Options Trading in India

As India stock markets matures, people are using different different investment instruments to trade in the market. The one which is becoming common and even being traded heavily by retail investor is Options making them the largest trading instruments by Volume on NSE. If you are not aware of the basics please read it here or try google. You can find various strategies for trading in Options by just googling it. There are certain advantage of trading in Options mainly

1) Downward risk is capped until you are not writing options(naked option writing).
2) You can make highly leveraged position.
3) You can use it for insuring your portfolio for downward risk.
4) You end up paying very low brokerage if you are trading through an Discount broker.
5) You can earn based on Volatality, the higher the VIX the higher is the price of option

But Options trading is not like normal stock trading as most of the options expires in about a month times. So you have to be actively involved in trading and you cannot invest once and forget about it. For retails investor, it is better to understand the risk and reward associated with Options trading before deciding on trading with it. As Warren Buffet as described them as Weapons of Mass Destruction, so understand the risk associated with them before taking the plunge. But in case you decide to trade in Options trading, do read the paragraph below as I can make a huge difference in your P&L in the long term. Most of the brokers provide trading in F&O and if you are already trading with someone do ask them about whether they provide F&O. Most of them will have you fill another form stating that you understand the risk associated with Options trading etc. There shouldn’t be any extra charge to activate this service.

But while trading is options, investor should be aware of the brokerage charges as it can be substantial if you are using a full service broker for it. Just to provide you an example, ICICI charges a brokerage Rs 70-Rs 90 per options. So if you are buying 5 options you end up paying around Rs 800 brokerage ( 5 options buy/sell). This is huge for any options traders as it will soon eat into your profit.

So if you are new or already have an account with one of the larger brokers then you can trade with them but I would strongly suggest to open an account with one of the discount brokers to take advantage of there low brokerages. Just to make you understand of the difference, a discount brokers like RKSV will charge Rs 20 per trade irrespective of the number of options you buy in one trade. So for the above example the charges would be Rs 20 (Buy 5 options) + Rs 20 (Sell 5 options). So total brokerage would be Rs 40 compared to Rs 800 with ICICI saving of almost 95%.

The main discount options brokers which are offering very good rates to

trade in Options in India are
1) Zerodha
2) RKSV Security
3) TradeJini

Some of the full service options brokers you can look if you are just starting or plan to trade sparsely
1) ICICI Direct
2) Kotak Securities
Hope this will help you decide which stock brokers to choose in case you want to trade in Options. In case of any questions about trading in Options in India market, feel free to leave a comment in the section below.