What are Nifty options?
Derivatives that allow you to buy or sell the index at a set price for delivery at a later date. Monthly options exist, apart from weekly ones, with expiration normally on a last Thursday of the month. For e.g., current active Nifty options contracts expire on March 28.
What are the types of Nifty options you can buy and who sells them?
You can buy a call option on Nifty if you expect the index to rise or you can buy a put on Nifty if you expect the index to correct within a time frame. The entity who sells you the call and put is an option seller or underwriter. There are three types of option — in the money (ITM), at the money (ATM) and out of the money (OTM). An in the money call is one whose strike price is below the current market ..
Who is smarter — option buyer or seller /underwriter?
Normally, an option seller is more market savvy and wealthier than the option buyer. His aim is to pocket the premium (price of option) paid by the call or put buyer. The profit he earns is limited, the maximum is restricted to the premia, while losses can be unlimited. The buyer’s maximum loss is limited to the premium paid to the seller, but profits are unlimited.
Therefore the open interest, which is basically the open position of traders, indicates where the sellers feel the Nifty can get support and where it can encounter resistance. You can see it from the buyer’s angle, but it’s normally indicative of how much the Nifty could rise or fall from the CMP.
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