India is observing one of the largest financial literacy floods. Yes, in 2021, the entire equity market segment has reached its all-time high. Along with this the option trading in India for beginners has also seen massive growth.
Although options trading is a significant part of stock market trading and investing, a lot of novice investors and trader do not know about it.
No worries, we are going to help you provide the right information that will help you understand the options segment of the stock market in India. Keep reading!
Meanwhile, if you want to learn about Indian Stock Market, check Stock Market Segment on Stockative Blogs.
Exclusive Meaning: The Option Trading In India for beginners
Table of Contents
The options trading segment allows investors/traders to buy or sell securities like stocks, ETFs, etc. at a particular time slot.
For example: If you are willing to buy a stock on 12th Dec at Rs. 200 per unit, and you booked an order considering your specific time limit and price.
While it is a little more challenging than equity trading, options can assist you with relatively higher profit if the price of the security goes up.
Do you know why you tend to make more in options than in the equity segment? This is because, in options trading, you do not need to pay the full price for the security. This restricted spending adds on with the profit to make it even more fulfilling.
In this system, options trading can stop your loss if the price of the stock rises, which is called ‘hedging.’ Buying of a security is known as ‘Call’ while selling of a security is known as ‘Put.’
Different types of Option Trading in India for beginners?
There are different types of options trading available in India.
#1 Options Day Trading
The options day trading consists of buying/selling of a particular option contract, which is similar to day trading of equity. You are required to have a view of the particular stock and trade as per the price movement.
On the desktop, you will have a charting tool and set of indicators, which will help you do technical analysis and trade as per your preferences.
For instance, you can pick the most liquid option contract such as SBIN JUL 200 CE, and subsequently, you can buy/sell or sell/buy it multiple times.
Remember, your overall profit will depend upon the movement of the price of the option and the number of trades that you have ended with a profit.
#2 Options Position Trading
Options position trading consists of buying/selling multiple options to form an option strategy such that you would have positive cash flows until the options are on-board. These positions are built based on the particular index or stock.
Multiple options are employed to restrict the loss. For instance, if you are bullish on the NIFTY and find a moderate increase in the price, then you can take the Bull call spread position (it’s a strategy).
Indicators Under Option Trading In India For Beginners
#1 Open Interest (OI)
Open interest is the number of unsettled contracts of a specific option trade. OI does not tell downtrend and uptrend, but you can get a fair view of the strength of a specific trend.
Rising open interest tells new buying or increasing interest in that specific option contract and sustainability of the previous trend. While, on the other hand, a declining open interest indicates a weakening of the existing trend.
| Price | Open Interest | Interpretation |
| Rising | Rising | Market/ stock is going strong |
| Rising | Falling | Market/ stock is getting weak |
| Falling | Rising | Market/ stock is getting weak |
| Falling | Falling | Market/ stock is going strong |
#2 Put-Call ratio indicator
The put-call ratio times the trading volume of put options vs. call options. The enhancement in the put-call ratio helps in understanding the emotions of trading.
When there are more puts than calls, i.e. when the PCR ratio is more than 1, then it suggests that more traders/investors in that option are getting bearish.
Similarly, when the call trade volume is higher than the put trade volume, the PCR ratio remains less than 1 indicating that you have more bullish participants.
You should not rely single-handedly on the PCR indicator because hedge fund managers constantly buy put options contracts to hedge their portfolios. In this situation, the PCR ratio will be higher than 1 suggesting a bearish market, which may not be the real case.
#3 Intraday Momentum Index (IMI)
The Intraday Momentum Index is essential for high-frequency option traders looking to trade aggressively on intraday option trading price movements.
IMI connects the candlestick analysis simultaneously with the (Relative Strength Index) to take insights for intraday trading. You get to know when the option is high-buy or high-sold.
IMI indicator levels over 70 indicate high-buy situations ripe enough to initiate a sell trade. Whereas, IMI levels below 30 indicate high-sold situations where you can begin a long trade.
When the prices are progressively increasing or diminishing then the indicator will constantly indicate high-buy or high-sell situations.
#4 Relative Strength Index (RSI)
The relative strength index (RSI) is a plain indicator that tells momentum, which is helpful in determining the high-buy and high-sold situations.
Relative Strength Index resembles the magnitude of recent gains to recent losses. RSI values range from 0-100.
Relative Strength Index is comparatively best for options on individual stocks, as compared to indexes because stocks reflect high-buy and high-sell situations more frequently than indexes.
All you need to do is enter a short call or a long put trade when the Relative Strength Index shows a value higher than 70 (high-buy situations). You can buy a call or sell a put option if the RSI goes below 30 (high-sell situation).
How To Start Option Trading In India For Beginners?
#1 – Login to your trading platform
Firstly, you need to log in to your online trading account using the credentials provided by your stockbroker.
If you don’t have a trading account, you can easily open one with Paytm Money.
#2 Add the required fund
For options trading, you should have at least Rs. 1.5 Lakhs to Rs. 2 Lakhs in your Paytm Money Funds. Use the Add Funds/Withdraw option if you have insufficient funds for trading options.
When you click on the “Add Funds” menu then a new window will pop up. In this window, you need to fill in the amount that you want to add to your Paytm money trading account.
Add the amount and select the segment (common segment for equity/derivatives and currency).
Keep a check on your preferred bank details and select the medium by which you want to transfer money to the funds. You will be redirected to a new tab where you will make your transaction.
#3 Create Watchlist
Find the most liquid options that you want to select for trading using the NSE India or MoneyControl website as mentioned earlier.
The next step is to create a watchlist where you can keep a track of all the options that you have selected for day trading.
#4 Place a Buying Option Order
Once you have started checking your preferred options. You can buy an option order on Paytm money.
Select your desired price and quantity and place an order. Also, you can check the positions of your options by going to the next page.
Conclusion
This is how you can start option trading in India even if you are new to this segment.
We have tried to tell you with the preliminary information about ‘how to do option trading in India for beginners?’ Hope you have learned something from this chapter.
Don’t forget to visit the stockative for further information and intellectual content. Also, sign up on Stockative for such enticing content regularly.
Key Takeaways From This Chapter
- The options trading segment allows investors/traders to buy or sell securities like stocks, ETFs, etc. at a particular time slot.
- The options day trading consists of buying/selling of a particular option contract, which is similar to day trading of equity.
- Multiple options are employed to restrict the loss.
- If you don’t have a trading account, you can easily open one with Paytm Money.
Frequently Asked Questions
Which is the best trading software in India?
Paytm Money is considered one of the emerging and secure trading software in India to trade options easily and conveniently. You can open your trading account on Paytm Money, the best trading app in India 2021.
What is BOID on Online Trading Applications?
The BO ID (Beneficiary Owner Identification Number) is a unique 16-digit number employed to identify your dematerialized account. You will receive it at the time of opening an account with stockbrokers like Paytm Money.
