India is an emerging market.
Trading options on India's National Stock Exchange (NSE) is similar to, but not exactly the same as, trading options in other markets. Like every individual market, the NSE has its own quirks and characteristics that you need to understand if you want to be successful in your trading. These range from general risk management to compensating for the unique nature of the Indian commodities market.
Instructions
India Specifics
1. Investigate to make sure the options you want to trade are legal. India only allows futures options on certain commodities: 41 in August 2010.
2. Manage your risk carefully. In contrast to developed countries, the Indian commodities market is not very efficient. This means that goods can become over- or under-valued without warning, which can make your futures option substantially more or less valuable.
3. Manage foreign exchange (FX) risk. Trading in a foreign currency opens you up to the risk of fluctuations in it. If you enter the NSE in 2010 by trading U.S. dollars for rupees, then want to leave in 2015, you may find that the rupee has gained value in the meantime, thus reducing the value of your U.S. dollars and your investment. Use swaps and currency futures to manage this risk.
Trading in General
4. Buy options if you want to both manage risk and speculate on market fluctuations.
5. Sell options if you want to make a steady trickle of income in exchange for the decision-making rights regarding your future commodity purchase.
6. Ensure that your profit beats the options fees. If you are buying an option for $10, you need to be able to sell at a $10 profit at a minimum to break even. If you are selling an option for $10, you need to assess whether the guaranteed $10 is a better choice for you than riding the market to a higher value for your commodity.
