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Nifty:-Is the index of National Stock Exchange. It is derived

from top 50 companies of NSE based on its market capitulation. Major stock exchanges have the habit of putting top performance based companies under one group, as such Nifty 50 originated with 50 top performing companies of India with highest market capitalization and turnover. A base value of 1000 was given at the time of its derivation in Nov.3rd 1995. Stock market indexes commonly are calculated by any of two types. (1) Market capitulation weighted index (2) Price weighted index Stock Market capitulation affects the index value, but the stock price influences because it is said as price weighted index.

Nifty Option :-Nifty call put trading allow the traders to earn
maximum with limited risk, as everyone knows the profitability in Nifty options trading is unlimited with calculated loss. This is one of the possible ways to earn fast and huge with very less investment when compared to Nifty Futures trading. Nifty options can give you returns of ten times of your capital in single trade ,that means if trader could predict a Nifty fall or rise of 100 points or even he can double or treble his capital in just one trade.

RISK FACTORS WHILE TRADING WITH NIFTY OPTIONS

1. Very high volatility. 2. Limited risk and unlimited profit. 3. More profits than Nifty Futures or cash trading.

2 4. One should buy Nifty call option when market moving upside. 5. One should buy Nifty put option when markets are moving downside. 6. Both Nifty put option and call option offers you a good risk/reward ratio.

NIFTY INDEX FUTURES:Nifty future is a derived contract for nifty index security (shares). As volatility is a key factor for trading any stock. Traders find Nifty Futures trading very profitable one with compare to other stocks. At the same time the margin require to buy one lot of Future is very less when compare to stock Future. The Break Even required to meet is also very less and easy as the volatility of the Nifty index Future trading is very high. Number of points gained divided by loss is multiplied by lot size of 50 to get find profit/ loss, as the lot size of index Future is 50 s In Nifty Futures Point To Remember 1) Amount required to trade in index Future is less compare to Nifty Equity (shares) trades. 2) Risk /Reward is high in this trading compare to stock Future trading. 3) Volumes are very high in Index Future, so that manipulations are not possible. 4) Trade stability in index trading is more than in Nifty options. 5) Nifty Future has very high liquidity in nature which makes buying and selling

3 6) Profit& Losses will be moderate with compare with Nifty Options. 7) Future trading is good for speculators. 8) Arbitrage and Hedging are the applications in this kind of trading (Future & Options).

FUTURE TRADING
The important feature of Future trading is that, it allow you to short the market for the same period of contract time where you become seller, with a view that market might fall in the near future. There is no need for the traders who are in short to square off their positions in intraday. Apart from this there also important advantages like Hedging and Arbitrage. Further trading allows to go long (buy & sell) and short (sell & buy) traders. Time frame to hold to hold the stock/Future will be till the last Thursday of the month. Future trading discounts the price for every lot. Contracts can be exercised any time till expiry. Future trading is available in both Nifty as well as stocks (selected stocks) Nifty Future can be used to trade in combination with other segments like Cash and Hedge. Profit and losses in Future trading are high when compare with Cash trading. Nifty Future trading is bit different when compare to Nifty Cash trading. Nifty Future has 50 shares per lot .Lot size of Nifty changes as per the market value. Three months expires are available for Nifty Future trading (At Present, Next & Far) Also the margin requires to trade a Nifty is Rs.25000 to 30000; but it depends upon the value at that time. Traders cannot purchase or sell a single share as it is possible in Equity. You can very well buy or sell as a multiply of 50. Time allowed for the trader to square off their position depends on the expiry we select. Within the expiry traders are suppose to clear their positions, failing which may select in auto square off by the exchange.

4 Nifty futures trading also helps you to hedge your portfolio when stocks are incline in their market traders can short nifty n protect their stock against any corrections in the market.

OPTION TRADING
In option trading Strike price is a term again and again used. Strike price is the price at which option can be exercise in simple words it is the betting or expectation price were you think, markets may go up to that price. e.g.: lets us take nifty call put option, if nifty is trading at 5480 and you think markets may move further 220 points upside then in that case you can go far nifty call off 5700 Strike price(5480+220=5700) that means now you can buy 5700 CE (call option). In this 5700 is not the buying price value but only an expected level till were nifty may reach in the near future. More over its just like name give to an open . in this example current buying price value is called Premium were you buy, say it as Rs 40 as well as if you predict that nifty may crash 280 points more from current price, in this case you can go for Put Option of Strike price of 5200 PE(5480-280=5200) that is your nifty 5200 PE or else you can also say its current price/premium is around Rs 50.please note that Strike Prices are available only with the difference of 100. So that traders can go for 5600 call or may be 5700 call or 5800 call. Now please understand how one can make profit if your expectation or betting correct. In the first case if your expectation is correct you would get profit of around 220 points. You predicted market when the price was around 5480 and as per your expectation Nifty travelled from 5480 to 5700 that is total 220 points. At the time of your buying we assume the premium (current price) was around 40 and when market reaches your expected level of 5700, that means you get total of 260 points (40+220), where you get net profit of 220 points deducting your initial investment of 40 points. That means now if the lot size of Nifty is 50 shares you would get final amount of Rs. 13000(260x50=13000) minus (40x50=2000) and 2000 is actual investment returns.

5 So profit =13000-2000=11000. In the second case if your expectations or bet is correct , that is Nifty fell from 5480 to 5200 and at the time your put by say the current price of premium is Rs.50 , that means you get 50+280=330 points in which 280 is the profit and 50 being your investment return. Strike price means it the term used to refer the gap between expected price and current Nifty price at that point of time . Strike prices are available with the difference of 100 points for Nifty index based on the current price; and strike prices are divided into two things. First In the Money(ITM) and At The Money(ATM). Premium price is nothing but the options current market price that means please dont confuse with strike price which is just with the expected or predicted price or figure, to which stock may reach in the near future .

Intrinsic value :- is the difference between current stock value and strike price
of particular option. First thing one must understand there will be only two ITM (in the money option) there will be no intrinsic value to Of the money or At the money options Example:-If you take Nifty as an example, say Nifty is trading at 5668 and we want to calculate strike price for 5600 Call (ITM) the difference between current market price i.e. 5668 and strike price (5600) is 68. So the intrinsic value is 68.this is because option Call we took is In the money. In the next example take Out the Money Option Call say 5700 CE(call option) and current trading price as 5668,formula remains same with difference between current market value and strike price, that means 5668-5700=-32 which is negative in nature. Even At the Money Option .leaves a balance of zero, that means to conclude intrinsic value does not exists for Out The Money Option Call. Please remember when you play for Put Option (PE) formula stands totally reverse, that means your strike price minus current trading value for Call Option

6 (CE) as well as Put Option. Intrinsic value exists only for In The Money Option and not for Out The Money Option and At The Money Option . Time Value:-Like intrinsic value is not an easy calculation to perform .As a trader you must exactly understand the time value. In simple words time value means an ice cube which melts with time ,at starting of the month maximum time value exists as time progresses time value too comes down irrespective of market movement(upside or downside). It is nothing but just like the interest you get for bank deposits. A person who purchases an option at the start of the month get the higher rate of interest and one who purchases at the end of the month does not get anything. Since time value is zero, this rate of interest exactly resides at the power in the formula .so if the time value is zero at the end of the month. An thing power zero is zero ,and so the time value also in general it is said that option losses its value in one third of its time value in the first days and two third in the second day of its expiry. That means the best way to calculate the time value is premium .Intrinsic value which is just the other way of other formula mentioned earlier. Please remember that the time value states with maximum and end zero. Irrespective of market value, intrinsic value and strike price. Example:- If you buy Nifty 5600 CE, when markets at 5668 at the premium at 80 , the intrinsic value is 68 and the remaining value(80-62=12) is the time value at the option at the particular period . Important point to note here is that if the market remains there at 5668 fill the end of the month the premium becomes 68 with only intrinsic value as the as time value multiplies to zero, depending on the strike price and current value. Options are divided into three categories. 1. In The Money Options 2. Out The Money Options 3. At The Money Option

7 1. In the Money Options:-e.g. If the strike price of the call is below the current trading value, we call that as In The Option Call Money. E.g. Strike price minus Nifty 5600 and current trading value is CE 5650. If the strike price of a put (PE) is above the current trading value we call that as out the money option put. E.g. Strike price minus Nifty 5700 PE and current trading value is 5650. 2. Out the money option:- If the strike price of the call is above current trading value we call as In the money option call .e.g. Strike price minus Nifty value is 5650. If the strike price of put (PE) is below the current trading value we call that as out the money option put .e.g. Strike price minus Nifty 5700 CE and current friendly value is 5650. If the strike price. If the strike price of put (PE) is below the current trading value we call that as out the money option put. E.g. Strike price minus Nifty 5600(PE) and current trading value is 5600 3. At the money options: - If the strike price of a call is at or near, the current trading value , we call that as At the money option call. E.g. Strike price minus Nifty 5600 CE and current trading value is 5602. If the strike price of a put (PE) is at or near current trading value. We call that as at the money option put (PE). E.g. Strike price minus Nifty 5600 CE and current trading value is 5602. E.g. Strike price minus Nifty 5600 CE and current trading value is 5602. E.g. strike price minus Nifty 5600(PE) and current trading value is 5605. Please note, Premium of calls increases with higher strike prices and premium of puts increases with decrease of strike prices. Like Nifty future trading Nifty option stud trading too has some time line expiry. The expiry date of all the deratives products (call, option put of one security remains same) Trading style of Nifty call put option is totally different to Nifty equity or Nifty Futures.

8 Different strike prices are available from far, before strike price to far after price that means. e. g. If Nifty is trading at 5500 ,trades can avail Nifty strike price from around 350 to 7000 or even more . So the right to exercise is high in Nifty option trading. It would be obvious to say that key lies in predicting the market movement , when it comes to option trading. The lot size is same as Nifty pictures as option. 50 shares per lot and premium, traders select to trade, decided their investment to buy an option lot. E.g. If the premium selected is around 100, the investment required to buy one lot at Nifty option is 5000.(100x50=5000) . As the lot size remains same with 50 shares irrespective of Nifty call option or nifty put option, but please remember that this is not the case you sell Nifty option .Since the margin that is required for selling is same amount that is required to buy Nifty future one lot. This is because while buying Nifty option the loss is limited and profit is unlimited. Where as in case of selling a Nifty option the loss is unlimited, this is reason why traders need to maintain mark to mark margin. In case of loss, at the end of month (expiry date). After the square off the position and calculating the profit /loss, the remaining amount will be credited in the traders trading account. NOTE: (Points to keep in mind) 1: Nifty option trading consists of Nifty calls and Nifty puts. 2: All option scripts (share) have the same expiry as of Nifty future. 3: Lot sized nifty option is 50 shares per lot. 4: Different strike prices are available for Nifty options, trading based on current price. 5: Profit/loss is calculated by multiplying lot size (not the number of shares) and points gained/lost.

9 CALCULATION FOR THE OPTION When we think of calculation of option, there are two things we have to learn to calculate. The Break Even Point of any option and how profit and loss are calculated. E.g.:- To understand Nifty better, how profit and loss are calculated in option trading. The lot size of Nifty is 50 shares in number irrespective of call or put. His profit/loss does not depend on the type of call Nifty call option or Nifty put option) expiry or strike price, it directly depends only on premium which traders select while purchasing option. Another e.g. If you bought one lot of Nifty call 5600 CE is bought at 88. The investment required to purchase this option is approximately Rs.4400 (50X88=4400) Leaving brokerage and other cost such as taxes etc. If the same option is sold at 120, the profit in terms of points is around 32 (12088=32) Now it is pretty simple, that multiplying number of shares with the difference premium (32) gives us actual profit i.e. 50x32=1600 per lot. Exact calculation goes with the put option too. As even in case of Nifty put. To understand the loss side the max loss one can get with above mentioned put or call option is Rs. 4400 as that is the max loss trader agreed to spare at the time of buying. So even Nifty collapses huge in other directions of your Nifty call or put, the max loss is limited and you are aware of same. This is area where option trading stands special and very popular. When compared to other types of trading. Break Even Point is zone where the investment is sealed without profit or loss, in simple words while investing traders make sure that they do not get losses once the script reaches their estimated point and lesser the investment quicker the Break Even Point and for some Break Even Point in call or put option. Calculation at break even mainly depends on premium strike price and current price trading of stock. E.g. Let us assume that traders bought Nifty call option 5500 at 44 and that time Nifty is trading at 5438 this clearly tells us that trader in a view

10 Nifty expected to reach 5500 sooner or later and that is the reason he decides to buy Nifty call 5500. Here one thing one must understand that this is out the money call and there will not be any intrinsic value on all premium i.e. 44 is time value . *: Now how one can calculate this , First if Nifty reaches 5448 the profit is 10 points , if Nifty reaches 5460 the profit is 22 points , if the Nifty reaches 5482 profit is 44 points . We know that time value anyhow becomes zero at the end of expiry at 5482, the traders get a profit of 44 points because of his good expectations and at the same time value 44 becomes zero. So final profit/ loss is zero. Which is called Break Even Point. So while buying this Nifty 5500 CE traders first target would be 5482 while he can increase the investment cost, then look for the profit. If Nifty ended expiry at his expected level 5500 he would get reward of 62 points and loss of 44 points, so traders total profit would be around 18 points. In case of Nifty closes 5500 and ends at 5500 expiry then the profit would be 112. (5500-5438=112) and once again the time value loss 44 which results in 68 points loss, and finally if Nifty stays anywhere below 5482 which is not even 44 points. Say Nifty stays at 5480 that means profit is 42 points and loss is 44 points leaving difference of minus two points. Fortunately as the loss is limited traders need to pay the difference at max. loss he needed to face is 44 points that is Rs.2200 for one lot of Nifty 5500 CE. SUMMARY Nifty call option (Nifty CE) 1: Nifty call rises when Nifty index rises and the Nifty declines when index falls. Nifty call is denoted as Nifty CE in trading terminals. 2: In Nifty call put option too, the loss is limited with unlimited profit. 3: Each lot consists of 50 shares in Nifty options. 4: As for other stocks three expires are available, in this type of options called as Current, Next and Far.

11 5: A trader who has short term view on Nifty index can purchase a next and far month call option , and can hold till respective month expiry for good returns. NIFTY PUT OPTION (NIFTY PE) 1: It refers as Nifty PE in terminals. Behavior of puts are inversely proportional to calls . 2: Nifty put rises with index fall and Nifty put declines when index rises. 3: this is no way exponential with respect to lot size, expiry on calculation. 4: As mentioned above if traders have strong view of Nifty index to fall inner future he can go for Nifty put to take max returns. Advantages of Nifty call and put options. 1: High volumes in call/put options . 2: Easy to predict Nifty index whether it is going up or down, to decide call or put option. 3: Very less chance of manipulation due to heavy volumes in Nifty. 4: No problem in liquidity in Nifty call/put. 5: Easy break even is possible while trading in Nifty option (call options and put options) PUT OPTION Call/put option is otherwise called as directive options. Every directive option consists of a call (CE/CA) and put (PE/PA). These options have two types based on their occurrence. The first option is from Europe and after called a European .And second one is called as American options. Basic difference between these two types is type of exercise they undergo. In European type option the exercise has to be done at the time of expiry, whereas in American type open trading can be done any time till expiry. In Indian market, exchanges follow American trading style for both Nifty and stock options, and notifications are PE and CE. For CE/PE Nifty call options and CA/PA for 12

stock/call option irrespective of index call put options , or cal put options , the expiry remains same . I.e. last Thursday of the month before which the holding call/put options are suppose to get exercise. At the end of expiry if the trader failed to square off the position, Exchange the checks for type of option, money ness (ITM, ATM or OTM). If the type of call option or put option left is of out settlement will not fake price , but if the call option or put option left is off ,ITM or ATM , then settlement talks place at exchange price and brokerage is called as per terms CALL OPTION. Call option gives the traders the right to buy the option of an underline security from the writer for certain number of fixed shares (as per the lot size) at certain price of an expiry contract. Call options are available for all the stocks which are available in future contract , they are classified into index and stocks. In index all the index subscripts certain call option like Nifty, bank Nifty etc. and in stock companies like Reliance , ICICI bank , Tata Motors ,etc. which in future Contains this type of option. Every call option rise in respect to its spot and future price, and they falls with respect to its spot price. Call options are best suitable to buy when markets are bullish and they are best suitable to short when stock markets are bearish. Call options are hedged with Nifty short options to reduce risk appetite. PUT OPTION: Gives the traders the style the right to sell the option of an underline security to the writer for certain number of fixed shares (as per the lot size) at certain price of an expiry contract. As call option, put option are available in future contract. Put option are similar for Nifty, Bank Nifty CNX IT, Mini Nifty and other indices. The capital margin requires to buy a put option is the same as the margin require to buy a call option. Every put option rise with respect to its spot and future prices fall. 13

Put options falls with respect to its spot prices rise. Put options are best suitable to buy when markets are bearish. Put options are best suitable t short when markets are bullish. Put options can be hedged with Nifty long position to reduce risk appetite. HEDGING When investor is long on a security/stock and he anticipate that the price of the security may be volatile in near future then he can minimize his exposure to this unusual risk due to volatility in stock price, which he is anticipating by hedging his position by selling that stock futures. The same strategy of heading can be done by buying puts. Example;-Consider that an investor who holds 1000 shares of BHEL. If he plans to sell the share 3 months later as he would need money to purchase a new flat .Today BHEL trades at Rs.1925 in the spot market .Investor worries about fall in the price of BHEL in coming 3 months when he actually need the money. In this case he could sell the shares today at current market price i.e.1925.However he does not want to lose on the possibility of an increase share price in coming 3 months. Now to ensure that he gets profit from increase of BHEL .but does not suffer losses due to decrease in price in BHEL all of sudden for that he buys put option on BHEL .Consider that he buys put option with the strike price of Rs.1950 ,which trades of a premium of Rs.30. Example:- Consider that an investor who holds 1000 shares of BHEL , if plans to sell the shares , 3 months later he would need money to purchase a new flat. Today BHEL trades at Rs.1925 in the spot market. Investor worries about fall in the price of BHEL in coming three months, when he actually needs the money. In this case he could sell the shares today at current needed price i.e. Rs.19925. However he does not want to lose a possibility of increase in share price in coming three months. Now to ensure that he gets profit from increase of BHEL , but does not suffer losses due to decrease in BHEL all of sudden for that he buys put option on BHEL. Consider that he buys put option with the strike price of Rs.1950 which trades at a premium of Rs.30. 14

Example: If the price of BHEL falls to Rs.1825 and your price is Rs.1925, In this case you are expected to get a loss of Rs.100 per share but you bought the put of strike price 1950 at Rs.30 and now that trades at Rs.1925,so this ensures that practically he lost only 5 rupees.(-100) (125-30) and this way he would get at least 1920 per share of BHEL. Another example:-If the BHEL price rises to 2025, in this case the price of BHEL rises in that case he lets his option to expire. There by loosing Rs.30, but on the other hand he gets Rs.100 per share as he is able to sell BHEL shares at Rs.2025. So in this case his net gain is Rs.70 per share as compare to earlier price of Rs. 1925. *Whenever stocks are bullish you must buy calls or sell puts and whenever stocks are bearish buy puts or sell calls, remain safe in any market situation. OPEN INTERES Open Interest is the total number of outstanding contract that are held by market participants at the end of the day. In other wards it can also be defined as the total number of future contracts or option contracts that have not yet been exercised (squared off), expired or fulfilled by delivery. Generally open interest applies to the future markets. Open interest or the total number of open contracts, a security is often helpful to confirm trends and trend reversals, for futures and option contracts. It also helps to mature the flow money into the futures market (contract) For each seller of a Future contract there must be a buyer of that contract. Only one contract is created by a seller and buyer. So to determine the total open interest for any given market we used to know the totals of one side or the other. That means buyers or sellers not the sum of both. Each trading day, at the end of session open interest report represents the increase or decrease in the number of contract for that day and it is shown as a positive or negative numbers.