What Is The Basics and Fundamentals Of Options Trading In India?

 What Is The Basics and Fundamentals Of Options Trading In India?

The popularity of trading has been increasing ever since trading entered the picture. This is simply because the profit amount that an individual earns through trading is quite a lot. Hence, a person automatically gets drawn toward trading.

To define trading, then in simple terms, would be the buying and selling of securities. These securities may include bonds, currencies, stocks, commodities, etc. However, everyone who enters the trading world may not be equally successful. The success of a trader depends on the ability of the trader to study and calculate to become profitable over time. One of the most popular kinds of trading is Options Algo Trading.

Defining Options Trading

Options trading as the term clearly says, is a kind of trading that comes in the form of a contract where you can buy and sell a stock based on an apprehended price. However, there is no compulsion for buying or selling the stock. You sell it because you want to sell yourself, or vice-versa. The entire trading is done through an online platform. Options trading can also be referred to as derivatives trading. This is simply because; the value of the options contract is derived from the instruments that are directly not visible.

What is Options Trading in India?

If you want to do options trading in India, there is a basic procedure that you will have to follow. These include:

Opening a Derivatives Trading Account

If you want to do options trading, then the first and foremost thing that you would require is a trading account. You will have to open a trading account with a reputed stock broker.

Documents That You Will Need To Open The Account

  • PAN Card
  • Aadhaar Card
  • Cancelled cheque
  • Salary slip
  • IT Return or IT Form

Margin Money Requirement

There is a huge risk in options trading. To start the trading, you will require a small amount of money for buying these options contracts. However, if you want to sell these contracts, then the margin amount would be much higher.

Look for Liquid Trading Options

There are several options available for a particular stock. You will have to search for an option that has a liquid options contract. This option will allow you to buy and sell the stock anytime you want. The liquidity of an options contract can be known by looking at its market depth which is the number of buyers and sellers defining the bid and ask price.

Kinds of Options Trading

There are various kinds of options trading that you can try. You can either choose positional trading or you may also go for day trading. The choice depends on the trading strategy that you follow.

Options Positional Trading

Buying and selling of various options with the motive of forming an options strategy so that there is a positive flow of cash and till a point of time is termed as positional options. You can develop positional options after looking into a particular stock or index. In such cases, to avoid loss, the multiple options available are used.

Options Day Trading

The Options day trading comprises buying and selling of an options contract. Stock trading is mostly similar to options trading. That means this is done for a particular stock. You will have to keep a note of the stock that you are tracking and perform your actions of buying and selling accordingly. There is a chart of indicators and tools that will help you to do the technical analysis.

Top Options Trading Strategies

Options trading is completely dependent on the strategy that you use for the trading. The profit that you will be earning from this will depend on how well you have used the strategy. Let’s take the example of the Bollinger band strategy as something that could be profitable for a trader.

What is Bollinger Band Strategy?

There is a particular band that the strategy follows. If the price shifts towards the outside of this band then you will have to understand that the option that you have is ready to be sold. If you see that there is a breakout above the band, then you can go ahead and initiate a sellout. There are various Option trading Strategies and you can create your own strategy as well.

Options Trading via Algo Trading

Algo Trading is a practice where the Trader/Investor hires an Automated Stock Trading App that can place orders automatically on the behalf of the individual trader. Nowadays, the Algo Trading platform provides various pre-built Options Trading Strategies in their Bot Marketplace that can be hired by any investor to start trading automatically on the Options symbols. SpeedBot is an All-in-One Algo trading platform that allows traders to trade automatically, build their own strategy, test the strategy, and have a Marketplace for various trading strategies.

Steps to Do Options Trading in India

There are some steps that you will have to follow if you want to do options trading in India.

These Steps Include:

1: Select a trading platform and login into it

2: Add the amount of money that you think you can spend on options trading

3: Create a watch list of the options that you want to keep a track of

4: Place an order to buy or sell an option

5: Square off and exit

Bottom Line

Options trading is one of the best kinds of trading because it allows a trader to generate a multifold return. However, for that, a trader has to practice and strategize correctly. You can consider this as a full-time activity or can also choose to do it as a part of your additional income.


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