Futures Trading.
1. Background – Forwards Market.
An introductory article on Futures. Describes what a forward contract means along with a practical illustration of the concept. The article discusses the procedure for settling the forward contract. T ..
2. Introducing Futures Contract.
The article starts by discussing the drawbacks of Forwards contracts and progress to discuss how a futures contract overcomes these drawbacks. Examples are quoted to make the concept clear. ..
3. The Futures Trade.
The article explains how a trader can employ futures contract to financially profit from his directional view on a stock or an index. Practical examples are used to illustrate how the trade would evol ..
4. Leverage & Payoff.
This chapter discusses leverage, the central theme of futures trading in detail. The contract between futures and spot market is discussed. The chapter also touches upon leverage calculation. ..
5. Margin & M2M.
This chapter gives you all the necessary information that you need to know before placing your first futures trade. The chapter also throws light into why brokers and exchanges charge margins. ..
6. Margin Calculator (Part 1)
This chapter gives you an overview of how to use a margin calculator. In addition the chapter also touches upon spread trading such as calendar spreads. ..
7. Margin Calculator (Part 2)
In continuation from the previous chapter this chapter discusses various product types such as NRML, MIS, Bracket Order, and Cover order and the margins applicable to these products. The chapter also ..
8. All about Shorting.
The chapter explains all that you need about shorting, be it futures or stocks with practical real life examples. Emphasis is also made on things you need to take care of when you short stocks or futu ..
9. The Nifty Futures.
This chapter is a primer on trading Nifty Futures. All that you need to know about Nifty futures is discussed in this chapter including the impact cost, liquidity, and benefits of trading Nifty future ..
10. The Futures Pricing.
This chapter is a primer on how future contracts are priced with respect to the spot prices. The chapter also discusses the concept of premium, discount, and the convergence of futures and spot price ..
11. Hedging with Futures.
This chapter gives a step by step instruction on how to hedge a portfolio of stocks with the help of a futures instrument. The chapter also has a detailed description on beta and method to calculate t ..
12. Open Interest.
This chapter explores in details the concept of open interest and its relevance to futures trading. The chapter also includes a guide on how to interpret the change in open interest with respect to ch ..
Varsity by Zerodha © 2015 – 2017. All rights reserved.
Reproduction of the Varsity materials, text and images, is not permitted. For media queries, contact [ protected]

Options Theory for Professional Trading.
1. Call Option Basics.
1.1– Breaking the Ice As with any of the previous modules in Varsity, we will again make the same old assumption that you are new to options and therefore know nothing about options. For this reason ..
2. Basic Option Jargons.
2.1– Decoding the basic jargons In the previous chapter, we understood the basic call option structure. The idea of the previous chapter was to capture a few essential ‘Call Option’ concepts suc ..
3. Buying a Call Option.
3.1 – Buying call option In the previous chapters we looked at the basic structure of a call option and understood the broad context under which it makes sense to buy a call option. In this chapter, ..
4. Selling/Writing a Call Option.
4.1 – Two sides of the same coin Do you remember the 1975 Bollywood super hit flick ‘Deewaar’, which attained a cult status for the incredibly famous ‘Mere paas maa hai’ dialogue ☺? The mo ..
5. The Put Option Buying.
5.1 – Getting the orientation right I hope by now you are through with the practicalities of a Call option from both the buyers and sellers perspective. If you are indeed familiar with the call opti ..
6. The Put Option selling.
6.1 – Building the case Previously we understood that, an option seller and the buyer are like two sides of the same coin. They have a diametrically opposite view on markets. Going by this, if the P ..
7. Summarizing Call & Put Options.
7.1 – Remember these graphs Over the last few chapters we have looked at two basic option type’s i. e. the ‘Call Option’ and the ‘Put Option’. Further we looked at four different variants o ..
8. Moneyness of an Option Contract.
8.1 – Intrinsic Value The moneyness of an option contract is a classification method wherein each option (strike) gets classified as either – In the money (ITM), At the money (ATM), or Out of ..
9. The Option Greeks (Delta) Part 1.
9.1 – Overview Yesterday I watched the latest bollywood flick ‘Piku’. Quite nice I must say. After watching the movie I was casually pondering over what really made me like Piku – was ..
10. Delta (Part 2)
10.1 – Model Thinking The previous chapter gave you a sneak peek into the first option Greek – the Delta. Besides discussing the delta, there was another hidden agenda in the previous chapter – ..
11. Delta (Part 3)
11.1 – Add up the Deltas Here is an interesting characteristic of the Delta – The Deltas can be added up! Let me explain – we will go back to the Futures contract for a moment. We know for every ..
12. Gamma (Part 1)
12.1 – The other side of the mountain How many of you remember your high school calculus? Does the word differentiation and integration ring a bell? The word ‘Derivatives’ meant something else t ..
13. Gamma (Part 2)
13.1 – The Curvature We now know for a fact that the Delta of an option is a variable, as it constantly changes its value relative to the change in the underlying. Let me repost the graph of the del ..
14.1 – Time is money Remember the adage “Time is money”, it seems like this adage about time is highly relevant when it comes to options trading. Forget all the Greek talk for now, we shall go b ..
15. Volatility Basics.
15.1 – Background Having understood Delta, Gamma, and Theta we are now at all set to explore one of the most interesting Option Greeks – The Vega. Vega, as most of you might have guessed is the ra ..
16. Volatility Calculation (Historical)
16.1 – Calculating Volatility on Excel In the previous chapter, we introduced the concept of standard deviation and how it can be used to evaluate ‘Risk or Volatility’ of a stock. Before we move ..
17. Volatility & Normal Distribution.
17.1 – Background In the earlier chapter we had this discussion about the range within which Nifty is likely to trade given that we know its annualized volatility. We arrived at an upper and lower e ..
18. Volatility Applications.
18.1 – Striking it right The last couple of chapters have given a basic understanding on volatility, standard deviation, normal distribution etc. We will now use this information for few practical t ..
19.1 – Volatility Types The last few chapters have laid a foundation of sorts to help us understand Volatility better. We now know what it means, how to calculate the same, and use the volatility in ..
20. Greek Interactions.
20.1 – Volatility Smile We had briefly looked at inter Greek interactions in the previous chapter and how they manifest themselves on the options premium. This is an area we need to explore in more ..
21. Greek Calculator.
21.1 – Background So far in this module we have discussed all the important Option Greeks and their applications. It is now time to understand how to calculate these Greeks using the Black & Sch ..
22. Re-introducing Call & Put Options.
22.1 – Why now? I suppose this chapter’s title may confuse you. After rigorously going through the options concept over the last 21 chapters, why are we now going back to “Call & Put Options ..
23. Case studies – wrapping it all up!
23.1 – Case studies We are now at the very end of this module and I hope the module has given you a fair idea on understanding options. I’ve mentioned this earlier in the module, at this point I f ..
Varsity by Zerodha © 2015 – 2017. All rights reserved.
Reproduction of the Varsity materials, text and images, is not permitted. For media queries, contact [ protected]

Futures and options trading zerodha

In an online chat with Get Ahead readers on October 9 Nithin Kamath, CEO, Zerodha answered readers' queries on how to trade in futures and options.
Here is the unedited chat transcript.
kaushal : What are the conditions imposed by SEBI for brokerages to start offering F&O services?
Nithin Kamath : SEBI does a rigorous check on background of promoters, networth requirement, market knowledge of the management, technology and risk management systems before allowing a brokerage to offer f&o, along with this there is continuous audits done by the exchanges to ensure that everything is in place.
ulfat : Who should ideally trade in futures & options segment?
Nithin Kamath : Futures and options requires some commitment in terms of time to learn how to trade and then tracking your trades once you have taken them. If you are a positional trader, then I guess a person who can commit atleast a couple of hours everyday. Also, the business involves leverage and can be an emotional roller coaster, so a person who can handle that volatility.
alex : Which books did you read to become an expert? What role does experience play in becoming a great F&O trader?
Nithin Kamath : Best books to get started with are those which talk about the good habits of profitalble traders as mentioned below. But once you are done with that, it is self discovery in reading and researching on what strategy best suits u.
Yep, experience is the key, important thing is to learn from your experience and not make the same mistake twice.
Jeswal : How can I become an expert in F&O trading.
Nithin Kamath : f&o trading or trading in general requires a lot of time effort and dedication. The only way to learn trading is by actually putting up your money, only then will what you read make sense. But it also important that the money you put is something you can afford to lose. As I said earlier, try reading about what most profitable traders in the world did right in the book Market Wizards.
kapadia : premium for which strike prices have high implied volatility? What does it imply and how to make money using this high implied volatility?
Nithin Kamath : Usually out of the money options have a higher IV, the trade typically could be if it is much above the mean IV, it could be a good time to sell them and much below the mean time to buy.
Tharun : If i sell a call on starting of month ex.18 rs/-, when it reaches to zero on expiry, so i get profit of 18 rs? How can i calculate margin required for writing a option?
Nithin Kamath : We provide a tool called SPAN calculator, zerodha/z-connect/blog/view/span-calculator this allows you to calculate. We will be soon providing a similar tool on our website which can be used by everyone.
vinod gatta : what is the average oscillation range of IV in nifty option? how can we use of it by analyzing?
Nithin Kamath : Don't have the exact numbers but the range is between 10 to 40, at the lower end better to buy options and at the higher end to write them hoping that it will revert to the mean.
sudaram : What is historical or statistical volatility? How does it affect pricing of futures and options?
Nithin Kamath : Historical volatility is simply historical volatility in the price of the underlying. Volatility affects options more than the futures, higher volatility usually would mean option would be priced higher.
John : Are Indian F&O mkts deep enough? there are no calll writing and put writing for next month or 3-month F&Os.
Nithin Kamath : Yes liquidity is pretty bad if you go for anything other than present month. Also the activity in stock options is really low.
jitesh : How shall one trade in the F&O of index heavyweights on the expiry day?
Nithin Kamath : There is no preset strategy to trade on expiry day, all you have to be careful is about not letting your in the money options expire (you rather sell it on the exchange rather than holding it till the close of trading on the expiry day. The reason for this is because the STT on expired options which are in the money goes up significantly.
omi : How does a call writer and put writer make money?
Nithin Kamath : call writer makes money when the markets don't go up above a certain point and put writer if market doesn't go down below a certain point.
rajat : plz enlighten us on 5 must-dos and don'ts while trading in F&O.
Nithin Kamath : The most important rule while trading f&o is to be very conservative, since there is a risk of losing money fast, risk only that which you can afford to lose, ideally should not exceed more than 15 to 20% of your investible capital.
bhanu : what is implied volatility mean? How can I calculate it?
Gadgets-Gaming : Tell me what are the risks associated with F&O and risks with day-trading in stocks?
Nithin Kamath : Risks associated are the same, since you are trading with leverage, i. e more money than what you have in your account, the risk of losing money fast if your trade is not right.
shaishav : Is it advisable to buy calls and puts or sell them?
Nithin Kamath : It is advisable for a beginner trader to start off buying options rather than writing/selling them. Once you get a hang of how the business works, you can look at writing/selling them as well.
shinde : How can I make profits on results day. A lot of benchmark stocks will be announcing their results starting october 11.
Nithin Kamath : As mentioned in Anil's query earlier, buying both calls and puts is the best bet when expecting volatility in the markets.
mustafa : How is trading in futures & options differennt from trading in stocks? What makes more money?
Nithin Kamath : Trading in f&O basically lets you get over the basic limitations of trading stocks. 1. it can be used to hedge, similar to insurance policy for your portfolio 2. Speculate, while trading stocks if you feel stock/market is going down, you can sell and buy back only for intraday, whereas in f&O you can run this position upto 3 months.
Also while trading stocks if you want to buy for more than what money you have, there is an interest to worry about, but not in case of f&o.
vishal : What are the kind of money one can make in F&O? What are the risks attached?
Nithin Kamath : Since when trading on f&O, you get a leverage, the profits you can make also gets multiplied. But leverage is a double edged sword, so the risk also goes up quite a bit.
salim : I have heard about straddles and strangles in F&O. But how do they help me make profits? What are the risks associated with such strategies?
Nithin Kamath : Straddles and strangles are option strategies that you can take when instead of direction of the markets, you are betting on the volatility. Safer than naked options trading because your risk is hedged.
shirish : I want to trade in stocks and also F&O. Which are the best books to read?
Nithin Kamath : The best way to start off trading markets is by knowing what the profitable traders do, so in that context Market Wizards by Jack Schwager is a good way to start.

Zerodha Brokerage Calculator | Zerodha Intraday Brokerage Calculator | Zerodha STT.
When we execute trades in Indian stock market, we pay fees to two entities for execution of trades.
Stock Broker – Also knows as Brokerage fees. Government Taxes – Fixed taxes in form STT(Security Transaction Tax), GST, SEBI Charges and others. The stockbroker is responsible to collect these taxes from end customers(you and me) and pay them to the government.
The applicable government taxes vary based on the financial instrument (for example – we have different tax rates for trading in Stocks vs Futures vs Options). However, the tax itself is same across all stock brokers. So, if you buy a lot of Infosys Futures – the taxes charged is same whether you trade via Zerodha or ICICI Direct.
The only exception is GST where brokerage charged by stockbroker is included in the calculation. Hence if your broker charges high brokerage – the GST tax component would be higher.
Government taxes charged for stock trading is same for all brokers – except GST.
Since taxes are same – most traders pay close attention to brokerage charged by stock brokers and opt for brokers charging lowest brokerage. This makes complete sense because high brokerage reduces the profit or increases loss from the trade.
As indicated in our detailed Zerodha review, Zerodha is the pioneer of discount stock brokers in India. Starting from 2010 – Zerodha has been charging lesser of Rs 20.00 or 0.01% of trade turnover as brokerage. Also from 2016, Zerodha waived brokerage on delivery based trades (meaning you pay “No Brokerage” – if you buy a stock today and sell tomorrow or after tomorrow).
Zerodha Equity Delivery Brokerage + Taxes.
As discussed, if you open a trading account with Zerodha – You pay “No Brokerage” for buying and selling stocks(also knows as equity or share). Hence, if you buy 50 Shares of Reliance on 16/08/2017 and sell them on(or after) 17/08/2017, you do not pay any brokerage charges to Zerodha.
It is worth noting that although Zerodha does not charge brokerage, we still do not have to pay goverment charges like GST, STT, SEBI charges etc on delivery based trades.
Let us take an example to get a complete understanding of brokerage and taxes charged in case of delivery based trades.
As you can see Zerodha charged Rs 0.00 brokerage on this transaction. The reason for offering “No Brokerage” for delivery based trades is simple, Zerodha hopes that this would result in more customers opening their accounts with Zerodha and some customers would start trading in F&O, Intraday and hence generate ultimately brokerage.
Zerodha Equity Intraday Brokerage + Taxes.
Let us start with understanding the definition of Intraday. Intraday trading implies that you buy and sell the stock on the same day. In the case of intraday trading, stocks do not even reach our demat account(bought & sold on the same day) and hence comparatively lesser government taxes are involved.
For Intraday trades, Zerodha’s brokerage is lower of 0.01% of turnover or Rs 20.00. Hence, if the turnover is less than Rs 200000 (two lakh) the brokerage charged is 0.01% of turnover else brokerage is Rs 20.00.
Let us take an example to get a complete understanding of brokerage and taxes charged in case of intraday trading.
Zerodha Futures Brokerage + Taxes.
Future trading is done in lots and hence brokerage & taxes are applicable accordingly.
For Futures trades, Zerodha’s brokerage is lower of 0.01% of turnover or Rs 20.00. Hence, if the turnover is less than Rs 200000 (two lakh) the brokerage charged is 0.01% of turnover else brokerage is Rs 20.00.
To make things simpler, let us take an example of a trade on Nifty 2017 August Future.
Zerodha Options Brokerage + Taxes.
Options trading is also done in lots and hence brokerage & taxes are applicable accordingly.
For options trades, Zerodha’s brokerage charges a fixed brokerage of Rs 20 per trade.
Let us take an example and see how various taxes & brokerage is calculated.
Conclusion.
Zerodha has been know to innovate to make the life of customers easy and hence they have also developed Zerodha Brokerage Calculator and Chrome Plugin of Zerodha Brokerage Calculation which can be used to find the brokerage extremely easily.
If you still haven’t opened your trading account with Zerodha, please click on button below and someone from Zerodha will call you shortly.