Quick Lesson_share Market

7/27/2019 Quick Lesson_share Market

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QUICK LESSON

We have been talking about Derivatives recently, so what is Derivatives ?

Derivative is a product, which does not have a value of its own but derives its value from

some other underlying asset or a commodity. To understand this definition, lets take anexample of a Gold ring, lets say we are interested in purchasing a gold ring and we go and

enquire about the price. On what basis would the jeweler tell us the rate of the ring ? It would

depend on the rate of gold in gold market. So if the gold market rises, the rate of the gold ringwould rise and if the gold market falls, the rate of the gold ring would fall.

So over here, Gold ring is the Derivative product we are interested in trading and the

underlying asset or the commodity is the gold in bullion market.

Derivative Contracts are standardized in terms of quantity and delivery time ?

Just like the minimum lot size in equity market is 1 share, the minimum lot size in derivativemarket is also 1 contract. However each contract will correspond to different lot sizes in the

underlying assets. SEBI has decided a lot size for trading in Derivatives. So in whichever

scrip you wish to trade, you need to know the lot size, i.e. the minimum quantity you need tobuy or sell. In case of Infosys each Infosys contract corresponds to 100 shares, in case of

ACC, it corresponds to 1500 shares. You can trade in multiples of lot size only.

Also unlike normal equity market, here one can take a position and keep the same open till

the end of one, two or three months. At all point of time, exchange would allow a customer totake a position in all or any of the three different month contracts available. Lets say today is

October 1, 2002, We will have a choice to take a buy / sell position for contracts that expire in

October / November / December month. Every open position would have to be closed by the

last Thursday of that particular month.

In India, all derivative contracts are Cash settled, so at the end of the contract there would be

no delivery of shares, but exchange would just see your profit and loss position and would

credit / debit money accordingly.

For example, if you enter into a 1 month contract to buy 100 shares of INFTEC at Rs.3000/-each and lets say after a month the price of INFTEC shares is Rs.3200/- Now had this been

delivery settled, you would have to pay Rs.3,00,000 ( 100*3000 ) and then go and sell the

same in equity market at Rs.3,20,000/- to book your profit of Rs.20,000/-

But in India where derivative market is Cash settled, you would straight away receiveRs.20,000/- from the seller rather then you paying him and then selling the stock to get your

profit.

Types of Derivatives :

Derivative family is too big, but over here we would restrict ourselves to the two main


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products under Derivative Trading, i.e. Futures & Options. Lets try to understand them one by

one.

What is Futures ?

As the name suggests, it is an agreement to be settled sometime in future. Lets understand this

with the help of the following example :

I am interested in buying a Maruti car worth 2 lac. But I do not have the required amount

right now with you and you feel that the price of the car might go up within a months time. In

order to benefit by the price moment, I go to a dealer and ask him to give me the car after a

month and I would pay him the amount after 1 month. Lets say if you would have been thedealer, would this deal be acceptable to you ? You would accept this only if I also agree to

pay you the interest amount that you would otherwise stand to loose for one month. So, here I

enter into a contract with a dealer to buy Maruti after a month for a price of Rs.2,02,000/-

mutually decided. This is a Futures agreement.

From the above example, we find that "A futures contract is an agreement between two

parties to buy or sell an asset at a certain time in the future at a certain price."

So what happens after one month ?

After a month, there can be two cases, either the price of the car might go up or fall down.

Case I : Price of the car increases to 2.4 lacs, so in that case, at the end of the month, I will

receive 38000 from the dealer as a profit amount on futures contract.

Agreed Price 202000/-

Price of the car after one month 240000/-

Profit in cash settled case for the buyer 38000/- ( 240000 - 202000 )

Case II : Price of the car decreases to 1.6 lacs, in this case, at the end of the month, I will have

to pay 42000/- to the dealer which would be my loss and his profit.

Agreed Price 202000/-

Price of the car after one month 160000/-

Profit in cash settled case for the seller 42000/- ( 202000 - 160000 )

A Futures trade in financial markets is similar to the above car example. Instead of the car,

you would be dealing ( buying / selling ) in stocks and indexes of a particular stock exchange.


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What do you mean by daily MTM ?

Exchange would run a daily MTM ( Mark to Market ) with regards to all Futures Open Position. Allprofits / losses on a daily basis would be credited / debited from your account. So if you have a buy

order executed at 210 early morning and the closing price of that same stock in Futures market was215, exchange would credit Rs.5/- to your bank account on "T+1" day. Next day, your Base Pricewould then be 215/- instead of 210/-. Base Price would go on changing everyday based on the closingprice of the previous day.

How do I close my Open position ?

Like Margin Position, you can close this position by squaring off any point of time before the

last Thursday of that particular month. In case if the position remains open till the lastThursday, exchange would close the position taking into consideration the closing price in

Equity market. So if the closing price is 210 and your base price was 200/-, exchange would

give you a credit of Rs.10/- and debit the sellers account by the same amount.

How can one do Futures Trading on ICICIdirect ?

To put in a futures trade on ICICIdirect, kindly follow the mentioned steps:

To trade in Derivatives, you need to log in in the same way as we normally go across for

equity trading. Once you log in, you would now see the trading section on Futures & Options.

This section would be activated only after you sign in the Derivative agreement and mail itour Corporate office. Lets now go about placing an order in Futures and Options each.


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For trading in Futures & Options, you need to first allocate some amount out of your bankaccount. The amount allocated for equity market would not be considered for trading inFutures & Options. Allocation takes place in the same way as equity market allocation. Lets

say, from your Net Withdrawal Balance, you are now interested in allocating Rs.10,000/-.

What you need to do is just choose the option as "Add" against Futures & Options and in thebox given, fill in the required amount and click on "Submit". The allocated amount would

now be reflected in the next screen which is "LIMITS".


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Stock List for Futures section would display the list of all 31 underlying including NIFTY.Initial Margin % would be the percentage of amount required to trade in any Futures contract.Minimum Margin % is the margin percentage to be maintained with ICICIdirect at any point

of time. So lets for example, if you would like to take a position in ACC, contract value

Rs.2,00,000/- the system would initially block Rs.50,000/- as a 25% Initial Margin and youwould have to maintain atleast Rs.32,000/- as margin at all points of time in the event of

market going against you.

Calendar spread means placing two orders for contracts, one buy and other sell for same

quantity in the same underlying, one in the near month and one in middle month. It is similarto margin trading wherein we place one buy order and one sell order for the same quantity

and in the same stock. The only difference in Futures would be taking this position in two

different months which has different expiry dates. For example, the current market price forACC in cash market is 150/-, you take buy position for 100 shares in Fut - ACC- 26 July 2002

@ 151 and sell position for 100 shares in Fut - ACC- 29 Aug 2002 @152. 100 buy position in

Fut - ACC- 26 July 2002 and 100 sell position in Fut - ACC- 29 Aug 2002 forms a spread

against each other and hence called spread position. This spread position would be leviedspread margin % for margin calculation instead of IM%.


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Spread positions have low risk profile. Take the same above example and say the current

market price has fallen down to Rs.140. In case if you had only the buy position, you would

have incurred a loss of Rs.1000/-. But over here as we have a spread position the risk

involved is minimum. Now when the CMP is 140/-, the July month futures price would be

say 141/- and August month would be 143/- approximately. So the loss on July month futuresposition will be Rs.1000 ( 151-141*100 ) and at that same time the profit on August month

futures position would be Rs.900/- ( 152-143*100 ), so the overall net loss would only beRs.100/- rather then Rs.1000/- had we taken only a buy position.

Now to place an order in Futures, you can either click on the underlying in the Stock List or

lets click on "Place Order"

In this screen, you are required to fill in the stock code of the underlying you wish to trade in.

After stating the stock code, lets say as INFTEC you got to select the exchange ( currently

you can trade in Derivatives only on NSE ) and the product as "Futures". After that click on"Select Contract"


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Select Contract would now take us on to the Contract details page, where we can see the threedifferent months contract available for INFTEC on this date and time. We can also check theLast Traded Price for that particular contract and the Lot Size is also pre-populated. In order

to know the current market price for any particular contract, click on "Get Quote" against that

contract.


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Get Quotes would display the Last Traded Price, Day Open, Day High, Day Low, Previousdays closing as also the Bid and offer details available at that date and time. We can also viewthe High / Low Price range, which would help us in placing our orders between the mentioned

ranges. After knowing the latest price, we just need to click on the "Buy" option in the

Contract Details page.


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The Buy screen would show us the current status of NSE and BSE as closed or open. It alsodisplays the Contract selected by us and the minimum lot size for that underlying. We cantrade in that lot size or in multiples thereof. After selecting Limit or Market, we have a choice

of selecting the type of Order as

a) Day : Day orders are all orders which would be valid only for that particular trading

day.

b) GTD : GTD orders are orders which if not executed on the same day would still be

valid at the exchange level till the date specified by you. We can specify 7 calendar

days at the most or the expiry period whichever is nearer.

c) IOC : IOC orders are Immediate or Cancel orders, which can be placed only duringMarket hours. Immediate or Cancel orders would go to the exchange and if the

required quantity at the desired rate if available would be Executed or it will come

back as cancelled the same moment.


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After selecting the type of Order, you just go to click on "Submit". Like equity market, we

can know the status of the order through the Order Book.


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Once the order is executed, you can now view the current status in the "Open Position"screen. Over here, you can view the contract details, buy/sell position, quantity as also thequantity related to unexecuted derivative orders. It would also display the LTP ( Last traded

price of that contract ) as on that date and time. The Action screen would display the actions

as :

a) Add Margin : You can always add more margin through this link in case if you expectthe market to go against you. It would safeguard your position against the system

square off.

b) Square off : This link would assist you in squaring off your open position. It is always

advisable to square off any position always through the Square off link.

c) Joint Square off : In case of a spread position, you can use the Joint square off link to

square off both the positions.

|X| CLOSE

Minimum Browser Requirement: You must have Internet Explorer 5.5 & above or Netscape Communicator 4.7 & above.

Copyright 2007.All rights Reserved. ICICI Securities Ltd


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trademark registration in respect of the concerned mark has been applied for by ICICI Bank Limited

NSE SEBI Registration Number :- INB 230773037 | BSE SEBI Registration Number : - INB 011286854NSE SEBI Registration Number Derivatives :- INF 230773037.

Comm Trade Services LimitedNCDEX Membership No.00034 | MCX Membership No.16065


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QUICK LESSON

Quick Lesson on Option Trading

Before viewing the definition of Options Trading, lets take an example to understand thesame :

Lets take the same car example. I am interested in buying a car worth 2 lac after a month

and I expect the car price to increase in this one month. I approach a dealer and ask him to

deliver me a car after a month at an agreed value of Rs.2,00,000/-.

Till here this seems to be similar like a Future trade. But in Options trading, I would like

to have a option of backing out in case if I am on a loss making side. So here, I approach

the dealer and ask him to deliver me the car after one month for Rs.2,00,000/- but as atoken amount, I pay him Rs.10,000/- right now.

After one month there can be two scenarios :

Price of the car increases : Price of the car as expected increases to Rs.2,40,000/-. As,

I am on the profit side, I would approach the dealer and ask for the delivery of the car

at the agreed rate of Rs.2,00,000/-. I can then sell the car in the Open market andthereby stand to gain a net profit of Rs.30,000/- { 40000 - 10000 ( token amount ) }.

In this case the seller would have to bear a net loss of Rs.30,000/-

Price of the car decreases : Price of the car decreases to Rs.1,60,000/-. As mentioned

earlier, if I am on the loss making side, I should have the choice of stepping back. So

in such a case, I would not approach the dealer at all and I stand to loose Rs.10,000paid as token amount. On the other hand the seller would stand to gain Rs.1000/-.

From the above example, we can infer that a person who pays the token amount

purchases a contract and has the right to back out in case if he is on a loss making side.Similarly a person who receives the token amount sells a right and has an obligation to

fulfill the buyers demand.

Similarly the risk profile is also different for the buyer and the seller :

Buyer Seller

Premium ( Token amount ) Pays ReceivesRight / Obligation Right Obligation

Profit Unlimited Limited ( token amount )

Loss Limited ( token amount ) Unlimited


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So now lets see what is Options Trading ?

Option Trading : Confers right to the holder/buyer of option to buy/sell a specified

assets at a specific price on or before a specific date. Seller/Writer has an obligation

to fulfil the contract if buyer/holder exercised .

Option trading has two further divisions, Call & Put :

Taking the same above example, whenever a person has an intention to buy a commodity

by paying a premium amount right now and settling the same on a later on date is known

as a Call option. Call option has two parties, one a buyer of a Call option and other a

seller of a Call option. In the above example Mr.X is a buyer of a Call option, who has aright and the dealer over here is a seller of the Call option who has an obligation. The

buyer of a Call option would pay the premium amount while entering into the contract

and the seller of the Call Option would always receive the premium amount while

entering into the contract. It also conveys that the loss of a buyer is limited whereas theloss of the seller is unlimited.

To understand Put Option, lets take another example, where MR.X is interested in selling

a car ( Maruti 800 ), the current MRP is Rs.2,00,000/-. Mr. X believes that some 15 daysdown the line, budgets coming up and the price of the car would decrease. Not wanting to

take any chances, he goes to a dealer and asks him to take delivery of the car after 1

month for Rs.2,00,000/-.

Dealer knowing the market too well agrees for that but demands Rs.10,000/- as a riskmeasure that he is ready to take. So now they enter into a contract whereby Mr.X would

pay the dealer Rs.10,000/- right now and after one month, the dealer would have to takedelivery of the car for the agreed amount of Rs.2,00,000/-.

After 15 days, budget is out and lets take in two instances having impact on the price of

the car :

1) Price of the car decreases to Rs.1,60,000/- : Now in such a case, the buyer is in profit

of Rs.40,000/- and so he can go the dealer and ask him to take the delivery of the carat Rs.2,00,000/- which was the agreed price. So in this case, his profit is Rs.40,000/-.

2) Price of the car increased to Rs.2,40,000/- : In this case, the buyer ideally would not

prefer to go to the dealer and sell the car as he is getting a good amount in the Openmarket. In such a case, he would loose the premium amount or the advance amount ofRs.10,000/- paid by him while entering into this contract.

In the above example we saw that the seller of the car, Mr.X has a right to go force the

dealer to take the delivery of the car in case if the price of the car decreases, but in case if

it goes up he has a choice of stepping back. The buyer of the car on the other hand does


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not have any right to step back in case if the seller of the car comes and forces him to take

the delivery of the car.

Such a transaction where Mr.X, who pays the premium amount has an intention to sell a

commodity is known as Put Option. Put option also has two parties, one a buyer of a PUToption and another a seller of a Put option.

Buyer of a put option is intending to sell a commodity ( Mr.X in the above example is the

buyer of a Put option ) by paying a premium amount. In case if the price of the

commodity goes down, he will make profit by forcing the seller ( The dealer in the aboveexample is the seller of the Put option ) of the Put option to take the delivery of the

commodity. Over here also the buyer, who pays the premium amount has limited loss,

and the seller who gains premium has unlimited loss.

Intention / Transaction Call Put

Buyer of an Option Intends to buy an asset Intends to sell an assetSeller of an Option Intends to sell an asset Intends to buy an asset

Risk Profile :

Position / Profile Profit Loss

Buyer of a Call Unlimited Limited ( premium )

Seller of a Call Limited ( premium ) Unlimited

Buyer of a Put Unlimited Limited ( premium )

Seller of a Put Limited ( premium ) Unlimited

Premium amount : The money the buyer pays to seller/writer for granting an option

contract.

: The price at which option is exercisable. In the above example, Rs.2,00,000/- is the

which Mr.X agreed to buy / sell the car.

Spot Price : Spot price is the price of the commodity in the open market.

American Option : It is an option which can be exercised anytime on or before the expiry

date. Taking the same car example, lets say we enter into a one month contract on 01st of

August and if we find the rate of the car profitable on 10 th of August, American optionwould allow us to go to the seller of the option and exercise our right at any point of time

on or before the expiry period. All Stock Options are American in nature

European Option : It is an option which can be exercised only on the expiry date. Taking

the same car example, lets say we enter into a one month contract on 01st of August and ifwe find the rate of the car profitable on 10th of August, European option would not allow

us to go to the seller of the option and exercise our right at any point of time before the


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expiry period. We can go to the seller only on the expiry date. All Index Options are

European in nature.

In the money / Out of the money / At the money : In the money, At the money and Out of

the money contract are always with respect to the buyer of an option. Lets take anexample where the current market price is Rs.2,00,000/- and we take 5 different positions

at different s :

Current Market Price ( Spot Price ) Strike Price Position

2,00,000 2,20,000 Out of the money

2,00,000 2,10,000 Out of the money

2,00,000 2,00,000 At the money

2,00,000 1,90,000 In the money

2,00,000 1,80,000 In the money

Contract I : Lets say, you are the buyer of a call option at a of Rs.2,20,000 whereas the

market rate is Rs.2,00,000/-. In this case you have bought some commodity at an amount

which is more then the current market price, so you are in a loss currently. All thosecontracts wherein you are in a loss comparing the same with the current market price are

known as Out of the Money contracts.

Contract III : Lets say, you are the buyer of a call option at a of Rs.2,00,000 whereas themarket rate is Rs.2,00,000/-. In this case you have bought some commodity at an amount

which is equivalent to the current market price, so you are in a no loss, no profit position

currently. All those contracts wherein your and the market price are equivalent are known

as At the Money contracts.

Contract V : Lets say, you are the buyer of a call option at a of Rs.1,80,000 whereas the

market rate is Rs.2,00,000/-. In this case you have bought some commodity at an amount

which is less then the current market price, so you are in a profit position currently. All

those contracts wherein you are in a profit comparing it with the current market price areknown as In the Money contracts.

Exchange states that at all points of time there should be atleast two In the money, two

Out of the money and one At the money contracts available for every expiry period. Sobased on the market movement, there can be many contracts available for all underlying.

Closure of a position : There are basically two ways of closing an Open position, theyare :

1) Exercise Option : Exercise option would be available only to the buyer of an option

contract. You can place an Exercise request anytime during the day uptill 4 PM andbased on the closing price of the underlying in the Cask market, the exchange would

consider your request only if your contract is In the Money contract. So lets say that


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in case if you bought a call option at a of Rs.2,00,000/- and the closing price of the

same in cash market is Rs.2,05,000/-. Now if you place the exercise request, exchange

would compare your and the Spot Price and as you are In the Money, you would get

the difference of Rs.5,000/-. All At the money and out of the money contracts would

not be considered while exercising.

Also, one has to careful about placing an Exercise request as the same is based on the

closing price of that underlying in Cash market. So lets say if you find the rate of your

contract at Rs.2,20,000/- at 11 AM and you place an Exercise request at that time, it isnot that you would get Rs.20,000/-, but you would get the difference of amount after

comparing your and Closing price in the cash market.

All Stock options can be exercised anytime on or before the Expiry as they areAmerican in nature, but Index Option can be exercised only on the expiry date as it is

European in nature.

2) Square off : Square off can be done in case of all open option contracts. Square off

would ensure that you get your desired rates and is always traded in terms of Premiumamount. An example where you sold a call option, you received Rs.100/- as premium

per share, now if the rate for that same contract goes down to Rs.80/-, you can square

off at Market or Limit rate and get the desired profit.

SOMC : SOMC stands for Short Option Margin Charges. It is basically the minimummargin to be charged in case if one is buying an Out of the Money contract. Lets say that

the Current market price of an underlying is Rs.80/-, but you buy a call option at Rs.100/-,

so you Out of the Mooney by Rs.20/-. The seller is in profit by Rs.20/-. Therefore while

blocking the margin amount, the seller would be given a benefit of Rs.20/- and instead ofRs.30/- at 30%, the total amount blocked would only be Rs.10/- at 10% ( 30 - 20 ).

SOMC cannot be less then 10%.

High Price Range : High Price range shown in Get Quotes is the upper range above whichwe cannot quote our order. In case if you place a rate which is higher then the High price

range, your order will be Rejected by the exchange.

Low Price Range : Low Price range shown in Get Quotes is the lower range below which

we cannot quote our order. In case if you place a rate which is lower then the Low pricerange, your order will be Rejected by the exchange.

All High / Low Price Range for all the underlying would be defined by the exchange on a

daily basis. It would not change on intra-day basis.

Assignment : Assignment of all options is done randomly by the exchange and as acustomer one has to abide by the same.


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How do we trade on ICICIdirect regarding Options ?

For trading in Options, just follow the below mentioned steps :

To trade in Derivatives, you need to log in in the same way as we normally go across for

equity trading. Once you log in, you would now see the trading section on Futures &Options. This section would be activated only after you sign in the Derivative agreement

and mail it our Corporate office. Lets now go about placing an order in Options.


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For trading in Futures & Options, you need to first allocate some amount out of your bank

account. The amount allocated for equity market would not be considered for trading in

Futures & Options. Allocation takes place in the same way as equity market allocation.Lets say, from your Net Withdrawal Balance, you are now interested in allocating

Rs.10,000/-. What you need to do is just choose the option as "Add" against Futures &

Options and in the box given, fill in the required amount and click on "Submit". Theallocated amount would now be reflected in the next screen which is "LIMITS".


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Allocated amount would be the amount from which you can currently trade. Based on our

allocation and payable / receivable positions, we can come to know the "Current Limits"

available on that date and time. Limits is basically known by "Allocations + Block forTrade + Payable to you - Payable by you" At any point of time to trade in Derivatives,

you should have the required amount in your Current Limits.


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To know the list of all available underlying, click on "Stock List". Stock List would

display the list of 31 current available underlying along with the Initial and Minimum

margin percentage.

SOMC refers to Short Option Margin Charges. Lets take an example wherein you buy aTATPOW Call option at Rs.100/- and the Spot Price is Rs.80/-. So you are buying an Out

of the Money Contract. Whenever a buyer of an Option goes in for an Out of the money

contract, the system would give the benefit of the same to the seller and would block themargin accordingly. So in the above example, if TATPOW has an Initial margin of 30%,

the system would block only Rs.10/- { 100*30% = 30, 30-20[profit of the seller while

entering into the contract] Rs.10/- would be the margin blocked } SOMC cannot be lessthen 10%.

Now to place an order, you can either click on the underlying or click on the "Place

Order" link.


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Similar to Futures order, you would have to mention the stock code and select product as

"Options". Under Options, you would have to select Call / Put option type. Lets say we

select the underlying as INFTEC and the option type as "Call". Click on "Submit" to stepfurther.


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After clicking on Submit, the system would display you the contract details for INFTEC,

Call option. You got to be very careful in selecting the contract. Look for the expiry

period first and then for the for that expiry period. It would display the Last traded Pricein terms of Premium amount for that contract. After selecting the contract required by

you, you just got to click on Buy / Sell or in order to know the latest rates, click on Get

Quote. Lets say we are interested in buying INFTEC Call Option expiring 31st Oct and3200.


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Get Quotes would display the Last Traded Price, Day Open, Day High, Day Low,

Previous days closing as also the Bid and offer details available at that date and time. We

can also view the High / Low Price range, which would help us in placing our ordersbetween the mentioned ranges. After knowing the latest price, we just need to click on the

"Buy" option in the Contract Details page. All these quotes are in terms of Premium

amount.


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The buy screen would be very much similar to the buy screen we saw in the Futures

section. So placing an Options order is similar to placing a Futures order except for

selection of a contract. After selecting the type of Order, you just go to click on "Submit".Like equity market, we can know the status of the order through the Order Book.


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To know the current status of your executed order, you can click on Open Position.


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Over here, you can view the contract details, buy/sell position, quantity as also the

quantity related to unexecuted orders. It would also display the LTP ( Last traded price of

that contract ) as on that date and time. The "Action" screen would display the actions as :

a) Add Margin : This would be available only to the seller of an option as buyers inOption trading are not margined. You can always add more margin through this

link in case if you expect the market to go against you. It would safeguard your

position against the system square off.

b) Square off : This link would assist you in squaring off your open position. It is

always advisable to square off any position always through the Square off link.

c) Exercise : This link would be available to the buyer of an option and you can

exercise your buy option through this link. All exercise requests once placed canbe viewed in the "Exercise Book".


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Exercise book would display all the exercise requests placed by you. Exercise option can

be placed anytime. The same can also me modified or cancelled anytime before 4 PM on

a trading day.


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Assignment book : Assignment book like Exercise book would display all the requests

assigned to a seller by the exchange. ICICIdirect would also intimate you via mail, in case

if you are assigned any requests.


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We have seen that in Futures and Options, there are many contracts available at any given

point of time, but lets say that you are interested only in few of them. You can always

select the same as your favorites through the Place Order screen. In order to select anyparticular derivative contract as your favorite, you just got to go to the Place order screen,

select the Product type and in the Contract details page, select the link as "Add to

favorites". Once the contract is added to your favorite list, you can view all the same in"My Favorites"


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Track Market screen would display the bid / offer details related to your favorite

contracts. You can also know the liquidity in any contract through the Volume and Open

Interest figures mentioned.

Cost to carry :Cost to carry is basically the interest factor. Lets refer to the sameexample : The current rate of the car is 3 lakh, so what should be the rate you would have

to pay if you decide to settle this contract after one month. It would be more then the

current rate as the dealer would ask for the interest that he could have earned if you hadpaid for the car now. Lets say if that amounts to 3.10 lakh, the extra amount of Rs.10000/-

is actually the cost to carry.

The cost-of-carry model where the price of the contract is defined as:

F=S+C

where:

F Futures price


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S Spot price

C Holding costs or carry costs

If F < S+C or F > S+C, arbitrage opportunities would exist i.e. whenever the futures pricemoves away from the fair value, there would be chances for arbitrage.

If Wipro is quoted at Rs 1000 per share and the 3 months futures of Wipro is Rs 1070then one can purchase Wipro at Rs 1000 in spot by borrowing @ 12% annum for 3

months and sell Wipro futures for 3 months at Rs 1070.

Here F=1000+30=1030 and is less than prevailing futures price and hence there are

chances of arbitrage.

Sale = 1070

Cost= 1000+30 = 1030

Arbitrage profit 40

However, one has to remember that the components of holding cost vary with contracts

on different assets

Open Interest : Open interest would provide you with the details of open interest in themarket . Open interest is basically the number of open positions in the market in terms of

share quantity.

Volume : Volume is the quantity of shares traded on that particular day. It is related to thatparticular trading day only.


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2L / 3L orders : You can place 2 leg / 3 leg orders for the same underlying or across underlyingthrough the 2L / 3L link available in the "My Favorites" screen. 2L / 3L orders are always IOC

orders and can be placed only during market hours. You would just have to mark the contractsthat you are interested in trading and then click on "Place 2L/3L"


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In addition to the Open Position screen, you can also come to know your Profit / loss on youropen position through the Portfolio Details screen. Portfolio details would display you're thecontract details, LTP and the realised / unrealised profit / loss for that contract. The "View" linkwould give you details about that particular position


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Similarly all the information related to day end debits and credits can be viewed through

Cash Projection. Cash projection screen would give you the details on a daily basis andthe same is also available on a historical basis. It would display the pay-in / pay-out

amount and the date of pay-in / pay-out. Further clicking on the "View" link, would

provide you with the transactions done on that particular day and the amount for thesame.

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