How to trade Options online in 4 simple steps
Options trading in India has definitely come of age in the past few years. Apart from institutional investors and traders who indulge in large volumes, retail players are also taking part in options trading.
In simple terms, options is a derivative contract that gives the buyer or seller the right, but not the obligation, to buy or sell a specific underlying asset at a given price on a specified day in future. The introduction of options to the financial markets was to help traders hedge risk. For instance, if you thought that the price of a stock would go down, you could buy a put option. This would give you the right, but not the obligation, to sell your equity at a predetermined price on a specific date in the future.
If you already held a significant amount of the stock, a put option would protect you from unlimited losses if the stock market fell. In case the stock market doesn’t fall and the price of the shares remains the same or goes up, you could choose to allow the option to expire. You will only lose the premium amount.
Lately, people use options to make profit as well. There are different options trading strategies that can be executed to play the market if you expect it to move in a certain direction. Options trading can also be a good way to generate profit if the markets are not moving upwards.
Benefits of Options trading
1. Options trading allows you to hedge your risk. For instance, if you have taken a long position on a stock and you combine it with a put option, you limit your downside risk.
2. Options are a lot more cost efficient. You can take a position on any asset by paying a small amount known as premium as compared to a bigger price you would have to pay to actually buy the asset.
3. With options, you can create a bigger possibility of gain with a smaller amount of capital. However, a loss is limited to the premium paid if the market doesn’t move in your favour.
4. Options are available on a wide range of assets, such as stocks, currencies, interest rates, indices, etc. This gives you the opportunity to trade in any asset of your choice.
5. Options help with price discovery in the market and improve liquidity as well.
Additional read: 4 Things to Consider While Selling Options
How to begin Options trading online?
1. Open a trading account
If you don’t already have a trading account, then you must get one to begin options trading. Do your research to understand which trading account is the best for you. ICICIdirect offers trading accounts with zero opening charges and margin trading facility.
2. Add funds to your account
Once you have your trading account and you log in successfully, you can add funds to your account. You can deposit the premium or margin amount as per the Option contract you chose to trade.To add funds to your account on ICICIdirect, find the ‘Allocate Funds/ Limit’ option on the left side bar. Enter the amount you want to add and hit the ‘Submit’ button.
3. Pick the Option you want to buy or sell
Determine the options contract you want to buy or sell. On ICICIdirect’s platform, look for the ‘F&O’ option, ‘Transact’ and choose the ‘Option’ tab on the right window. Type in the first few characters of the contract name. A dropdown of all the contracts with similar identification will appear. Choose the right contract and then select the buy or sell option. Then choose the quantity and order type and place your order.
4. Place the Order
After choosing the options contract you want to trade in you can now execute the contract byclick on the ‘Place Order’. On the next page, verify all the details of the contract. and enter ‘Proceed’. Congratulations! Your order has been placed. You can go to the ‘Order Book/ Trade Book’ page to verify if your order has gone through.
Using these four simple steps, you can start options trading on ICICIdirect. Before you start options trading, take some time out to understand the derivatives market. When you go in equipped with the right information, you will stand a higher chance of executing a profitable trade.
Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code: 103) and Member of Multi Commodity Exchange of India Ltd. ( Member Code : 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: firstname.lastname@example.org. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Please note Brokerage would not exceed the SEBI prescribed limit.