Nifty futures are a contract that gives its buyer or seller the right to buy or sell the Nifty 50 index at a preset price for delivery at a future date. Nifty options are of two types —call and put options.
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A call option on Nifty gives a buyer the right, but not the obligation, to buy the index at a tracing price during a specified time period. Similarly, a Nifty put gives its buyer the right to sell the index. A seller of the options is obliged to give or take delivery of Nifty from the buyers. In practice index futures are cash settled, like their European counterparts. How does a Nifty futures and options contract work? Suppose trader A feels Nifty will rise fromshe can buy one lot 75 shares of Nifty futures by putting a margin at a fraction of the contract cost. Her counterparty trader B sells her Nifty at that level.
Benefits of trading in Nifty futures and Nifty options
If the Nifty futures fall toB sells the futures to A for even though Nifty trades atwhich means the tradinng faces a Tuture a share loss. As opposed to buying a futures teadingA can buy a call option on Nifty by paying a premium of Rs closing price on Friday per share. If Nifty jumps by points at expiry to the option value will rise by around Rs The seller of the option has to in this case fork out the money. Have a look at the difference between buying and selling for nifty future. You will see it is just a 0. Well diversified: Nifty 50 index is well diversified, it consists of 50 stocks from more than 10 different sectors.
This diversification provides stability and therefore protects you when your view goes wrong.
Also, this diversification helps us to see the high-level view of the market in near and longer term. Fewer margins: Some brokers offer a trade in tradiny future with just Rs. Check here to open a trading account. Highly liquid options: Due to high liquidity in Nifty options, it becomes easy to research and take a trading call. You just need to study various Out-of-the money and In-the-money options along with open interest. Hedge against stock portfolio: As Nifty being a benchmark index and most of the stocks reflect the same trend.
Best Financial & Business Solution.
The stocks tradinh likely follows the Nifty movementhence it can be used as a hedging tool against your portfolio. But hedging is for big traders having deep pockets. So small traders can exit if the market becomes really bad. Far month liquidity: As there is enough liquidity in far-month contracts of Nifty futures compared to stock futures.