How to Use Options Trading Calculators to Plan Your Trades Smartly

In this article, we will discuss

Options are unique financial securities that enable you to generate returns from the short-term price movements of assets. Although they can be lucrative, options trading can also be quite complex.

To be consistently successful at options trading, you need to be able to make informed decisions quickly. Here is where options trading calculators can help. These are tools designed to make complicated calculations easier, enabling you to assess various aspects of options trades precisely within seconds.

By utilising these calculators, you can effectively plan your trades, manage risks and optimise your strategies. In this article, we will be looking at three of the most common options trading calculators, including how to use them effectively to support your trading decisions.

Options Brokerage Calculator

Brokerage is a fee levied by the stockbroker for facilitating the purchase or sale of an asset via an exchange. It is usually charged either as a flat fee per trade or as a percentage of the total trade value. Brokerage fees can significantly impact your overall returns, especially if you trade frequently or execute large-volume trades.

Understanding the brokerage costs associated with an options trade is crucial since it can help you plan your trades better. An options brokerage calculator helps you do just that. In addition to providing insights into the brokerage fees, the tool will also display other costs associated with an options trade. These include transaction charges, turnover fees, Securities Transaction Tax (STT), GST and stamp duty.

How to Use an Options Brokerage Calculator?

Using an options brokerage calculator is very straightforward. All you need to do is follow the steps outlined below.

  • Step 1: Select an options brokerage calculator of your choice.
  • Step 2: Choose the exchange you want to trade in.
  • Step 3: Enter trade details such as the purchase price, selling price and quantity.

That’s it. As soon as you enter the details, the calculator will instantly display the brokerage fees and other charges applicable to the options trade.

Options Margin Calculator

As an options trader, the margin calculator is another very useful option trading calculator to have in your arsenal. Now, before we explore what the calculator is, let us quickly go through the concept of margin.

Margin can be defined as the amount you need to deposit with the exchange to cover potential losses from your derivatives positions owing to adverse market movements. In the case of options contracts, the concept of margin applies only when selling them. This is because the loss potential when selling option contracts is unlimited.

An options margin calculator is a tool that enables you to determine the initial margin you need to deposit to sell an options contract. By understanding the margin requirements for an options trade, you can ensure you have sufficient funds in your account to cover potential losses.

Moreover, an options margin calculator can be particularly useful when executing complex strategies like spreads, straddles and strangles. These strategies involve entering multiple positions simultaneously. With the help of the calculator, you can ensure that you are adequately prepared for the financial commitments of your trades before you enter them.

How to Use an Options Margin Calculator?

Similar to other options trading calculators, a margin calculator is also very easy to use. Here is a step-by-step overview of how to use one.

  • Step 1: Select an options margin calculator of your choice.
  • Step 2: Choose the appropriate trading segment. The trading segments you can choose from include NSE options, BSE options, commodity options and currency options.
  • Step 3: Select the underlying asset whose options contracts you wish to sell.
  • Step 4: Choose the contract’s expiration date. In the case of index options, you get weekly and monthly expiries. With stock, commodity and currency options, you can choose from three monthly expiration dates: near-month, next-month and far-month.
  • Step 5: Specify the type of option you wish to sell - call option or put option.
  • Step 6: Enter the quantity and strike price of the options contract.
  • Step 7: Click on the ‘Sell’ option and then on the ‘Add’ button.

Upon specifying the above details, the options margin calculator will instantly display the margin you need to deposit to initiate a short position in your preferred options contract. In addition to providing you with the total margin requirement, the tool will also display a breakdown of the SPAN and exposure margin components.

Options Fair Value Calculator

In the context of options trading, fair value represents the theoretical price of an option, after accounting for factors such as the underlying asset's current price, the option's strike price, time to expiration, volatility and the risk-free interest rate.

Determining the fair value of an options contract is crucial for making informed trading decisions. Here is where an options fair value calculator comes into play. The calculator uses established pricing models, such as the Black-Scholes model, to estimate the fair value of an option contract.

By using an options fair value calculator, you can gain crucial insights into whether an option is overvalued, undervalued or priced fairly. If the fair value of an option deviates significantly from its current market price, it could potentially indicate an opportunity for profit through arbitrage. In addition to this, some options trading calculators enable you to visualise how the value of the option moves as the parameters of the contract change. This can be very useful when planning trades and formulating strategies.

How to Use an Options Fair Value Calculator?

Now that you are aware of this tool, let us look at the steps you need to follow to use an options fair value calculator.

  • Step 1: Select the options fair value calculator of your choice.
  • Step 2: Choose your preferred underlying asset.
  • Step 3: Enter the current market price of the asset and the strike price of the options contract.
  • Step 4: Select the date of trade and the contract expiration date.
  • Step 5: Specify the risk-free rate of interest and implied volatility.
  • Step 6: Choose the type of option - call option or put option.

Once you enter all the values, the calculator will enter the parameters of your option trade in the pricing model and provide an estimate of the option’s fair value. You can then use the fair value to plan your strategies more effectively.

Improve Your Options Trading Techniques with Samco Securities

Samco Securities, one of India’s leading stockbrokers, offers a comprehensive suite of tools and resources for options traders. Among the various tools they offer are a host of user-friendly options trading calculators designed to calculate brokerage, margin and fair value for options trades. By leveraging these tools, you can plan your options trades better, reduce errors and make more effective decisions.

One of the standout features of these calculators is that they can be used to accurately assess Samco’s brokerage charges, margin requirements and other trading costs for a wide range of financial securities. These include options contracts, futures contracts, stocks, commodities and currency pairs.

That’s not all. With Samco Securities, you get other options trading-focused features such as option Greeks, implied volatility and an exhaustive option chain with real-time premiums. Furthermore, you can also access Options B.R.O., which is a comprehensive options strategy builder. The tool offers over 1,000 preset strategies tailored to your preferences and risk profile. If you prefer a more hands-on approach, you can also construct and deploy your very own multi-leg options strategy with just a few clicks.

Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - Research Analysts -SEBI Reg.No.-INHO0O0005847

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