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Market indices fell sharply on Monday as investor
sentiments remained jittery amid weaker global cues and the risk of a market
correction. The S&P BSE Sensex fell over 1,000 points while the NSE Nifty
50 fell nearly 300 points.
Some countries in Europe are witnessing a fresh rise
in Covid-19 cases. While Austria is believed to be reintroducing a lockdown to
curb new infections, some other countries such as Germany, Slovakia, the Czech
Republic and Belgium may introduce precautionary measures. While the world is
better equipped to deal with the pandemic, a sharp jump in cases across Europe
could hurt the global economy and have an impact on most stock markets around
the world.
Domestic stock markets have been witnessing increased volatility over the past
few weeks due to negative sentiments brewing in global markets. Some of the
reasons hurting global sentiments are new Covid-19 cases in some parts of
Europe and the risk of rising inflation, triggered by higher input costs.The bullish momentum observed in the domestic market for months seems to be
fading and it could be the first signs of a correction that some experts had
predicted earlier.
MAJOR
STOCKS IN RED
Another reason
why the Sensex and Nifty fell during today's trading session can be attributed
to a fall in major stocks such as Maruti Suzuki (2.93%), Paytm (15.09%),
Reliance Industries Limited (4.09%) and State Bank of India (3.17%).
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"Biggest IPO, biggest crash"
After india’s largest-ever IPO paytm parent
one97 communications set another record on debut the biggest drop on opening
day for share sales worth more than Rs 1000 crore.
The stock listed at Rs 1950, a discount of 9.3%
to its offer price of Rs 2150, and closed at Rs 1564 down 27%. This is the first
of six recent startup ipo’ s to list below the offer price. Anil
ambani-controlled reliance power had plunged 21% on debut in february
2008 after an Rs 11700 crore IPO. Investo Rs lost nearly
Rs 5000 crore of their Rs 18300 crore investment in the one97 IPO. While
institutional investors lost Rs 4254 crore, retail investors' net loss amounted
to Rs 567 crore. High net worth induvial investors lost Rs 166 crore.In comparison, shares of its new-age peer zomato
ltd. Had hit the upper circuit on its
listing day, before ending the trading session 66% higher. Shares of nykaa’s
parent fsn e-commerce ventures ltd. Nearly doubled over its issue price on
market debut.We hope
the paytm story can inspire entrepreneurs, even for the ones who do not have
the background, but we hope this inspires them that they can do it. we believe paytm’s business model lacks focus and
direction. Unless paytm lends, it can’t make significant
money by merely being a distributor. We therefore question its ability to
achieve scale with profitability. Paytm financials are
not very impressive and the growth prospects seem limited... Obviously the
company lacks a clear path to profits.
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Traders with a view on
markets and a risk appetite can take exposure to the Nifty by paying just a
fraction of the index’s value through Nifty options and futures.
1. What are Nifty futures and options?
Nifty futures are a contract that gives its
buyer or seller the right to buy or sell the Nifty 50 index at a preset price
for delivery at a future date. Nifty options are of two types —call and put
options. A call option on Nifty gives a buyer the right, but not the
obligation, to buy the index at a predetermined price during a specified time
period. Similarly, a Nifty put gives its buyer the right to sell the index. A
seller of the options is obliged to give or take delivery of Nifty from the
buyers. In practice index futures are cash settled, like their European
counterparts.
2. How does a Nifty futures and options
contract work?
Suppose trader A feels Nifty will rise from
18700, He can buy one lot (75 shares) of Nifty futures by putting a margin at a
fraction of the contract cost. His counterparty trader B sells her Nifty at
that level. If Nifty rises to, say, 18800 A has the right to buy the index at
18700 from the counterparty and sell it to him at 18800, gaining Rs 5000
(100×50). If the Nifty futures fall to 18600, B sells the futures to A for
18700 even though Nifty trades at 18600, which means the buyer faces a Rs 100 a
share loss.
As opposed
to buying a futures contract, A can buy a 18700 call option on Nifty by paying
a premium of Rs 200 (closing price on Friday) per share. If Nifty jumps by 100
points at expiry to 18800 the option value will rise by around Rs 100. The
seller of the option has to in this case fork out the money. However, the call
buyer could also have an unrealised loss if the Nifty falls by a similar
extent. Both futures and options are cash settled except where specified for
compulsory delivery by the exchanges.
3. What’s more advantageous – buying a futures or options contract?
Both have their advantages and disadvantages. An option seller has to place a
high exposure and Span margin with the exchange that’s way above the option
price or premium she receives from a buyer. However, to buy or sell a futures
contract, both buyer and seller put up the same margin, which is around 10 per
cent of the contract’s overall value. Again, holding an option for long results
in loss of value due to time decay, which does not happen in case of futures,
which also can be rolled over, unlike the former.
But, gains and losses in futures can be unlimited. In options losses (for the
buyer) are limited to the premium paid (sellers of options are exposed to
higher loss of risk, though) while profits (buyer) are very high.
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·
Volume traded: Look
at the total number of shares being traded within a particular timeframe. This
will tell you about the volumes being bought and sold. Intraday traders should pick
stocks that trade in high volumes.
·
Trending stock: Is
there buzz around a particular stock? Such stocks could offer lucrative
opportunities to day traders. They are likely to show momentum in one or the
other direction, along with good trading volumes.
·
Recent analysis: Look
at how stocks on your shortlist have performed over the last week or two. Has
the closing price been consistently positive or negative over the period?
Assess the likely movement for the day before placing a buy or sell order.
· Breakout stocks: Keep an eye on the resistance and support levels of your chosen stocks. The resistance level is the price beyond which a stock is not expected to rise. Meanwhile, the support level is the price beyond which a stock is unlikely to fall.
·
Gainers and losers: Most
brokers will highlight the top gainers and losers of the day. Track the
movements of these stocks closely as you decide on your intraday positions.
·
Monitor select stocks: Thousands
of stocks are traded on the stock exchange. Day traders cannot possibly keep
tabs on them all. That is why most traders focus their attention on a few
shortlisted stocks. By researching these stocks thoroughly, the trader can grab
profitable opportunities as they arise.
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Here are some aspects that you must keep in mind before you start buying or selling stocks during the Diwali day trading time (Muhurat Trading).
Happy investing and a
very happy Diwali!๐ฅ
