Stock option trading terms and conditions
The number of units of the underlying security that are covered by a contract. The typical contract size is It should be noted that prices are displayed based on one unit of underlying security. An advanced strategy that involves the use of arbitrage. This is a simple strategy that can be used to make a profit from existing stock holdings when they are neutral and they are protected against a short term drop in their price.
Learn how to use a Covered Call. This is an advanced trading strategy that can be used in conjunction with short selling stock to profit if the stock remains neutral; it also protects against a short term rise in their price. Learn how to use a Covered Put. A type of spread that is cash positive — i. Read more about Credit Spreads. A type of option where the underlying security is a specific currency.
A type of order that is cancelled at the end of a trading day if it hasn't been filled. A trader who enters and exits their trading positions within one trading day, often holding onto positions for just a few minutes or hours.
The style of trading used by day traders, where positions are entered and exited within the same trading day. Read more about Day Trading. A strategy that is used to protect an existing position from small movements in price. This can be used to hedge existing positions in stocks or other financial instruments.
Read more about Delta Neutral Hedging. A strategy designed to create trading positions which will neither profit nor loss if there are small movements in the price of the underlying stock, but will return profits if the price of the underlying security moves significantly in either direction. Read more about Delta Neutral Trading. One of the Greeks, the delta value measures the theoretical effect of changes in the price of the underlying security on the price of the option.
Also referred to as Options Delta. A financial instrument which derives its value primarily from the value of another financial instrument. Options are a type of derivative. A type of spread that is created by using multiple contracts with different expiration dates and different strike prices.
Read more about Diagonal Spreads. The risk of loss from the price of a security moving in an unfavorable direction. For example, if you write calls you exposed to the directional risk of the underlying security possibly increasing in price. The expectation of which direction, if any, that the price of a security will move in.
For example, if you are expecting a security to increase in price you have a bullish outlook. A type of broker that carries out transactions at a low price, but generally offers little in the way of additional services.
An option that is trading for less than its intrinsic value. A payment that can be made by a company to its shareholders, representing their share of profits. A position which is constantly adjusted as required to serve its purpose. When the writer of contracts is required to fulfill their obligations under the terms of those contracts prior to the expiration date; early assignment happens when contracts are exercised early.
When an American style is exercised prior to the expiration date. A type of option that is based on stock in a company and issued to employees of that company: Read more about Employee Stock Options. An options contract that can only be exercised at the point of expiration and not before.
Read more about European Style Options. The process by which the holder of a contract uses their right under the terms of that contract to either buy or sell the relevant underlying security at the stated strike price. Learn more about Exercising an Option. A limit on the number that can be exercised that may be imposed on the holder. The date on which a contract expires and effectively ceases to exist.
Options must be exercised on or before this date, or they will expire worthless. When a contract reaches the expiration date and has no value i. The component of a price that is affected by factors other than the price of the underlying security, such as time left until expiration.
Read more on the following page: A strategy that is designed to effectively cover the costs of exercising a call. Read more about Fiduciary Calls. Fill or Kill Order: Often abbreviated to FOK, this is a type of order that must be either completely filled with immediate effect or cancelled. Stocks, shares, options, currencies, futures, and commodities are all forms of financial instruments. A style of analyzing the value of a financial instrument by studying certain specific factors that relate to the true value of that security.
Studying the financial reports of a company would be a way to carry out fundamental analysis on stock in that company. A type of option where the underlying security is a future contract. A type of broker that offers expert advice and professional guidance in addition to executing orders for a client; they typically charges higher fees and commissions. A hedging technique that involves creating positions where the overall gamma value is as close to zero as possible so that the delta value of the positions should remain static whether or not the price of the underlying security moves up or down.
Read more about Gamma Neutral Hedging. One of the Greeks, the gamma value measures the theoretical effect of changes in the price of the underlying security on the delta value of that option. Also referred to as Options Gamma. Taking a long position on a financial instrument with the expectation that it will increase in price over time. Buying a contract is going long on that option. Taking a short position on a financial instrument with the expectation that it will decrease in price.
Writing a contract is going short on that option. Often abbreviated to GTC, this is a type of order that stays active until it is either filled or cancelled. A series of values that can be used to measure the sensitivity of an option to changes in market conditions and the theoretical changes in the price of an option caused by specific factors such as the price of the underlying security, volatility, and time left until expiry.
Read more about the Greeks. An investment technique used to reduce the risk of holding a specific investment. Options are commonly used as hedging tools: Often abbreviated to HV, a measure of the volatility of the price a financial instrument over a specified period of time in the past. A type of spread that's created using multiple contracts with different expiration dates, but with the same strike price.
Read more about Horizontal Spreads. Immediate or Cancel Order: Often abbreviated to IOC, this is a type of order that must be partially or completely filled immediately or cancelled. If the order is only partially completed, the balance of the order is cancelled. Often abbreviated to IV, it's a measure of the estimated volatility of the price a financial instrument at the current time.
Read more about Volatility and Implied Volatility. In the Money Option: An option where the price of the underlying security is in a favorable position, relative to the strike price, for the holder: A call is in the money when the price of the underlying security is higher than the strike price and a put is in the money when the price of the underlying security is lower than the strike price. The component of a price that's affected by the profit that is effectively built into a contract when it's in the money — i.
Learn how to use an Iron Albatross Spread. Learn how to use an Iron Butterfly Spread. Learn how to use an Iron Condor Spread. These are contracts that expire several months, or longer, in the future. When an options position is made up of a combination of multiple positions, each of the individual positions is known as a leg.
The process of entering or exiting a position that is made up of a combination of multiple positions by transacting each position individually. Read more about Legging. See Legging; the process of entering a position using legging. See Legging; the process of exiting a position using legging. Also known as Level 2 Quotes. Real time quotes that are provided by exchanges detailing the exact bid ask spreads being offered by market makers.
Typically used by very active traders to get the best possible prices at any given time. The use of specific financial instruments, such as options, to get a greater potential return on invested capital, or the use of borrowed capital to achieve potentially greater profits. Read more about Leverage. A type of order used to buy or sell financial instruments at a specified maximum or minimum price respectively.
Also known as a stop limit order, an order to close a position when a certain price is reached, if the order can be filled within a specified limit. A measure of the ease with which a financial instrument can be bought or sold without impacting the price, or the ease with which a financial instrument can be converted to cash.
A type of option that is listed on an exchange, with fixed strike prices and expiration dates. This is a simple strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Long Cal l. This is a simple strategy that can be used when price of the underlying security is volatile and expected to move significantly, but the direction of the move is unclear.
Learn how to use a Long Gu t. The position of being long on a financial instrument. If you own options contracts, then you hold a long position on them. This is a simple strategy that can be used when the outlook on an underlying security is bearish.
Learn how to use a Long Put. This is a simple strategy that can be used when the price of the underlying security is volatile. Learn how to use a Long Straddle. Learn how to use a Long Strangle.
A type of option that allows the holder to exercise the option at the best price that underlying security reached during the life of the option. Read more about Look Back Options. Margin has multiple meanings depending on the context that it's being used in. Margin related to buying stocks is the process of borrowing capital from a broker to buy stocks.
Margin related to options trading is the amount of cash required to be held in a trading account when writing contracts. Read more about Margin. Professional, high volume traders that are generally employees of financial institutions and are responsible for ensuring there's adequate depth and liquidity within the market in order for it to run efficiently.
Read more about Market Makers. Market On Close Order: Often abbreviated to MOC, this is a type of order that is filled at the end of a trading day. A type of order used to buy or sell financial instruments at the current market price. A market order will always be filled providing there's a corresponding seller or buyer. Also known as a stop market order, an order to close a position at market price when a certain price is reached.
A hedging strategy that uses stocks and options. Read more about Married Puts. A method used to measure the relationship of the strike price of an option to the current price of the underlying security. Read more about Moneyness. The changing of one position into another position with just one order, typically used with synthetic positions.
Also known as an uncovered option, this is where the writer of a contract doesn'tt have a corresponding position in the underlying security to protect them against unfavorable price movements. For example, writing calls without owning enough of the underlying security is writing naked options or taking a naked position. Near The Money Option: An option where the price of the underlying security is very close to the strike price.
When the overall market is relatively stable it's either bullish or bearish. An expectation that the market, or a specific financial instrument, will remain relatively stable in price.
Strategies that can be used to profit from the price of a financial instrument not moving, or moving only slightly. List of Neutral Strategies. A market where the buyers significantly outnumber the sellers or the sellers significantly outnumber the buyers. One Cancel Other Order: Often abbreviated to OCO, this is a type of combination order where one order is cancelled when the other one is filled.
One Trigger Other Order: Often abbreviated to OTO, this is a type of combination order where one order is automatically executed when the other one is filled. A broker that enables you to enter your orders using an online trading platform. An order that is used to open a new position. A measurement of the total number of open positions relating to a particular option.
Read more about Open Interest. The right to buy or sell a specified underlying security at a fixed strike price within a specified period of time.
The theoretical price of an underlying security that will result in the highest number of traders losing the highest amount of money due to options contracts expiring out of the money. Also known as Max Pain. Read more about Option Pain. An individual or a company that executes orders to buy and sell options contracts on behalf of clients.
List of the Best Brokers. Effectively the name of an option; a string of characters that defines specific options contracts. Out of the Money Option: An option where the price of the underlying security is in an unfavorable position, relative to the strike price, for the holder: A call is out of the money when the price of the underlying security is lower than the strike price and a put is out of the money when the price of the underlying security is higher than the strike price.
An expectation on which direction, if any, the market or a specific underlying security will move. Over The Counter Option: A type of option that is only sold over the counter OTC and not on the public exchanges. They are typically highly customized options with specific parameters. An option where the underlying security is a physical asset that is neither stock nor futures contracts.
A type of option in which the underlying security changes hands between the holder and the writer of the options when it's exercised.
The combined holdings of any financial instruments owned by an individual, group, or financial institution. A trader who uses the unique opportunities that options offer to profit from factors such as time decay and volatility. The style of trading used by position traders, who are usually very experienced traders, to take advantage of the opportunities for profit that are created by the mechanics of options trading.
Read more about Position Trading. A term that can be used to describe the whole price of an option or the extrinsic value of an option. Read more about Premium. A mathematical formula that is used to value or price an option contract based on specific factors. A specific type of chain that displays the five main Greeks in addition to other standard information.
A strategy that is used to protect profits in a short stock position. Learn how to use a Protective Call. A strategy that is used to protect profits in a long stock position. Learn how to use a Protective Put. A type of option which grants the holder the right, but not the obligation, to sell the relevant underlying security at an agreed strike price.
Read more about Put Options. A concept related to pricing that's based on avoiding arbitrage by ensuring the extrinsic values of related calls and when puts are equal, or close to equal in value. An advanced strategy that can be used for profit in a volatile market, when there's a bearish outlook.
Learn how to use a Put Ratio Backspread. Learn how to use a Put Ratio Spread. The third Friday in the months of March, June, September, and December are the days when stock options, index options, stock futures, and index futures all reach their expiration point; this usually leads to high trading volume and increased volatility.
A type of option that uses a quarterly expiration cycle. A type of spread that is created using multiple contracts of differing amounts. This typically involves writing a higher amount of options than is being bought, but the ratio can be either way around. Read more about Ratio Spreads. The process of taking profits when closing an existing a position. Profit that exists in an open position is unrealized profit. The process of incurring losses when closing an existing position. Losses that exist in an open position are unrealized losses.
A price point, higher than its current price, that a financial instrument has not risen above over a given period of time. Often abbreviated to ROI, this is the percentage of profit that's made, or could be made, on an investment. Reverse Iron Albatross Spread: An advanced strategy that can be used to make returns from a volatile market. Learn how to use a Reverse Iron Albatross Spread. Reverse Iron Butterfly Spread: Learn how to use a Reverse Iron Butterfly Spread.
Reverse Iron Condor Spread: Learn how to use a Reverse Iron Condor Spread. One of the Greeks, the rho value measures the theoretical effect of changes in interest rates on the price of the option. Also referred to as Options Rho. A graph used to illustrate the risk to reward ratio of a position. Read more about Risk Graphs. A simple strategy that's typically used for the purposes of hedging.
Read more about Risk Reversal. Risk to Reward Ratio: An indication of how much risk is involved in a position in relation to the potential rewards or profits. Read more about Risk to Reward Ratio. The process of closing an existing position and opening a comparable position at the same time, but with a lower strike price. The process of closing an existing position and opening a comparable position at the same time, but extending the time left until expiry.
A trading technique used to close an existing position and open a similar one at the same time, with slightly different terms. Read more about Rolling. The process of closing an existing position and opening a comparable position at the same time, but with a higher strike price. Sell To Close Order: An order that's placed when you want to close an existing long position through selling the contracts you have previously bought.
Read more about the Sell to Close Order. Sell To Open Order: An order that's placed when you want to open a new position through writing new contracts. Read more about the Sell to Open Order. The process by which the terms of a contract are resolved when the option is exercised. Read more about Settlement. An advanced strategy that can be used when the market is volatile. Learn how to use a Short Condor Spread. Short Bear Ratio Spread: Learn how to use a Short Bear Ratio Spread.
For your demat Account, an instruction given to us by someone who knows your password will be necessary and sufficient condition to effect a transaction. Please note that normally regulations require both the Account holders to sign on instruction but that you are agreeable to any transactions on such Account being executed in the manner outlined above.
You can also nominate someone in your Demat Account, who becomes the beneficiary of the shares held in the Account in the unfortunate event of your demise. For all the stocks which are in the compulsory rolling segment EQ series, on NSE trades will be executed in this segment. We may not allow certain shares for trading if price manipulation is suspected or stock being illiquid or for any other reason.
All orders will be valid for the day until the normal market closes. On closure of the market the orders or the pending part of the order will automatically lapse. Though orders are usually routed to the marketplace within seconds, certain orders, at Arch Finance Limited's sole discretion, may be subject to manual review and entry, which may cause delays in the processing of your orders.
You also understand that you will receive the price at which your order executes in the marketplace, which may be different from the price at which the Scrip or option is trading when your order is entered into our system. You also understand that market orders may get executed at a price significantly unfavorable to you, depending upon market fluctuations. All orders placed on Arch Finance Limited will be pre-validated against your cash and shares balances before placing them on the exchange.
The validation rules are subject to change from time to time by Arch Finance Limited. If the funds or the shares are insufficient to process the orders, then the order will be rejected.
After Arch Finance Limited validates the order; it is placed on the exchange. The Exchange may accept or reject the order, based upon its internal rules and regulations.
Arch Finance Limited has provided the facility to modify price and quantity or cancel un-executed orders. You can see the status or your orders through the order tracker from getting started guide.
And modification or cancellation can be applied only on the yet un-executed part of the order. If full funds are not available in the Account and an order is processed, your payment via internet banking, personal cheques or demand draft payable to Arch Finance Limited. If payment is not received by settlement date, or as market conditions warrant, your Account may be liquidated, without prior notification. In the event your Account getting liquidated, you will be liable for any resulting losses and all associated costs incurred by Arch Finance Limited.
Net purchases made in any Scrip by you will be credited to your Demat Account. Shares are available for credit as per the settlement schedule of the exchanges, after the full payment is made to the clearing house of the exchange.
Sometimes, the clearing house may not be able to deliver the full quantity expected. In such cases, the exchange will try to buy the short delivery by conducting an auction, resulting in a delayed delivery into your Account, or will force a close-out and credit the money into your Account, if delivery cannot be arranged even through an auction process.
If any selling client fails to deliver the required securities and due to this buyer does not get the security in payout then we may buy such short shares. Such shares will be delivered to the buying client and the selling client will be debited by the purchase price together with brokerage and other costs thereon and penalty, if any decided by Arch Finance Limited from time to time.
Arch Finance Limited generally stipulates that Sell Orders can be accepted only against available shares in your Account, which are good and deliverable to the exchange. Any order inadvertently accepted without available shares in the Account will be subject, at Arch Finance Limited's discretion, or as per the exchange's rules and regulations to cancellation or buy-in.
Available shares means shares for which you are beneficially entitled to as per CDSL or NSDL records in your DEMAT account plus securities purchased by you in the settlement in which you intend to sell minus shares sold by you pending settlement with the Exchange. However, short sale can be done in scrips approved by us. List of scrips allowed under Short Sell is available on site.
For all sales done in your Account, if there is a net sales position as on that day in any scrip,Arch Finance Limited will block or transfer shares from your demat Account to the Pool Account for delivering to the clearing house of the Exchange. Proceeds of the sale cannot be paid to you until the shares are delivered to the clearinghouse of the exchange and a credit is received thereof from exchange. To that extent, your withdrawable balance can be lesser than your cash Account balance.
The balances will be retained in your Account unless you request otherwise. You may withdraw uninvested cash from your Account upon request to Arch Finance Limited. You can deposit amount in your Account by using Internet banking, or by personal cheque or a demand draft. Credit will be available in your Account after the funds are cleared. There could be negative balance in your Account due to reasons like charges debit, inadvertently processing buy orders without available balance etc.
In such cases, your payment via Internet banking, via personal cheque or demand draft payable to Arch Finance Limited must be promptly submitted. If payment is not received in reasonable time, your Account may be liquidated, without prior notification. In the event your Account is liquidated, you will be liable for any resulting losses and all associated costs incurred by Arch Finance Limited.
All rules, regulations and time deadlines prescribed for those transactions, as per the client agreement and CDSL or NSDL, as the case may be, rules will continue to apply for such transactions and instructions. Indian rules currently require issuance of contract notes for all buying and selling of shares. Arch Finance Limited will issue physical contract notes, till such time that the legal requirement to do so exist.
Different scrips attracts different margin and list of scrip is available on site. We may initiate compliance action in case of any default in payments of any dues receivable by us from client.
We may take any one or all compliance actions as mentioned above and will intimate to the client on compliance action being taken and details thereof. To avoid compliance action, client should deposit additional funds, squared off outstanding transactions or sale other securities lying in his depository account to make his CCB positive. Client should always look at his exposure, M to M losses, pay in and other obligation, alerts forwarded by us, etc.
You acknowledge that while Arch Finance Limited does provide advice regarding the suitability or profitability of a Contract or investment, or any other tax or legal advice it may add on from time to time, You assume full responsibility with respect to transactions in or for your Account and your investment decisions.
It is open for resident Indian only. You agree to pay our brokerage commissions and other fees, as they exist from time to time and as they apply to your Account, transactions, and services you receive. DAY - A Day order, as the name suggests, is an order, which is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day. It will therefore be able to span trading days if it does not get matched.
The maximum number of days a GTC order can remain in the system is notified by the Exchange from time to time. At the end of this period the order will get flushed from the system. The Exchange notifies the maximum number of days a GTD order can remain in the system from time to time. IOC - An Immediate or Cancel IOC order allows a Trading Member to buy or sell a security as soon as the order is released into the market, failing which the order will be removed from the market.
Partial match is possible for the order, and the unmatched portion of the order is cancelled immediately. Until then the order does not enter the market. A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order.
If for stop loss buy order, the trigger is This order is added to the regular lot book with time of triggering as the time stamp, as a limit order of Maximum 3 orders can be placed in one attempt. All orders placed through this system are IOC orders.
All orders must satisfy the risk criteria on individual basis. If any of the order fails in risk validation, none of the order will be accepted by the system. Orders can be placed in the same underlying contract or different underlying contracts as well. The execution of orders takes place in the same ratio in which the order was placed. All orders placed on Arch Finance Limited will be pre-validated against your Trading Limit before placing them on the exchange.
If Trading limit is insufficient to process the orders, then the order will be rejected. If full funds are not available in the Account and an order is processed, your payment via internet banking, personal cheque or demand draft payable to Arch Finance Limited must be promptly submitted to assure that such payment will be received on or prior to settlement date.
Margin is payable as prescribed by NSE and client is required to give any additional margin on open position as may be required by exchange. We reserve our right to charge and recover Margin, though not required by exchange, based on our analysis of risk on your open position.
Securities deposited towards margin must be delivered to us from client depository account and no third party securities will be accepted by us. Shares received by us may be pledged with NSE and any withdrawal takes minimum 3 Days.