As a newbie,What is the minimum margin amount for a safe and successful trade, a user need to keep in his trading account?(Eg 3L,4L,5L etc).¶
The general idea here is you should have twice the margin needed on a trade as cash in your trading account. Not a rule, just a guideline. And not investment advice. We are not advisers :) For example:
Keep one 1-1.5 L margin for every NIFTY you trade (Margin Needed on NIFTY ~ 80k) 1.5-2L L on BANK NIFTY (Margin needed ~ 1L) 2 L for every stock future (depends on the stock) (Margin ~ 1L) You should be able to absorb unforeseen losses. But if you keep too much margin, the money is idling
When should I buy options and sell options?¶
This is a very tough question. And this question is best solved by our Options engine, and we have realized that the engine beats our in house options expert most of the times :)
We strongly suggest that you use the options engine to answer this
Here are the general guidelines to answer this question though:
Large movement, more than 1-2% percent, in short time, less than 3 days - buy options
1.a Aggressive - very large move, very short time, buy OTM
1.b Defensive - kind of large move, kind of short time, buy ATM
Small movement (less than 1%) in long time (more than 3days) - sell options
2.a Aggressive - if you think no move at all, sell ATM
2.b If you think some move, and want to play safe, sell OTM
Why is there no market order in Single Stock Options?¶
Single Stock Options lack liquidity. So they can get traded at very off prices, and can land you in trouble if you try market order.
Nifty and bank nifty options have market orders. So do all futures.
What is this Weekend Effect?¶
Before we explain what it is, here is the most important part. If you have bought options, the prices on those options will go down near Fridays because of weekend effect, especially in the last two weeks before the expiry.
Options prices decrease every day due to time value decay, or Theta. This is especially true if market does not move. Normally, between Friday close and Monday opening, big events do not happen because it is a weekend holiday. So markets stay still, and there is not much of a move on the Monday opening. This means that a trader can sell options on Friday, and make three days of time value decay. To take advantage of this, people start selling options close to Friday, sometimes even on a Thursday. This cause call and put option prices, and their I.V.s to go down towards the Friday. This is called weekend effect.