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How does an Option Chain Work?
Know How Option Chain Works in India You have posted a wonderful query, interested to learn about the option chains work? With my experience I would like to describe the usual process involved in option chain analysis that in turn should define the option chain working. How does an option chain workRead more
Know How Option Chain Works in India
You have posted a wonderful query, interested to learn about the option chains work?
With my experience I would like to describe the usual process involved in option chain analysis that in turn should define the option chain working.
How does an option chain work in stocks
Before getting into the crux of the matter, you must understand the elements that abide by the making of the option chain and more importantly, what is the option chain matrix as such.
An option chain contains a table of information divided into two sections namely calls and puts. The two communities, namely buyers and sellers of the underlying assets, take the respective information from the option chain matrix and arrive to make judgements on buying and selling issues.
Certain elements in the option chain matrix become important inputs to engage in buying/selling of option contracts. You can find those to be premium, strike price, expiry dates, open Interest, change in open interest, implied volatility, LTP, Net change, bid quantity, bid price, ask price, & ask quantity.
I would like to cite an example to make you understand how option chains work by applying it to Bank Nifty Options.
Bank Nifty Option Chain:
Source: NSE on 25 August 2023
The sample copy represents option contracts of bank Nifty and the set date of expiry is 31-Aug-2023. If you pay attention to the columns of the table, you can find all the elements described above, segregated into calls/puts.
If you are planning to go for Bank Nifty options then the tabulated nifty options chain data can help you to interpret several aspects such as:
The Bank Nifty option chain generates a clear dimension of, in the money/out of the money options. Wherever you find the strike shaded in yellow then it is in the In the Money (ITM) options, and the unshaded strikes are the out of the money (OTM) options. when the spot value of the Nifty changes, the shading does change correspondingly. Therefore, you can utilise this observation as a rule to the calls/puts.
You can make a proper evaluation of the liquidity and depth of the strike price.
Elements like bid/ask price and quantity provides sufficient info for the traders while they progress to apply the OTM options as the liquidity is pretty low in such cases.
In the index markets, the Bank Nifty option chain provides an early warning system through sharp moves or break outs in the index.
In an empirical test, if you observe a major change in Bank Nifty then its impact is observed in the Open Interest, and the volume shifts. However, the occurrence of Bank Nifty changes are due to the active participation of the FIIs, mutual funds and institutional investors.
Traders can position their trades accordingly with an abrupt shift in price/Implied Volatility of the underlying assets. Thereby, price/implied volatility can be viewed as an important parameter to alter trade positions.
See lessWhat is an Option Chain?
What is an Option Chain in Indian Stock Market: Option chain is a collection of information made available in a tabled format. In fact, whenever I decide to execute a call or put in an option contract, the option chain tabular form becomes valuable information on trade analytics. Everytime, when I bRead more
What is an Option Chain in Indian Stock Market:
Option chain is a collection of information made available in a tabled format. In fact, whenever I decide to execute a call or put in an option contract, the option chain tabular form becomes valuable information on trade analytics.
Everytime, when I begin to analyse the underlying asset, I seek the help of the option chains. I would like to list a few option chain tools which you may find suitable for you as well, and they are NSE Option Chain, Sensibull, or Nifty Trader.
From the above said, one thing I made clear is, take the help of Option Chain to make better analysis on your chosen security. Now, let us move further and see what the option chain comprises.
These option chain tools publish information on parameters like open interest, change in open interest, volume, volatility, option greeks. These parameters are dependent on the select strike price and the specific expiration date.
For instance, option chain tools give striking information for the underlying asset like banks, technology, pharmaceuticals, etc when such a category is selected for the desired option chain table.
Features of Option Chain
Please go through the characteristic features of option chain as mentioned point wise.
Example of Option Chain (National Stock Exchange):
Steps to Operate the NSE Option Chain Tool:
You will have to decide whether you want to gather option chain info on equity stock, currency, interest rates, or commodities. Then click the concerned knob.
In the example, I have clicked the equity stock tab, therefore it will lead to a display of four parameters, view options contracts for, or select symbol, expiry date, or strike price.
You can see that I have opted for the select symbol and chosen Axis Bank and likewise I selected the strike price option, at INR 780.00 and you can find a display of the filtered parameters.
For the chosen strike price, you can wait for the call option on two different expiry dates, 31 August 2023, or 28 September 2023.
You can correspondingly see bid quantity, bid price, ask price, bid quantity, and so on. You can decide on the call option (buying equity stocks) depending upon your convenience from the created option chain table.
See lessWhy is Option Selling Better than Option Buying?
Why selling puts is better than buying calls? You can understand why option selling is better than option buying only after you realize the process involved in buying and selling of underlying assets and the level of risk assessment, and the profitability one can dream of. With my current experienceRead more
Why selling puts is better than buying calls?
You can understand why option selling is better than option buying only after you realize the process involved in buying and selling of underlying assets and the level of risk assessment, and the profitability one can dream of.
With my current experience in derivatives, let me evaluate those facts that shall determine option selling to reap more profitability than option buying.
Let me compare various factors between buy options and sell options before I arrive at the conclusion that Option Selling is the Right Choice for Profitability.
Buy Options at the Start of Expiry/End of Expiry: Impact on premiums
Start of Expiry:
Whenever I trade option calls in a monthly expiry segment, I could make considerable profit because change in price is observed due to Delta.
The ideal time for the decay in premium is quite less, just 5 to 6 days before the start of expiry.
End of Expiry:
Whenever I reach the end of the expiry, theta decay works in opposite direction and only if you identify strong directional move (highly bullish drive), the option shall prevent a decrease in option premium and hence it is not an ideal period to execute buy option.
Sell Options : Impact of Decay on Premiums
Start of Expiry:
Sell options never benefited me in a monthly expiry, and the negative side movement did affect my underlying assets.
I held options for about six days at the start of the expiry and time decay did cause a fall in premium but the main change in price was an outcome of Delta, that occurs in a directional move.
In addition, in the given scenario, the market should be a range bound, to make an option selling.
End of Expiry:
When I executed sell options close to the expiry, theta decay worked for me and my stocks could experience a drastic decrease in option premium in respect to time.
The situation is highly conducive for selling and until a strong directional move against my seller position came, I always incurred a good profiting.
Not just for me, even you can benefit from fast decay in price as your stocks head near to expiry.
Employing Margins for Option buying and Selling:
For option buying, the margin is the premium of the NIFTY option and if the price per share is 100/- and the lot size is 75, then the total premium shall be 75X100 equals 7500/- which is reasonably low.
For Options Selling the margins will be high as 1.2 lakh to sell a lot of NIFTY and hold it. In order to reduce the margin, you can hedge positions with future On the Money option buying as a hedge.
Therefore if you sell 10900 calls and buy 11100 calls then the margin shall be reduced by half. Sometimes I prefer to pledge long term holdings, bonds as a source of collateral.
Risks and Probability of Profits : Options Buying/Selling
In the option buying, the profits are unlimited and your loss is limited. I did obtain the highest profitability when I purchased in the money option and at the money option gave a profitability of 50 percent.
In the option selling the risk of your underlying assets are unlimited and the profitability depends on what option I execute.
When I did sell the Money (OTM) it gave 99 percent of probable success, and at the Money option it gave 50 percent of probable success.
Sellers Must Execute Option Adjustment:
In a realistic situation, 80 percent of options buying expire and show unworthiness.
In case of options selling, 70 percent of the selling options generate small premiums that reflect profitability.
But, if incidentally, one trade goes negative you may end up in losing more than the earned profits.
The payoff can be like +12,+16,+20,+10, -200 and hence as a seller I will be alert at adjusting options. The margin in Option selling is high and it does encounter unlimited risk.
See lessAeroflex Industries IPO Details?
Aeroflex Industries Limited | IPO Details Company Introduction: Manufacturer of a multipurpose application of metallic flexible flow solutions, the company is fast scaling new highs year on year and here are the reasons behind that you should not miss to read it. Aeroflex Industries Limited has recoRead more
Aeroflex Industries Limited | IPO Details
Company Introduction:
Manufacturer of a multipurpose application of metallic flexible flow solutions, the company is fast scaling new highs year on year and here are the reasons behind that you should not miss to read it.
Aeroflex Industries Limited has recorded the total revenue, a new high every year, for instance, in FY 2023 the company has recorded a total revenue of INR 2964.78 Lakhs, and in FY2022 it noted a total revenue of INR 2409.92.
The company displayed an interesting figure of 1,700 product Stock Keeping Units in its product portfolio as on March 31, 2023. Attaining such a good performance was the result of the adoption of an environment friendly metallic flexible flow solution products in manufacturing and supplying those to their esteemed clients.
Another noticeable fact is that the metallic flexible flow solutions produce a multipurpose application and over time are replacing the conventional rubber, polymer pipers and tubes.
Based on this advantage, the company is rapidly advancing in its business operations and the yearly measure of progress can be evaluated in the consolidated financials for the past four years. However,the company wants to expand its capital base through public funding as a part of the expansion phase of the company.
The following paragraphs deal with various segments that signify the need to buy the shares in the IPO primary share markets. It does include the strengths of Aeroflex, Objects of the IPO fund, IPO details, IPO event calendar, consolidation of five year financials and key performance indicators.
Strengths of Aeroflex:
Aeroflex Industries Limited holds a good track record on exports of the metallic flexible flow solutions under “Make in India”. The company exports the Aeroflex products to over 85 countries that generates a revenue of more than 80 percent of the total value.
The Aeroflex solutions have made their presence in different areas of operations such as space, aviation, and fire-fighting equipment. These metallic flexible flow solutions have recorded multipurpose applications and their utility does replace the utilisation of rubber, and polymer pipes and tubes.
Employees are benefited with a dividend distribution of about 7 to 15 percent as per the information in the offer document and it has become a custom for the past two years.
Objects of IPO Fund Utilisation:
As per the Red Herring Prospectus Document, RHPD, a little portion of the capital fund will be utilised to make a prepayment of INR 35 crores of the outstanding in regard to the borrowings.
A significant portion of the IPO fund shall be invested on working capital needs up to INR 84 crore.
A part of the fund will be utilised to manage and maintain the general corporate purposes, & acquisitions.
Aeroflex IPO Details:
The promoters of Aeroflex Metallic Flexible flow solutions Ashish Kacholia, and Jagdish Master filed an IPO application to the SEBI regulatory authorities for the approval of the IPO in the month of March 2023.
SEBI regulatory authority gave approval to float an IPO issue worth INR 350 crore of which the fresh issue will be equity shares worth INR 160 crores and the Offer for Sale will be 17.5 million equity shares.
The IPO issue will comprise fresh issue and offer for sale, OFS, with each share possessing a face value of INR 2.00.
The company reserves an IPO issue quota for the various segments like retailer, QIB, and NII(HNI) in the following manner.
The share offers to the retailers shall be limited to 35 percent of the net offer, for the NII ( HNI), the share offers will be over and above 15 percent of the net offer. Likewise, the shares offered to the QIB segment will be equal to or below 50 percent of the net offer.
The price bandwidth of the share price is between INR 102 and INR 108 and the lot size will be 130 shares.
A retailer is allowed to purchase a minimum of a single lot equating to 130 shares and the amount aggregating up to INR 14,040 and the maximum lots of 14 aggregating to INR 196,560.
For S-HNI minimum lot will be 15 aggregating to INR 210,600 and a maximum lot of 71 aggregating to INR 996,840 and B-HNI minimum will be allowed to purchase a single lot size of 72 that equates to 9,360 aggregating to INR 1,010,880.
The total issue of the shares will be 32,500,000 which aggregates to INR 351.00 Cr, fresh issue 15,000,000 shares aggregating to INR 162.00, offer for sale shares will be 17,500,000 aggregating to INR 189.00 Cr.
In the pre issue period, the promoters will be holding 114,320,370 shares and after the IPO issue listing, the shares will rise to a figure of 129,320,370.
IPO Timetable:
The company shall open its IPO issue to the general public on Tuesday 22 August 2023, and the closing date will be Thursday, 24 August 2023.
The allotment of the shares to the applicants shall begin on Tuesday, 29 August 2023.
An applicant may not be able to seek an allotment due to oversubscription then the National Stock Exchange, NSE, or the Bombay Stock Exchange will initiate to refund the collected funds from Wednesday, 30 August 2023 onwards.
After the share allotment, they shall be credited to the applicant’s demat account on Thursday. 31 August 2023. And, on Friday, 01 September 2023, the stock exchange shall list the issue company’s IPO.
Key Performance Indicator:
The IPO prospectus book does mention the parameters that act to be performance indicators which enable an applicant to decide whether one can opt for IPO issue or not. They are Market Capital ( INR 1396.66 Cr), ROE(26.43%), ROCE(31.91%), and Debt/Equity(0.39).
Consolidated Financials for 4 years (2020 to 2023)
About Aeroflex Industries Limited
Location/Infrastructure
Began in 1994, Suyog Intermediaries Private Limited renamed as Aeroflex Industries Limited later. The company is located at Taloja, Navi Mumbai, Maharashtra, and holds a premises of 3,59,528 square feet.
Product Profile:
The company does manufacture a host of products like solar hoses, vacuum hoses, interlock hoses, braided hoses, unbraided hoses, and gas hoses. Other manufactured products are hose assemblies, lancing hoses assemblies, jacketed hose assemblies, exhaust connectors,exhaust gas recirculation (EGR) tubes, expansion bellows, compensators, and related end fittings.
Clientele Spread in Business:
The company serves clients belonging to different segments such as distributors, Maintenance Repair and Operations Companies (MROs), Original Equipment Manufacturers (OEMs), fabricators, and to those companies which operate in a wide range of industries.
See lessCan I Start Swing Trading with 1000 Rupees?
Swing Trading with Little Money Yes, you can start swing trading with 1000 rupees and make short term profit, say up to INR 500.00. Entertain yourself in the learning process by utilising this investment of INR 1000.00 as an opportunity to conceptualize and understand the stock market. You must notRead more
Swing Trading with Little Money
Yes, you can start swing trading with 1000 rupees and make short term profit, say up to INR 500.00. Entertain yourself in the learning process by utilising this investment of INR 1000.00 as an opportunity to conceptualize and understand the stock market.
You must not dream of making huge profits with it, but utilise this investment as a learning process on stocks. You should find all the basic procedures involved that lets you understand the buying procedures of a stock. Along with, also learn about your demat account.
For a demat account, you must also line up with a stock brokerage company that provides effective stock services at a price affordable to you. In that way, Zerodha provides online services that charge only INR 20 per trade whether it is buying or selling a stock/stocks.
With this little investment, you must view the intrinsic value, how to pick a right stock, know the basic terms like stock liquidity, volatility (stock price fluctuations), strike price, stop loss. You must also learn when to buy a stock or sell a stock in the stock markets in swing trading and in it, everything gets finalized in a few days to few weeks, you win or lose money.
In the Indian National/Bombay stock markets, Monday, Tuesday you will make out a lot of buying activity. By the end of the week, say Friday, Saturday it is a sellers market, you can plan to sell your bought stocks in swing trading.
Now the question is, if you want to make INR 10,000.00 investment then with such a nominal amount where should you plan to invest. You should not get worried when company stocks keep on soaring higher and higher thereby making it impossible for you to make a purchase. Remember, there is space for everyone in the stock market provided you need to accommodate as per your trading account capital. So, check for a well to do company, buy a stock that starts at INR 100 and lies somewhere around INR 500. Once you are impressed with the stock price try to purchase at least 2 units of a particular stock.
You must select a company whose products and services are visible in physical form. They can belong to banks, automobiles, consumer durable products, etc.
Do not jump to conclusions, before you select a stock make a detailed study and research on the stock for at least a week or so.
In your research you must view all parameters like the company’s fundamentals and the financials such as profits, P/E ratio, ROEC, ROI, Growth rate, annual reports, performances of the company’s product and services and most importantly their business models.
Note:
Not to forget, this investment is just like a practice session and hence even if you lose it do not overreact emotionally in this scenario.
See lessIs Swing Trading Better than Intraday?
Swing Trading Vs Intraday There is a common sentiment among traders as they say, swing trading can help you in overcoming the failures that usually arise when you are engaging in intraday trading. In both cases, your stock market business objectives can be achieved. But considering swing trade to beRead more
Swing Trading Vs Intraday
There is a common sentiment among traders as they say, swing trading can help you in overcoming the failures that usually arise when you are engaging in intraday trading.
In both cases, your stock market business objectives can be achieved. But considering swing trade to be a better option over intraday is completely an individual’s mindset.
Let me illustrate the key features of swing trading that will make you opt for, otherwise.
Swing trading and intraday trading operate in varied time bound frames, in intraday trading you will buy and sell stocks in a day, while in swing trade you have an option to buy and wait for a short term gain from few days to few weeks.
You can invest in swing trades when you have adequate time to wait for return on your investment, from a few days to a few weeks.
When you participate in swing trading at NSE/BSE you can make short term gains with minimal loss on your stock investments. That means, your stop loss execution of 10% and stock purchase up to 3 percent of your trading account capital can protect your bought stocks when the share prices tumble fiercely.
You can react to swing trades effortlessly and spare yourself from being a victim of losses by utilizing the technical indicators. It will enable you to avoid speculation and you can make an informed decision.
You can reap your desired goals sets in swing trading through planned layout that too it is less time consuming when compared to intraday trading practices. In a way, you can look in as a part time job that consciously causes less impact on your day to day activities. You will keep larger time frames when trading on swings.
You can relax and stay cool when trading swings because you will have adequate time to select your stocks thus keeping you calm without emotional breakdowns.
However, swing trades help you make short term good returns with negligible losses but it is intended to make high profits in the long run.
Note: High priced stocks need high trading account capital :
Swing trading attracts a high volume of trading capital on high priced stocks. When you buy/sell stocks you will encounter risk and to avoid it, you will have to apply stop loss brakes, reasonable strike price.
But, due to the market volatility and liquidity factor of the stocks, it may lead to a slippage that results in less gains than the expected returns. Hence, I would advise you to limit your stock investment that is less than 3 % of the trading account capital.
For instance,
If your stock’s slippage falls by 10 percent on a stock of 500/- then, the slippage amount will be 50/-. At that instance, for a slippage of 50/-, you must hold trading account capital of at least 5000/- as it comes to 1%.
Therefore for highly priced stocks, your trading account capital must also be high.
See lessIs Swing Trading a Good Strategy?
Swing Trading - A Right Choice for Traders Before I express my opinion on swing trading and whether it can be portrayed as a good or bad strategy l shall give a brief introduction of swing trading strategy, key components of swing trading. In addition, list a few strategies that will compel you to cRead more
Swing Trading – A Right Choice for Traders
Before I express my opinion on swing trading and whether it can be portrayed as a good or bad strategy l shall give a brief introduction of swing trading strategy, key components of swing trading. In addition, list a few strategies that will compel you to change your mindset. Hence, let’s start with:
Essential Info:
Darker Side of Swing Trading:
Let us take a positive note of the Swing Investments and try to realise a few strategies.
Key Components of the Swing Trading:
Key components that lay a better path in swing trading are risk management, technical analysis, entry/exit strategies, and money management.
Swing Trading Strategies You Must Understand:
Bollinger Band Breakout Strategy
It is a technical analysis tool that applies simple moving averages involving average price movement in a defined timeframe.
Moving Average Crossover
You can employ two or more moving averages differing on timeframes.
Relative Strength Indicator
The rapid volatility in stock markets makes the measuring of the magnitude of price changes difficult but the relative strength indicator enables you to analyse overbought/oversold stocks.
Range Trading
Stock prices tend to oscillate between two extreme stock prices then such extreme values are known as support/resistance levels. The price movements between these levels makes you earn money.
Fibonacci Retracement Pattern
This pattern is defined on a principle that states, before reversing, the certain percentage of the prices within the trend retrace quite oftenly.
See less