How Execution Range Effects your Option Trading ?

How Execution Range Effects your Option Trading ?

  Traders, Today we will discuss Execution Range and its effect on your option trading. Currently, option trading has been contributing up to 80% of total exchange volume in NSE. But the liquidity is limited to present month contracts. With low trading activity in most contracts, there is a higher probability of higher impact cost. Impact cost is the difference between ordered price and executed price. To save traders from higher impact cost, the exchange has prescribed execution range for option contracts. Now let us see how it protects the interest of traders. But first the definition,Execution range is the price range on both sides of the current price of a contract. It refers to a range in which you can place orders for the various option contracts. Order placed beyond this range will be rejected. Price for each contract shall be calculated as follows, At market open – Option price derived from the underlying price. During market hours – 1 minute simple average of trade prices. According to NSE the execution range on both sides of price would be:            Now let’s explain it with a simple example, Consider the price of a deep ITM (in the money) Nifty option is 100. Now check the below Order Window. We know from the previous table, execution range for this option would be from 80 to 120. (20% of both sides) Anything beyond this range will not be accepted by the exchange. Now if we put a buy market order of 20 lots @ 100, then only 12 lots will get executed at 105 and 112...
What is NIFTY? How is it calculated? 

What is NIFTY? How is it calculated? 

Nifty, derived from the combination of two words “National” and “Fifty”, is a major stock index introduced by the National Stock Exchange of India. It comprises 50 stocks that are actively traded on the National Stock Exchange or the NSE. These stocks belong to various sectors. Nifty is calculated by using the “Free-float Market Capitalization” methodology. You can get their current values from the Index Bar of your NEST Trading Platform Understanding Free-Float Market Capitalization Free float shares are those shares of a company that are traded in the open market. Not all shares issued by the company are free float. Those that are held by the government or the management or promoters of the company or by foreign direct investors are not actively traded in the market. Only those that are traded in the market are taken into consideration while calculating Nifty. The classes of shareholding that are generally omitted from the characterization as Free-float are the following: Shares that are held by founders, directors, acquirers, etc. which contains an element of control over the business entity Shares that are held by individuals or groups or organisations having “Controlling Interest” Shares that are held by the Government playing the role of promoter or acquirer Equity held by the foreign investors through the FDI Route Strategic shareholding by private corporate bodies and/ or individuals Cross-holding or equity or shares that are held by associates and group companies Shares held by Employee Welfare Trusts Locked-in shares and shares which would not normally be sold in the open market Nifty Calculation The Nifty is a market capitalization weighted index based on...