What is Nifty Option

In this article you learn about Nifty Option or Nifty Options. Before explaining What is Nifty Option, lets know about What is option.

What is options?

Options is a derivative product like derivative futures, where the buyer holds a right to execute option of either buying or selling of shares or another underlying at a certain pre-determined price (also known as the strike price) during a pre-determined time period.

There are two types of Options:

  1. Call Options i.e. the Right to Buy

A Call option gives buyer an option to “BUY” underlying asset at an agreed upon price with a expiry date on this contract.

  1. Put Options i.e. the Right to Sell.

Put Option gives buyer an option to “SELL” at agree upon price with a expiry date on this contract. Hence, Call buyer would want prices of the underlying to go up and put buyers would like to see prices of underlying falling.

What is Nifty Option?

Nifty:

Nifty or CNX Nifty is managed by IISL (India Index Services and Products) is benchmark of National Stock Exchange which is the largest stock market in India. It is also known as Nifty 50. Nifty 50 is the world’s most actively traded contract. Nify50 covers 22 sectors of Indian economy and offers investment managers exposure to the Indian market in one portfolio. The NIFTY 50 Index gives 29.70% weightage to financial services, 0.73% weightage to industrial manufacturing and nil weightage to agricultural sector.

Nifty option is a derivative trading tool to trade Nifty. Like Nifty50 futures it also has lot size 75, different strikes and multiple expiry periods. It is a derivative like Futures but unlike Futures your profit/loss will not be linear depending on the up move/down move in NSE NIFTY.

 Nifty option behaves just like any stock option. Nifty option also has a lot size and other factors like call and put options, different strikes to trade and of course time limit to expiry.

The trader in options pay only the option premium of the actual value of the underlying asset i.e. you need not pay the value of 75*NIFTY50 future to buy the options lot. The premium/ option price is determined using options calculator comprising of complex mathematical models and is usually nominal compared to actual Nifty value.

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