Meet Ajay & Ashish
Ajay believes, the shares of ABC Mobiles, currently priced at Rs. 300, is going to rise. Ashish, who owns some shares of ABC Mobiles is expecting the price to fall.
So, Ashish agrees to sell his shares to Ajay for Rs.320 each in a month’s time. They sign the contract of call option, by which Ajay gains the right to buy and Ashish becomes obligated to sell the shares at the agreed price on the set date.
The fee that Ajay pays Ashish for the option, called premium is Rs.20 per share.
If the share price shoots up to Rs.400 in a month Ajay can use the option and earn a profit of Rs.60 after deducting the Rs.20 he had paid as premium.
If the price stays lower than Rs.320, then Ajay loses the Rs.20 he paid for the option.
Call options are for investors, waiting to leverage their capital for greater investment returns.
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He is an active trader at Angel Broking and has built a sizable portfolio in the past few years.
He smartly makes use of a facility Called Margin Funding to continue his investments in the share market.
Whenever he falls short of funds to buy shares, he calls his dealer at Angel Broking to provide him with the shortfall amount.
His dealer instantly facilitates the amount to his account so that he can complete the transaction
This is a short term loan facility that Ashish gets from Angel Broking at an agreed rate of interest.
By making use of this facility, Ashish can buy shares even if he does not have the entire amount to pay for the transaction.
Like him, you too can make the most of this facility and increase the probability of making profits.
what is intraday trading amid and shirac both trained in the equity share market while Amit is an average trader with Angel Broking Chirag is a beginner and wants to know about intraday trading Amit explained intraday trading implies buying and selling securities on the same day every day the price of a security say ABC Corp fluctuates and intraday trader profits from this rise or drop of price which offers huge returns intraday traders also get the benefit of margin funding whereby they can do transactions of up to ten times their account value which boosts their gains intraday trading poses a risk of loss but there are measures to limit losses whenever I may the trades intraday he monitors the market closely and seeks advice from Angel Broking team of experts he also opts for stop loss which limits his losses to a minimum if any like Amit Chirag is now ready to trade intraday with Angel Broking.
Rajat is new to share market investments & wants to know more about derivatives.
Derivative, is a contract between two or more people that entails speculating on the price of a certain underlying asset on a future date. Know more about What are Equity Derivatives?
Let’s say, Rajat feels, the shares of Zen Infra, currently priced at Rs. 100 is set to rise considerably in 1 month. However, Amit, who owns some shares of Zen Infra, is expecting the price to fall.
So, Rajat & Amit enter into a contract by which Rajat has to buy & Amit has to sell the Zen Infra shares at an agreed price of say Rs. 110 after 30 days, irrespective of the market-price.
The contract between Rajat & Amit is a derivative. It allows Rajat to make profit by speculating and provides Amit protection from incurring heavy losses.
Futures and options are two common types of derivatives.
Amit owns some shares of Z Corp, currently priced at Rs. 300. He is afraid their prices might fall. Another investor, Vinod, thinks Z Corp shares are stable & fairly priced.
So, Amit & Vinod sign the contract of “Put-Option”, by which Amit gains the right to sell & Vinod becomes obligated to buy the Z Corp shares in a month’s time at an agreed price of Rs. 300 irrespective of the market price.
To exercise this option Amit pays Vinod, a fee or premium of Rs.2 per share.
If Z Corp shares fall, below Rs.300, Amit can use the put option & sell his shares to Vinod at Rs.300 & limit his losses.
If the price rises, Amit can sell the shares at the market price & recover the premium he paid for the put option.
Put options are for traders who want to minimize their risk in a volatile market. Learn about how to trade in share/stock market.