Theoretical Aspects

Nifty


The Nifty 'lot size' is now reduced to 75

Nifty is a major stock index in India introduced by the National stock exchange. NIFTY was coined from the two words 'National' and 'FIFTY'. The word fifty is used because; the index consists of 50 actively traded stocks from various sectors. Some of the top companies in nifty are ITC/ICICI Bank/Infosys/HUL/Reliance/SBI etc.


Market Cap = value of the share x No. of shares

Trade the Nifty

Trading basically means buying and selling of shares in NIFTY. There are different types of trading.

  • Equity Trading
  • Futures Trading
  • Options Trading
  • Mutual Funds
  • Financial Planning

WEALTH PRINCIPLES

  • If you are not fully, totally, and truly committed to creating wealth, chances are you wont.
  • Rich people think 'Big' poor people think 'Small'.
  • The Law of Income : you will be paid in direct proportion to the value you deliver according to the market place.
  • Rich people focus on 'Opportunities'. Poor people focus on 'Obstacles'.
  • Rich people act in spite of fear. Poor people let fear stop them.
  • If you are willing to do only what’s Easy, life will be Hard. But if you are willing to do what’s Hard, life will be Easy.
  • Never have a ceiling on your income.

What are Derivatives?

A derivative is a financial instrument whose value depends on the values of other underlying variables. As the name suggests it derives its value from an underlying asset. For Ex-a derivative may be created for a share, or any material object. The most common underlying assets include stocks, bonds, commodities etc.

What are the different types of Derivatives?

Derivatives are basically classified into the following:

  • Futures
  • Options

What are Futures?

A futures contract is a type of derivative instrument, or financial contract where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price.

What is meant by Lot size?

Lot size refers to the quantity in which an investor in the markets can trade in a derivative of particular scrip. For Ex-Nifty Futures have a lot size of 75 or multiples of 75.Hence if a person were to buy 1 lot of Nifty Futures , the value would be 75*Nifty Index Value at that point of time.

What is meant by expiry period in Futures Trading?

Each contract entered into has an expiry period. This refers to the period within which the futures contract must be fulfilled. Futures contracts may have durations of 1 month,2 months or at the most 3 months. Each contract expires on the last Thursday of the expiry month and simultaneously a new contract is introduced for trading after expiry of a contract

What are options?

An option is part of a class of securities called derivatives.
The concept of options can be explained with this example. For instance, when you are planning to buy some property you might have placed a non-refundable deposit to hold it for a short time while you evaluate other options. That is an example of a type of option.
Similarly, you have probably heard about Bollywood buying an option on a novel. In 'optioning the novel,' the director has bought the right to make the novel into a movie before a specified date. In both cases, with the house and the script, somebody put down some money for the right to buy a product at a specific price before a specific date.
Buying a stock option is quite similar. Options are contracts that give the holder the right to buy or sell a fixed amount of a certain stock at a specified price within a specified time. A put option gives the holder the right to sell the security; a call option gives the right to buy the security. However, this type of contract gives the holder the right, but not the obligation to trade stock at a specific price before a specific date.

What are the different types of Options? How can Options be used as a strategic measure to make profits/reduce losses?

Options may be classified into the following types:
a) Call Option
b) Put Option

As mentioned before, there are two types of options, calls and puts. A call option gives the holder the right to buy the underlying stock at the strike price anytime before the expiration date. Generally call options increase in value as the value of the underlying instrument increases.
By contrast, the put option gives the holder the right to sell shares of the underlying stock at the strike price on or before the expiry date. The put option gains in value as the value of the underlying instrument decreases. A put option is one where one can insure a stock against subsequent price fall. If the value of your stocks goes down, you can exercise your put option and sell it at the price level decided upon earlier. If in case the stock price moves higher, all you lose is just the premium amount that was paid.

What is meant by the terms Option Premium, strike price and spot price?

The price that a person pays for a call option/Put Option is called the Option Premium. It secures the right to buy/sell that particular stock at a specified price called the strike price. In other words the strike price is the specified price at which the holder of a stock option may purchase the stock. If you decide not to use the option to buy the stock, and you are not obligated to, your only cost is the option premium. Premium of an option = Option's intrinsic value + Options time value The stated price per share for which underlying stock may be purchased (for a call) or sold (for a put) by the option holder upon exercise of the option contract is called the Strike price. Spot Price is the current price at which a particular commodity can be bought or sold at a specified time and place.

Color Changer