Option Trading is a form of trading in which traders utilise contracts that are based on a stock or index. A call gives the buyer a right to buy, a put gives the buyer a right to sell, at a set strike and within a set term.
These contracts can be used to hedge risk or express a view on the market. Prices can move fast, so traders want to be able to review each trade before placing an order, which is why a trading platform has live data and clear tools.
What the Option Trading Platform Should Display
A useful dashboard ought to bring key data to one screen. This may include the current price of the asset, strike prices, expiration dates, option premium, bid and ask prices, open interest, volume and an option chain. Some platforms will also show Greeks like Delta, Gamma, Theta, Vega and implied volatility.
Investors care about live data because an option premium can move with the asset price, time to expiry and volatility. Data latency impacts trade entry, exit and risk checks. NSE offers the option chain for the equity derivative contracts listed.
How to Use Live Data Step-by-Step
Choose the stock or index you want to follow. See its latest price and trend.
- Open the options chain. Look at the call and put strikes near the current market price. Look at volume, open interest, bid, ask and premium.
- Choose the expiry. Near expiry means there is little time left before the contract ends. A later expiry gives you more time and the premium is different.
- Examine risk data. Delta can tell us how the premium is likely to respond to a change in the asset price. Theta is the measure of the passage of time effect. Vega associates the option value to a change in implied volatility.
- Determine the trade size. Review lot size, premium, margin, fees and total capital at risk before placing the order.
Techniques of Option Trading Platform
A platform can execute single-leg and multi-leg trades. The trader may use the long call when he expects an increase in the asset. Long put can be used when a decline is expected. In either case, the buyer is paying a premium.
A protective put is a stock position married to a put option. The put can be used to cap downside risk for the length of the contract.
The covered call is a combination of owning stock and writing a call on that stock. The trader collects a premium, and the call could limit upside beyond the strike price if exercised.
The bull call spread utilises one call bought at one strike and one call sold at a higher strike for the same expiration. The bear put spread uses puts to establish a defined view on a decline. These spreads can create a known range of risk and reward prior to entering the trade.
Simple Strategy Example
Let’s assume the cost of a call is Rs 20/unit and a second call at a strike above the first is sold at Rs 8/unit with the same expiry. The net premium payable is ₹ 12 per unit excluding taxes and charges. Before the order is sent the strategy tool will show the payoff zone, break-even point and planned loss on a chart.
Margin and Margin Trading Facility
Review options and margin rules prior to each order. Short options and other derivative trades can be funded by exchange margin. The amount depends on the contract and the market risk. NSE issues margin norms for equity derivatives.
In the Margin Trading Facility, the broker funds some of the share purchase and the trader provides the margin money required. This is not to be confused with option margin. Traders should read the broker’s terms, interest charges, eligible securities and margin rules before using it.
Conclusion
