. This amount the seller has to deposit is dictated by the exchange. If you decide to square off your position before the expiry of the contract, you will have to buy the same number of call options of the same underlying stock and maturity date. Rs 10 per share. If not, jump at the opportunity and exercise the option right away. However, in this case, the option buyer is bearish about the price of a stock and hopes to profit from a fall in its price. You losses will be adjusted against the margin that you have provided to the exchange and the balance margin will be credited to your account with the broker. For this reason, you could wait until the share price falls to at least Rs 920.

Similarly, in the Options market, you cannot have call options without having put options. Thus, put options are used when market conditions are bearish. Suppose you hold ABC shares, and you expect that its quarterly results are likely to underperform analyst forecasts. In this way, a put option is exactly opposite of a call option. The maximum profit is the share price minus the premium. So, you would rather protect yourself by paying a small premium than make losses. They thus protect you against the decline of the price of a stock below a specified price. This means, if you hold a contract to sell stocks, you purchase a contract to buy the very same stocks. This is because prices can rise to any heights theoretically, and as a put option writer, you have to buy at whatever price has been specified.

Or, you can exercise your options on or before the expiration date. In any market, there cannot be a buyer without there being a seller. If you have sold put options and want to square off your position, you will have to buy back the same number of put options that you have written. Thus, these two cancel each other. They can be value at 0 at worst. You can also hold your position open until the option expires. This way, you will earn a premium on the contracts as the seller. The simple rule to maximize profits is that you buy at lows and sell at highs. You will need to recover that cost too.

This indicates you are expecting a possible decline in the price of the underlying assets. However, your maximum loss of money will be restricted to the premium paid. Therefore, the seller of a put option has to deposit a higher margin with the exchange as security in case of an adverse movement in the price of the options sold. So, to settle index options, you can either exit your position through an offsetting trade in the market. It could happen that the stock does fall, but gains back right before expiry. These differ for buyers and sellers, who are at the opposite ends of the spectrum. As a seller or writer of a put option, your potential loss of money is unlimited.

You can also exercise your option anytime on or before the expiry date of the contract. So you need to monitor the stock movement carefully. You can also settle by selling the two put options contracts you hold in order to square off your position. Just like the call option, the margins are levied on the put contract value in percentage terms. If you have purchased two XYZ put options with a lot size 500, a strike price of Rs 100, and expiry month of August, you will have to buy two XYZ call options contracts with an expiry month of August. Your account will be then credited or debited for the amount. For this reason, you would chose to not exercise your option.

Thus, the maximum loss of money an investor faces is the premium amount. The difference between the premium at which you bought the put option and the premium at which you sold them will be your profit or loss of money. You make a profit from the difference in prices and premiums. Thus, index options are European options, while stock options are a kind of American options. This will be based on the difference between the strike price and the closing market price of the stock or index on the day of exercise. Whatever is the difference in strike prices could be your profit or loss of money. If there is an indication that the share could fall further to Rs 910 or 900 levels, wait until it does so. However, they still share some similar traits. Whether you are a buyer or a seller, you have to pay an initial margin as well as an exposure margin. All statutory and services charges will be extra.

You can continue to trade at the same brokerage rates until the validity ends. It rewards you for steady trading. We wanted to ensure smooth, consistent trading and reduce the hassles of brokerage charges. Or, they may depending on the size of the transaction. Customised validity is available on request. The reversal of brokerage fees will happen at the end of the validity period.

The Advance Fee Account helps you earn back your brokerage charges. Validity period: Suppose your brokerage charges exceed the advance fees before the account validity period expires. So, we introduced the Advance Brokerage Accounts. Normally, the fees are a percentage of the trade value. You pay a certain amount in advance, and slowly get it back as and when you trade. Fees would be debited in advance.

To encourage you to maintain consistency in trading, we offer you low charges during the validity period. Instant Money transfer Smart and convenient way to buy and sell commodities through trading Account, Basket Order, Cover Order, AMO etc. Quality research and advisory support to help you take informed decisions; Customers can also receive Premium research and SMS tips on their Mobile as well. High and multiple level of security ensures security of your data and transactions at all times. Lifetime free trading account, no account maintenance charges. Toll Free number 1800 102 6776. Call and Trade facility at no additional cost to place orders anytime, anywhere.

Access to the latest research news. At Kotak Commodities, it is our constant endeavor to bring to you the exemplary products and services to serve you better. Independent market expertise and support through a dedicated relationship manager. To unlock these opportunities for our clients, we have internet based trading account where our clients can execute their trades independently through various platforms. KCTraderX and mobile application COLT. How to login TradeSmart Terminal of Kotak Securities? This helps you avoid the possibility of getting a freak rate, because market orders are executed at the best possible counter rate. Using this service, you can call our customer care executives, who will then place the order on your behalf.

This facility is provided to all customers who have online trading accounts. You can plan your orders at leisure after doing research before the market opens the next trading day. This means, you are shielding yourself from buying at a price too high or selling at a price too low. For many of you, stock market trading or investing may not be a primary profession and you could be busy. Using the After Markets Orders facility is very simple. All you need to do is log into your Kotak Securities trading account, and choose the AMO option. Your presence is not needed at the exchange to execute the order. In post market hours trading, one need not actively track the price movements of a stock during market hours.

For instance, the market orders will be placed first and then all other orders are lined on the basis of the price band in ascending order. When you place an AMO, you have to consider the closing price. For example, if the price of a stock you are buying is Rs. You can then place your order. Tuesday, your order is executed at Rs. Yet, you do not want to miss an opportunity if presented. Which are the exchanges where I can place AMOs? AMO is for those customers who are busy during market hours but wish to participate. Understanding that every customer has his unique style of investing, Kotak Securities creates and provides multiple trading platforms that enhance trading experience of every customer. The next time you want an investment advice or want help in carrying out investment transactions, just walk into your neighboring Kotak Securities outlet and our investment advisors will be happy to help you out. This is specifically for online stock trading customers.

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