When it comes to making investments, investors have a lot of choices, such as debt vs. equity, active vs. passive funds, mutual funds vs. stocks, value vs. growth investing, and so on. Investors can choose between growth investing and value investing when they put money into the stock market. Both strategies help investors make more money on the stock market, but they do so in different ways and are widely used. Fundamental research is a good way to tell the difference between value stocks and growth stocks. Let's look closely at each type before we say what makes them different. Before we get into choosing growth stocks, the primary aspect of every trader’s life is technology. At Zebu an online stock trading company we offer the best online trading platform with the lowest brokerage options Investment in growth stocks The Growth Investing strategy looks for companies that have a higher chance of outperforming their earnings and are expected to keep giving high returns on profit growth. Small-cap, mid-cap, and large-cap funds all have growth stocks. Investors are willing to put money into something and pay a higher price if they think it will grow or give them a higher return soon. Investors are optimistic about the company's business plan and its chances of growth in the near future. Several things, like the company's position in the market or the belief that its next line of products will be well received, can give investors confidence. Also, these stocks are more "expensive" than those of their competitors because their price-to-earnings ratio is higher. This is why investors are willing to pay more for these stocks than they are currently making because they think the price will be worth it in the long run. Investment in value stocks The value investing method usually looks for stocks that are undervalued, or whose current market price is lower than what they are really worth. So, they move along slowly, but they are worth more in the long run. The idea is that the market will quickly see how valuable it is, and the share price will then "catch up," leading to big profits. So, if the actual value of a share of stock is Rs. 100, but it is currently trading at Rs. 75, an analyst will think this is a good value pay. There are many things that can cause value stocks to be undervalued, such as the economy, legal problems, bad press, disappointing earnings, etc. All of these things make us question how well the company will do in the long run. But they come back slowly. Value stocks are best for investors who want to hold them for a long time, and their prices may be more likely to change than those of growth stocks. DIFFERENCE BETWEEN VALUE V/S GROWTH INVESTING An important difference between value stocks and growth stocks is that value stocks have a better chance of beating their peers when interest rates go down and corporate earnings go up. But when the economy slows down, it will be the first to pay the price. Value stocks, on the other hand, may do well in the early stages of an economic recovery, but they are more likely to do poorly in a long-term bull market, when constant media coverage, a rumor, or a news story about the company's management could cause a panic sell-off. VALUE V/S GROWTH INVESTING: WHICH IS BETTER? There is no right or wrong way to choose between growth investing and value investing when investing in the stock market. Instead, each method has its own set of goals, benefits, and risks. Because of this, it is best to use a combination of investment styles instead of just one, since both have their pros and cons. The primary and most critical aspect of every trader’s life is technology. At Zebu an online stock trading company we offer the best online trading platform with the lowest brokerage options.
Jul 02, 2022
Today, a lot of different people trade and invest in the stock market. There are also a number of strategies used when trading shares and orders are constantly being placed. Aside from the very common retail investor, large corporations and institutions like hedge funds, mutual funds, investment banks, pension funds, HNIs (high net-worth individuals), FIIs (foreign institutional investors), and company promoters also buy and sell shares on a large scale As an online brokerage firm we understand the nuances of trading, hence offer our best services to our customers, including providing our users with the best trading accounts and lowest brokerage options. Stock Market Biggies These big players come to the stock market with a lot of money and a good understanding of the companies they want to put their money in. The average investor is small compared to these big players in the market, so they don't have access to this special information that big investors do. Because of this, the ways that big investors trade and invest in the stock market today are different from those of small investors. These big investors do large deals, which are called bulk deals and block deals. Even though they sound the same, you need to know that they are not the same. Block Deals To know how block deals and bulk deals are different, you need to know what each means. First, you need to understand what a block deal is. A block deal is a single trade in which more than 500,000 shares are traded or a trade in which the value of the shares traded is more than Rs. 10 crores. In 2017, SEBI, which stands for the Securities and Exchange Board of India, changed the value of a block deal to Rs. 10 crores. Block deals happen on the stock market during a certain time called the "block deal window." Block deals happen in a special trading window that retail investors can't see. There are no value charts for these deals on any trading platform either. In a special "trading window," block deals are made in two 15-minute shifts. A Block Reference Price is used to figure out how block deals are made. In block deals, orders that aren't filled are cancelled and don't move on to the next trading window. Bulk Deal When at least 0.5% of a company's listed shares are traded, the deal is considered a bulk deal. In contrast to block deals, bulk deals take place during normal trading hours on the stock market. Again, unlike block deals, details of bulk deals are not kept secret from other market participants like small investors. On different trading platforms, they can be seen on the volume charts. Because bulk deals are visible to other market participants, they can affect stock prices in real-time and in a dynamic way. When a broker does a bulk deal on behalf of investors, he or she must share the details of the deal, such as who is involved, how much is being traded, etc. Other differences between block and bulk deals include the fact that bulk deals can be done during the trading window for block deals if they meet the conditions for block trading. For example, if the value of the transaction is more than 0.5% of all the listed shares of the company and more than Rs. 10 crores, participants can choose to trade during the block window or on a normal trading day. If the people involved want the details of the deal to stay secret until they are shared with the exchanges, they can choose to do the deal in the trading window. How Prices Change for Bulk and Block Deals Any big deals on the stock market today have to affect smaller investors (and some large ones). They get people's attention because of how big and important they are. Investors think that the stocks involved in such deals must be real. Bulk deals and block deals may show that more people are interested in a stock or that fewer people are interested in it. These signals must be taken seriously. Also, before you decide to trade, you should look at other indicators and trends. Even if a bulk order is filled, it doesn't mean that a certain stock is likely to move in the same direction as the bulk trade. Still, repeated bulk trades in the same direction (either buy or sell) may show interest in the stock in that direction. As an individual investor, you may need to buy or sell stocks in smaller amounts with the help of a trading account that is linked to a Demat account. When you open a Demat account, you probably don't think that block deals and bulk deals can be as big as they often are in the markets. But these deals, which are used by large funds, high-net-worth individuals, and institutional investors, move a lot of money on the stock market today. During normal market hours, big deals happen that everyone can see. When block deals are done in certain trading windows, the parties involved have a little more privacy. Still, bulk deals must be reported to the relevant exchanges at the end of the trading day (on the same day as the deal) and the information must be made public. As an online brokerage firm, we understand the nuances of trading, hence offer our best services to our customers, including providing our users with the best trading accounts and lowest brokerage options.
Jul 01, 2022
Futures vs options trading always seem to be up for discussion. Traders talk and talk about whether futures or options are riskier. In any case, it's important to think about how much risk you can handle before you take a side in the ongoing debate. Also, once you know exactly what futures and options are, it will be clear which one has more risks than the other. Trading is a risky business, that’s why you should try with new-age technology. We at Zebu, a share trading company offer our customers the best online trading platform to help with their online stock trading journey. A Brief Explanation of Options A contract between a buyer and a seller is an option. It gives the owner the right, but not the obligation, to buy or sell an asset at an agreed-upon price within a certain time frame. Options are contracts that are parts of a larger group of financial instruments called derivatives. They can be used on indices, stocks, and exchange-traded funds (ETFs). On the stock market today, options get their value from the underlying securities, such as stocks. When you trade stocks, all you are doing is trading ownership in a publicly traded company. Options contracts, on the other hand, let you trade the right or obligation to buy or sell any underlying stock. If you own an option, you do not automatically own the thing that the option is based on. Also, it doesn't give you any rights to dividends. Futures: A Short Explanation Futures are also contracts or agreements to buy or sell certain stocks or commodities at a certain time in the future. In a futures contract, the buyer and seller agree ahead of time on prices, quantities, and the dates of future deliveries. You can either buy or sell in a futures contract. If the price goes up, buyers make money because they bought the asset when it was cheaper. If the prices go down, the people who sold at higher prices will make money. A Quick Look at Futures, Options, and Risks If you do online trading, you may know some things about how the markets work. For example, if you trade and invest in stocks, you know that you need to open a demat account. In the same way, you would know that futures and options are derivatives if you knew anything about them. They also use leverage, which makes them riskier than trading stocks. Futures and options both get their value from the asset that they are based on. Futures and options contracts make money or lose money based on how the price of the asset they are based on changes. There is enough risk in the share market today. Your risk tolerance may be a factor in deciding between futures and options, but it's a given that futures are riskier than options. Even small changes in the price of an underlying asset can affect trading. This is especially true when trading options. Even though both have the same amount of leverage and capital at risk, futures are riskier because they are more likely to change. You need to know that leverage is like a "two-edged sword." You can make money quickly and lose it just as fast. In terms of futures, you can make money quickly or lose it in an instant. This is not the case with options trading. With options, you can buy either "put" or "call" options while you are trading online. The most you can lose is the amount of money you have put into the options. If your prediction is way off and your options are worthless by the time your contract is up, you may have some bad luck, but you will only lose the premium you pay for the options. With futures contracts, on the other hand, you have unlimited liability. You will have to make a margin call to add more money to your account to make up for the daily losses. If you lose money every day, you may have to keep going until the underlying asset stops going against the wind. If you put most of your money into futures contracts and don't have enough money to cover your margin calls, you could even go into debt. Does all of this sound too risky? You don't have to worry. Technically, futures are not inherently riskier. Instead, it is the fact that futures can use a higher level of leverage that makes both profits and risks bigger. You can easily borrow money to buy stocks and get 5:1 leverage. With futures, you could get 25:1, 50:1, or even more. So, even the smallest moves can lead to huge profits or huge losses, depending on what was invested. Things to think about If traders had to choose between trading futures and trading options in the world of online trading, options would be the more interesting choice. In options, the most you can lose is what you put in the first place. Options trading might be the better choice, especially if you use the spread strategies that options give you. If you plan to hold on to trades for a long time, bull call spreads and bear put spreads can increase your chances of success. Futures are riskier because they use a higher level of leverage and a smaller amount of cash to control assets with a higher value. This means that the amount you can lose may be higher than the amount you put in at first. Also, some things about the market could make it hard or even impossible to sell or hedge a certain position. Try our new-age technology now! We at Zubu, a share trading company offer our customers the best online trading platform to help with their online stock trading journey.
Jun 30, 2022
Trading is the process of buying and selling stocks and shares. Intraday traders try to buy shares at low prices and sell them for a profit later or on the same day. Investors might do the same thing, but they might hold on to stocks for a long time, waiting out any changes in the market until the price of a stock they own goes up. When investors trade, they need to know about terms like "margin" and "equity." This helps them learn how to trade and invest with some strategies in mind. It also helps them use tools like the equity margin calculator to figure out how much money they need to trade. Once you know what margin and equity mean and how they are used, it is easy to see how they are different. Zebu is an online trading company that offers the lowest brokerage options for users, have you tried our platform yet? What is margin trading? You should know about margin trading and what margins mean if you are a trader. Using a margin to trade is a simple process. As a trader, the first thing you should do is open a Demat account that is linked to a trading account. When a trader wants to trade stocks but can't afford to buy them, a margin account gives them the money they need to buy stocks. Brokers give these margins to traders by giving them extra money so that they can buy stocks. Brokers hold on to the shares that traders buy as collateral until the traders pay back the margin. How it Does It? The stock market today makes traders excited to buy and sell stocks. If you want to use a margin account to trade, the steps are easy to follow. First, you need to tell your broker that you want to open a margin account. To do this, you have to pay your broker a certain amount of money, which is called the minimum margin. An equity margin calculator can be used to figure out the amount of margin that needs to be paid to brokers. Before trading, investors can use the calculator to figure out the margins on certain stocks. This helps a trader figure out how much of a margin can be borrowed against an equity (stock) and how much they need to pay back to their broker. Margin and Equity Once you understand what a margin is and how margin trading works, you will also have some idea of what equity is and how it is different from margin. Equity is the value of your account right now, based on the value of the shares you own and any value that comes from open positions. In simple terms, equity is your account balance plus any extra money you've made or minus any money you've lost. When traders want to trade in the stocks of a certain company, they are basically trading in the company's direct equity. Traders who use margin trades can use a gross profit margin formula to figure out what company's stock to buy and how successful the company is. This formula tells traders how much a company has made in gross profit and how much it could grow in the future. When you open a Demat account to start trading on the stock market, you should know everything there is to know about trading and how to do it well. Before using margins to trade in this way, traders should give it a lot of thought. Zebu is an online trading company that offers thelowest brokerage options for users, have you tried our platform yet?
Jun 29, 2022
There are many benefits to investing in the stock market in India. You can get a loan against the securities in your Demat account, which is one of the many benefits. You can basically use the stocks you own as collateral with your stock broker or a financial institution to get a loan to pay for unexpected expenses. Before we get into understanding loans against securities, it is important to understand that trading requires a powerful online trading platform and at Zebu, as share market brokers we understand that. Along with the tool we also offer the lowest brokerage for intraday trading. Still, there are a few things you should know before you go ahead with this. Here's a quick look at the top 5 things you'd have to think about if you used this service. Financial Institution The first thing you should know about getting a loan against the stock is that not all banks or stock brokers offer this service. So, it is very important to find and pick the right institution. When looking for loans, you should try to get them from places that have low-interest rates. This will help you pay the least amount of money you have to. 2. Check if you're eligible Before deciding on a financial institution where you want to use this service, it is a good idea to look at their requirements to see if you meet them. Different institutions have different requirements, so it's important to know if you meet them before you apply. This will help make sure that everything goes smoothly and without any problems. Loan Amount The next thing you should know about a loan against security is how much you can borrow. Since the value of securities like stocks and bonds tends to change every day, most lenders will only loan a portion of the securities that have been pledged. Most of the time, the amount of a loan from a financial institution is between 60% and 80% of the value of the securities pledged. A list of stocks Not every place that lends money will take every kind of security as collateral. For example, some lenders may be willing to take mutual fund units as collateral while others may not. So, the list of accepted securities may be different based on where you apply. So, if you want to get a loan against stocks, you should first check with your preferred financial institution to see if the stocks you own can be used as collateral. Fees and charges that must be paid Lastly, most lending institutions charge fees and interest rates for loans against securities. Fees can be for anything, from processing to making a pledge. Some financial institutions even charge fees if the loan is paid off early. So, before you move forward with the process, you should be aware of the different fees and charges that come with such a service. So, you can make a good choice. Conclusion With this information, we hope you now know what you should think about when using this service. On the other hand, if you want to invest in the stock market today, you must have a Demat account in your name. Contact Zebu right away to set up a free Demat account in just a few minutes. At Zebu, as share market brokers we understand that trading requires a powerful online trading platform, and we offer just that. Along with the tool, we also offer the lowest brokerage for intraday tradingWhat are you waiting for? Download the Zebu app now.
Jun 28, 2022
The economy is always changing, and it can be hard to make investments when things are always changing. Investors are having a hard time right now because the economy is showing all the signs of inflation. So, how do investors invest now, especially if they want to put their money in the stock market? Are you planning to invest in the stock market? If yes, then you should definitely try Zebu’s online trading platform which will help you manage your trading seamlessly. At Zebu, a share market brokerage firm we also understand that online brokerage is a major problem, hence offer lowest brokerage options to our customers With higher rates of inflation, the IPOs of startups going public are becoming an ever more appealing way to get people to invest. But it's worth going back in time to get a better idea of how the economy worked in the past. The last 10 years, from 2011 to 2020, had low inflation and moderate growth. During the first decade, especially from 2002 to 2007, growth was higher, but inflation went up. We are at a time when growth is slow and prices are going up fast. There is a lot of uncertainty in the world today, and rising geopolitical tension is making it worse. But even though the markets have recently gone down, starting prices are still high. If you want to trade stocks when inflation is high, you can, but you should be careful. How the Indian economy is doing The Indian economy is in a macro situation right now, which can hurt most emerging markets. Many countries with "emerging markets" (some of which are closer to India than others) are in economic trouble. Because of this, FIIs are pulling their money out of these markets. Since October 2021, this has been the case with India. Still, India is better off than other countries in the same situation when it comes to inflation. This is one of the most optimistic signs for investors. Using Investor Awareness to Trade on the Stock Market Why is India a good market for investments, even if they are in the stock market? For one thing, India's economy is back on track after all the problems of the past few years. The services sector, which has been slowing down for the past few years, is also showing signs of getting back on its feet. Also, the amount of debt owed to countries outside of Canada is low, and the country has enough foreign exchange reserves to cover CAD projections and debt payments to countries outside of Canada. In this situation, investors who buy stocks need to be careful, because investing in the markets is risky. Investors who want to open a Demat account and invest in stocks that will do well during times of inflation should keep in mind the following: Investors should be ready for more volatility for the next 6 to 9 months. Investors shouldn't expect big returns and shouldn't think that the returns of the last two years will happen again. If an investor wants to invest a large sum all at once, they can choose funds that have a balanced mix of debt and stocks. Hybrid funds are a good choice for investors who like to play it safe. Using an STP or SIP, you should spread out your investments in small and mid-cap stocks over the next 6 to 9 months. A Time to Invest Carefully You might be interested in investing in the stock market because there are a lot of IPOs coming up. It's easy to open a Demat account and start investing with Zebu, but if you do so now, you must do your research on stocks and invest carefully. If you planning to invest in the stock market then you should definitely try Zebu’s online trading platform which will help you manage your trading seamlessly. At Zebu, a share broker firm we also understand that online brokerage is a major problem, hence offer the lowest brokerage options to our customers
Jun 27, 2022
Bottom fishing is the practice of investing in assets that have gone down in value, either because of internal or external factors and are thought to be undervalued. Every move in the share market is critical, but so is the technology you use to make those moves. As an experienced online trading company, we offer our users a seamless online trading platform and the lowest brokerage options to support their trading journey. How to Figure Out Bottom Fishing Investors who use the bottom-fishing strategy are called "bottom fishers." They bet, using either technical or fundamental analysis, that an asset's low price is only temporary and that it will rise again over time to become a profitable investment. Bottom fishing can be a risky strategy when asset prices are down for a good reason or a smart strategy when asset prices are trading at irrationally low prices. Bottom fishing is based on the tried-and-true method for making money in the stock market, which is to buy low and sell high. In short, look for value and invest in it. Value investors like Warren Buffett and Benjamin Graham have made a lot of money by buying assets that are selling for less than they are really worth and waiting for prices to go back to normal. Bottom fishing as a way to make money has often been thought of as more of an art than a business strategy because it is so abstract. The most important thing to know about this art is that a successful bottom fisher doesn't try to buy a stock at its absolute lowest price, but rather at a point where it has the best chance of going up. The best way to describe the risk of bottom fishing is with the market saying, "There's a reason why the price is where it is." Simply put, the market is always deciding how much a security is worth. If the value of a security has dropped sharply, there may be a good reason or reasons for the drop. It is very hard, if not impossible, to tell if this drop is due to something temporary, like panic selling, or if it is a sign of deeper problems that are not obvious. Here are some examples of bottom fishing: Putting money into the stock of an aluminium company when the price of aluminium is low. Buying shares of a company that ships containers during a recession. Putting money into a print media company when the internet is driving them out of business. Buying shares of a bank when the economy is in trouble. In each of these situations, it's not clear when or if the stock price will go back up, but you could make a case either way. During the 2008 financial crisis, investors who bought bank stocks made a lot of money, but investors in print media companies may have lost money because the industry has never been able to fully recover from the increasing competitive pressures. Strategies for bottom fishing Bottom fishing is appealing because it has a higher chance of making money than assets that are fairly valued or overvalued. Bottom fishing is most popular in bear markets, which makes sense. Value investing is the most common way to fish at the bottom. Value investors look for opportunities where the market may be pricing assets too low. They do this by looking at valuation ratios and predicting future cash flows. A company that had a bad quarter because of a problem with its supply chain and saw a big drop in sales would be a great example. Value investors might decide that this is an isolated incident and buy the stock in the hopes that it will recover and trade at a price that is more in line with its peers. Many traders also use technical analysis to find stocks that have been oversold and could be good opportunities for bottom fishing. For example, a company may report quarterly financial results that are worse than expected and see a big drop in price. Traders may see that the pressure to sell is starting to ease and decide to go long to take advantage of the short-term recovery. Often, these traders will use technical indicators that help them figure out if a security has been oversold or look at patterns in candlestick charts to do the same thing. As an experienced online trading company, we offer our users a seamless online trading platform and the lowest brokerage options to support their trading journey.
Jun 26, 2022
Futures and options are two types of derivatives contracts. They are used not only to protect the equity position but also to make a steady income. Many traders and investors combine futures, call options, and put options to make regular money from the stock market. They do this by using their holdings and balance margin to start trades. In this blog post, we'll look at how selling cash-secured puts can be used as a way to make money on the stock market. Are you a regular trader? Then, Zebu’s lowest brokerage for intraday trading plans is what you need. As a share broking company, we understand that the lowest brokerage plans can help our users tremendously. How do cash-secured puts work? As part of an option-selling strategy called "cash-secured put selling," you set aside enough money to buy a stock at a certain price and then sell the put option for that price. The goal is to buy the stock for less than what it is worth on the market. There are, however, some risks involved. The first risk is that the price of the stock may never drop to the level where the trader wants to buy it. This could make it impossible to buy the stocks in the long run. The second risk is that the price of the stock could fall way below the strike price. Why selling cash-secured puts is a good idea To make money from the option premium, cash-secured puts are usually sold. How much you get depends on the value of the security and how much you are willing to pay for it. Gains Invested Quickly Cash-secured puts can give you cash right away. It can make option income more appealing and can also help reduce risk. You can get paid to invest A cash-secured put strategy is a great way to get paid to buy the stock you want to buy. This strategy lets you choose from a number of strike prices and expiration dates. Low-dividend stocks can be profitable If you want to increase your cash flow but don't want to be limited by a low dividend yield, you can do so by selling cash-secured puts. Risks involved in this strategy Multiples of the Lot Size Futures and options, which are examples of derivatives, can only be traded in lots. This method won't help you if you want to buy stocks in a very small amount or a fraction of the lot size. Not being able to profit from price correction Most investors who want to own shares of a company in the long run shouldn't use the cash-secured put strategy. If the price of shares stays high, they may never be able to buy any. Repeated Actions Most investors are more interested in a simple "buy and hold" strategy. In this strategy, you sell cash-secured puts so that you can buy stocks when the person who bought the put options decides to sell. Since the option doesn't have to be used, it takes more time to go through the same process every time it expires. Effects on tax When you sell cash-secured puts, the money you make is considered business income and is taxed based on the trader's tax slab. If the trader owned the stock, he or she would get money from dividends and the increase in value of the stock. Together, these two types of income might have a lower tax rate. Getting to Know with an Example Let's say that the price of Stock XYZ is Rs. 250 right now. Stock XYZ's derivatives contract has a lot size of 100 shares, and you want to buy 100 shares of XYZ for Rs. 235. You can make money by selling the 235 strike price put option every month and keeping the premium. Let's say that for the current month, the premium for 235 put options is Rs. 8. You get Rs. 800 when you sell that put option (Rs. 8 x 100 shares). This means that you are willing to buy 100 units of the stock XYZ for Rs. 235 at the end of the expiration period if the price at that time is Rs. 250 or less. For this obligation to buy, you need to keep an account balance of Rs. 23,500 (Rs. 235 x 100 shares). If the stock price goes above Rs. 235, you get to keep the entire premium you got for selling the put option with a strike price of Rs. 2350. The Bottom Line: Cash-secured put selling is a strategy that involves buying a security at a price that you would be willing to pay. This method works for people who want to make more money or feel safer without spending too much. You might not want to sell cash-secured puts because the deal is complicated and you don't want to own the security. This strategy could be better for investors and traders who want to make money on the stock market without doing much work. If you are a regular trader then, Zebu’s lowest brokerage for intraday trading plans is what you need. As a share broking company, we understand that the lowest brokerage plans can help our users tremendously.
Jun 25, 2022
What does it mean to say that something is volatile? Volatility, in simple terms, is a way to measure risk. But in technical terms, what does volatility mean? It can be thought of as the average difference between returns and the mean. Every investor wants a way to put their money to work that will give them predictable returns over time. When returns are too unstable, they can't be predicted. At that point, the asset is worth less than it did before. Investors usually don't like stocks that are too volatile, and those stocks tend to be worth less. But did you know that when it comes to options, it's the other way around? In fact, volatility makes both call options and put options worth more. As we all know the market is volatile, but your platform does not have to be. Zubu, one of India’s top brokerage firms provides our users with a seamless online trading platform that can help them create the best trading accounts. Usually, volatility and the prices of assets go in opposite directions. The risk is higher when the volatility is high, and when the risk is high, the returns are lower than expected. Investors are always willing to pay more for stability than for risk. But things are very different when it comes to call and put options. When the market gets more volatile, both call and put options are worth more. So, let's figure out why volatility makes the price of options go up. Let's also look at the relationship between how volatile an option is and how much it costs. How does this affect the implied volatility between a call and a put? First, let's look at what it means for call options. Volatility means that the stock's returns are likely to be very different from the mean. It also means that there is too much uncertainty in this situation. But why does that make the put option worth more money? Let's start by looking at the basic Black-Scholes model. According to the Black Scholes model, the price of an option is affected by 5 main factors: Market Price of the Stock: When the stock price goes up, the value of the call option goes up, but the value of the put option goes down. Strike Price of the Stock: When the strike price goes up, the value of a call option goes down, but the value of a put option goes up. Interest rates: When interest rates go up, the present value of the strike price goes down. This makes the call option more valuable and the put option less valuable. The value of a call option and a put option goes down if the time until maturity or expiration goes down. The value of both the call option and the put option increases when the stock's volatility increases. As you can see from the points above, volatility is the only thing that affects both call and put options in the same way. The time to expiration is the same, but it is a subset of volatility because a longer time to expiration makes people expect more volatility. But why does volatility have the same effect on calls and puts? It's not hard to figure out why. Both calls and puts on an option are not the same. This means that the person who bought the option will only use it when it is good and will not pay the premium when the price goes down. This rule is true for both call and put options. The risk of going up or down is high when volatility is high. When there is a risk of going down, the person who bought the call option won't pay the premium. When there is a chance of going up, the person who bought the call option will make a lot of money. Put options are also subject to the same rule. This is why call options and put options are worth more when the market is volatile. This shows that the value of the call option and the put option goes up when volatility increases, as long as all other factors stay the same. Zubu, one of India’s top brokerage firms provides our users with a seamless online trading platform that can help them create the best trading accounts. Visit us for more information.
Jun 24, 2022
When it comes to trading options, the time value of an option is one of the most basic and important things to understand. In technical terms, it is called "Theta," which shows how an option's value decreases over time. Before we get into the details of time value and time decay, let's take a quick look back at what options are and how they work. Before we get into understanding the importance of time value in trading, we should understand that the right technology is equally important. As a share broking company, we offer our clients a seamless online trading platform and also provide them with the lowest brokerage on intraday trading, to make their journey as a trader as smooth as possible. So, what are options really all about? As the word "option" suggests, it is a right that doesn't have to be used. Unlike a futures contract, which is both a right and a duty, this is not the case. The buyer of the option has the right to buy or sell the underlying asset at an agreed-upon price (strike price). If the price change goes in the buyer's favour, he will make money, but if the price change goes against him, he will not use the option. That doesn't seem fair to the person who sold the option, does it? Not at all! Since the person who buys the option has a right but no obligation, the person who sells the option has a duty but no right. The seller won't do that for free, that much is clear. The person who buys an option pays a certain fee to the person who sells the option for the right to do something without having to do it. This fee is called an "option premium," and it is what gets traded on the NSE when you buy and sell options. The buyer of the option pays the option premium to the seller of the option as a reward for taking on the obligation without the right. Options can be either "call" or "put." Call options give you the right to buy something, while put options give you the right to sell something. You buy a call option if you think the price of a stock will go up. If you think the price of a stock will go down, on the other hand, you will buy a put option. Even though it sounds easy, it's not as easy as it sounds. Getting to the heart of an option's intrinsic value and time value. Before you can understand the idea of time value, you need to know about the three types of options below. 1. An In-The-Money (ITM) option is a contract for an option that has an intrinsic value that is greater than zero. If the market price of the Nifty is higher than the strike price, a call option on the Nifty is in the money. If the market price of the 17000 Nifty call option is Rs.70 and the spot Nifty is at 17100, then the intrinsic value of the Nifty call will be Rs. 100 (17100-17000). The option's time value will be the remaining value, which is Rs.30. So, of the Rs.70 option premium that is being quoted on the market, Rs. 100 is due to intrinsic value and Rs. 30 is due to time value. If the spot price of the Nifty is lower than the strike price of the put option, the option is in the money. 2.An "at the money" (ATM) option is a contract for an option that has a value of zero. If the market price of the Nifty is the same as the strike price, it will be an ATM for a call option on the Nifty. Since there is no intrinsic value, the time value is the only thing that makes the option worth anything. 3. Out-of-the-Money (OTM) options are option contracts where the market price is lower than the strike price for a call option or higher than the strike price for a put option. According to our formula, the intrinsic value will be negative, but since the intrinsic value can't be negative, we'll treat it as zero. So, only time value will make up the option premium. At the beginning of the month, ATM options have the highest time value, followed by ITM options and then OTM options. In the long run, the time value of all three options will tend toward zero as the expiration date gets closer. Even though the OTM and ATM options themselves have no value, the option premium for ITM options will still be positive because they have intrinsic value. Why is time value such an important part of trading options? An option is a wasting asset because its time value tends to go to zero as its expiration date gets closer. This loss of time is also called "Theta." Time and volatility are two of the most important parts of time value. For both call options and put options, the time value goes up as the time to expiration goes up. Even if the option is still Out of the Money, a rise in volatility can cause the time value to rise. The person who buys the options bets that volatility will make the time value go up, while the person who sells the option hopes that the time value will work in his favour so that the option expires worthless. This is the main idea behind trading with options. As a share broking company, we offer our clients a seamless online trading platform and also provide them with the lowest brokerage on intraday trading, to make their journey as a trader as smooth as possible. Contact us to know more.
Jun 23, 2022
Factors That Decide An Option’s Premium Any trader will tell you that in order to be successful, you have to understand and, more importantly, master the concept of option pricing and how to figure out its correct value. When you look at all the things that affect an option's price, you can figure out what its real price is. Let's look at oil as an example. The final prices of petroleum depend on consumer demand, the price of crude oil, the time of year, local and state taxes, refinery output, etc. If you want to know or figure out the price of an option before you buy or sell it, you can use a mathematical model like the Black Scholes model. You only need to think about the different parts of the model to figure out the right price. Being a successful trader depends on several things, but most importantly it depends on the kind of platform you use to trade. As a stock broker, we understand this and offer the best trading platform to our users that provides them with the best trading accounts. Putting a price on an option depends on a number of things. The stock's current price: If you're interested in a call option that lets you buy shares of X company for, say, Rs 350 each, you'd probably be willing to pay more for that call when the stock is trading at Rs 320 instead of Rs 350. This is because the call option gets much closer to being ITM at Rs 49 than it would have been if it traded at Rs 40. Put options, on the other hand, do the opposite. The Strike Price: This is the price that a call owner has to pay to buy stock, while a put owner has to pay if he wants to sell his stock. This is like the example that was given above. Most of the time, it costs more to get the right to buy stock at Rs 350 than at Rs 380. The average investor would, of course, like to have the right to buy stocks at lower prices at any time of day. With the strike price going down, this makes calls cost more. In the same way, the value of puts goes up when the strike price goes up. Time before expiration: It's important to remember that all options have a set amount of time they can be used and usually end on or after a certain date. Because of this, the value of an option goes down as time goes on. The more time there is until expiration, the more likely it is that you can make moves that will make you money. Interest rates: This is not a very important factor when figuring out the price of an option. When interest rates go up, so do the prices of call options. When the trader chooses the call option instead of the stock, any extra cash in his account should, at least in theory, earn him interest. This doesn't really happen in the real world, but the basic idea makes sense. Dividends: When a stock trades but the owner doesn't get any dividends, this is called "ex-dividend," and the price of the stock goes down by the amount of the dividend that was due. When dividends go up, put values go up and call values go down. Volatility is thought to be the most important variable. In simple terms, volatility is the difference between the prices of stocks from one day to the next. It can also be called swings in the price of a stock. When compared to stocks that are less likely to change, volatile stocks are more likely to have a different strike price level. When investors make big moves, their chances of making money go up. So, options on stocks that change a lot are definitely more expensive than options on stocks that change less or not at all. So, it's important to remember that even small changes in estimates of volatility have a big effect on the prices of options. Volatility is usually thought of as an estimate, and if you only have an estimate, especially of future volatility, it's almost impossible to figure out the right option value. As we mentioned earlier being successful as a trader depends on several things, but most importantly it depends on the kind of platform you use to trade. As a stock broker, we understand this and offer the best trading platform to our users that provides them with the best trading accounts.
Jun 22, 2022
Even if you don't invest in the stock market often, you are likely to get calls and texts from unknown brokers trying to sell you penny stocks. What are penny stocks, anyway? On the US stock market, stocks that are trading for less than $1 are called "penny stocks." Penny stocks are usually stocks that are trading for less than Rs.20 in the Indian market. Another definition is stocks that are trading for less than their par value or face value. The main point of the story is that these penny stocks are shares of companies that most people have never heard of and whose business models aren't very good. Here's why you shouldn't fall for the allure of penny stocks, even if they look very appealing. As experienced share brokers we want to offers the best online trading platforms, and the best trading accounts for our users. 1. Penny stocks are cheap because they might not be worth much. Penny stocks are usually quoted at very low prices because that is what they are worth. Some penny stocks are sold as good investments because their P/E ratio is low. That can be hard to understand. The P/E ratio shows how much people trust and care about a stock, and a low P/E usually means that people don't trust the stock. Most of the time, these companies also use creative accounting to make their profits look bigger than they really are. Don't get tricked by a low P/E. 2. It's easy to trade in circles with them, and you could get caught. What does it mean to trade in a circle? Here, a group of brokers make a deal with the promoters to drive up the price of the stock by making fake demand for it. Most of the time, if A, B, and C are all trading in the stock, one of them will be either the buyer or the seller. But when the markets see that the stock is consistently being bought and its price is going up, a lot of small investors tend to become interested. As soon as there is enough interest from retail investors, these "circle traders" get out of the stock, leaving retail investors with worthless paper. 3. Penny stocks tend to move in areas that are doing well. This is where the game of penny stocks gets pretty easy. During the height of the technology boom, a lot of "fly-by-night" companies changed their names to sound like IT companies. Not only did these companies manage to get people interested in the market, but they also sold shares in their IPOs and private placements at prices that were too high. You don't realise you've been taken for a ride until the dust settles. 4. Volumes can be created and taken away quickly. This is something that happens a lot with these cheap stocks. You may buy a stock because it has a lot of trades, but as soon as you do, buy orders are pulled. What is going on? Let's get back to our question about penny stocks and how they are traded. Most of the people who buy and sell at the counter are the same people who do business in circles. When they see that retail buyers are pushing prices up, they will just cancel their buy orders at lower prices. This makes the selling/buying order book look off, which makes people want to sell more. This is bound to happen when only a few traders control most of the volume. 5. Illiquidity is a major risk This again has to do with the last point. What does the term "basis risk" mean? It is the difference between the buy price and the sell price, also called the spread. This is important because it makes your costs go up when you buy and makes your advantage go down when you sell. You'll also notice that these stocks are always in the lower circuit or in the upper circuit. Since the volume and float are completely controlled by the circular traders, it may become very hard to buy and sell the stock. Most of the time, they will continue to be interested in these stocks only after they have sold all of their stock to other investors. 6. A lot of them could be "shell" companies Most of the time, these companies whose stocks are worth only a penny are just "shell" companies. That means that the company is no longer doing business or that all of its assets have been taken away. At the end of the 1990s, there were a lot of software companies that were really just fronts for laundering money through exports. Such businesses have a negative enterprise value, so it doesn't make sense to buy them at any price. Worse, if SEBI starts an investigation into one of these companies, you may have to answer embarrassing questions as well. Last but not least, you don't have to do that with your hard-earned money. Lastly, buying penny stocks is probably not the best use of your hard-earned money. These stocks are high risk and have a low chance of making money. Most of the time, they are just tricks to get people to buy. Instead of buying these penny stocks, you would be better off buying shares in good companies that have been well researched. Remember that the market is full of stories about how your neighbour became a millionaire by investing in penny stocks. But there are also stories of people who put everything they had on penny stocks and lost everything. Penny stocks are not worth taking a chance on. You can do a lot more with your money. Better to be safe than sorry! As experienced share brokers we want to offers the best online trading platforms, and the best trading accounts for our users at all times.
Jun 21, 2022