Say you open an option chain and see ₹40 next to a call option. Is ₹40 what you’d pay?
You need one more number before you can answer. The price you see is the premium per unit. If the lot contains 50 units, one lot at ₹40 per unit would cost ₹2,000 before charges. The lot size here is just for the example. Check the actual contract before you enter an order.
That’s a good first exercise for options paper trading. Take one contract and see if you can explain exactly what you’re looking at.
Start with one row in the option chain
An option chain lists contracts for a stock or index. Pick one row and read it slowly enough to tell someone else what it means.
- Underlying — The stock or index the option relates to.
- Call or put — The type of option.
- Strike — The price specified in the contract.
- Expiry — The date the contract expires.
- Premium — The option price quoted per unit.
- Lot size — How many units make up one lot.
Pay attention to the expiry. You can see two contracts with the same strike and different expiry dates. Those are two different contracts, and their premiums can differ.
Work out the amount before placing the practice order
Open Neostox’s options paper trading tools and choose one contract to study with virtual money. The website says its market prices are delayed by 30 days. Use the exercise to learn how to read and track a contract.
Write down the premium and lot size before you open the order window. Check whether the quantity field is asking for lots or units. Then look at the estimated amount. Does it match your calculation?
If the fill price differs from the quote you wrote down, use the fill price to review the trade. A ₹40 quote and a ₹42 fill make a ₹100 difference on a hypothetical lot of 50 units. That’s easy to miss when you’re only watching the small number on the screen.
Track the option price as well as the underlying
Imagine the index rises a little but your call option barely moves. That can happen. The option’s price depends on several things, including how far the underlying is from the strike, the time left to expiry and how much movement the market expects.
For this exercise, write down the underlying price and the option premium when you open and close the virtual position. If the two didn’t move together, note what you saw. Two observations are enough to raise a question for next time.
By the end, you should be able to read back one line from your notes and know which contract you chose, what one lot cost in the simulation and what happened to the premium. That’s plenty for a first session.