How to trade options on Kite (first time)

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This guide covers placing an options trade on Kite for the first time. Options are contracts that give the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying asset at a specified price (the strike) on or before the expiry date. On the NSE, all equity index and stock options are European-style, meaning they can only be exercised at expiry, not before.

For strategy construction and payoff analysis, see How to build an options strategy on Sensibull and How to use options payoff charts. For the margin framework, see How to calculate margin using the SPAN calculator.

Key options concepts

Call option (CE): The buyer of a call gains the right to buy the underlying at the strike price. The buyer profits if the underlying rises above the strike + premium paid. The seller (writer) of a call is obligated to sell the underlying at the strike if exercised and keeps the premium if the option expires worthless.

Put option (PE): The buyer of a put gains the right to sell the underlying at the strike price. The buyer profits if the underlying falls below the strike minus premium paid. The seller of a put is obligated to buy the underlying at the strike if exercised.

Moneyness:

  • ITM (in the money): A call is ITM when spot > strike; a put is ITM when spot < strike.
  • ATM (at the money): strike is close to the current spot price.
  • OTM (out of the money): A call is OTM when spot < strike; a put is OTM when spot > strike.

Expiry: After SEBI’s October 2024 rationalisation, each exchange can offer only one weekly expiry per underlying index. Nifty has Thursday weekly expiries on NSE; Bank Nifty now has Wednesday expiries. Monthly expiries for all contracts continue to fall on the last Thursday of the expiry month.

Premium: The price of the option contract, quoted per unit of the underlying. For Nifty options, if the premium is ₹100, the cost per lot is ₹100 × 75 = ₹7,500 (lot size 75 after October 2024 revision).

Step-by-step procedure

Enable F&O segment

If not already done, activate the F&O segment at console.zerodha.com → Account → Segments → F&O → Activate. Income proof and net worth documentation may be required depending on account age and existing verification level.

Understand the option chain structure

The Kite options chain provides a visual overview of all available strikes for a given underlying and expiry. However, for placing the first trade, the search bar approach is faster.

Search for the options contract

In Kite, press / to open the search bar. Type the underlying name:

  • For index options: NIFTY, BANKNIFTY, MIDCPNIFTY, FINNIFTY, SENSEX.
  • For stock options: The company’s NSE ticker (for example, RELIANCE, TCS, INFY).

The search results show multiple rows for the underlying. Look for the NFO exchange rows. The contract name format is: NIFTY 25JUN 22000 CE, this reads as: Nifty, June 2025 expiry, 22000 strike, Call option.

Filter the results by typing the full contract string or use the options chain for visual strike selection.

Add to marketwatch

Click + next to the contract to add it to a marketwatch slot. The marketwatch columns for options show LTP, bid, ask, day change, OI, and IV (implied volatility) in some views. Monitoring OI changes helps confirm whether new positions are being built or old ones unwound.

Open the order form

Hover over the contract in the marketwatch and click:

  • B to buy (go long the option, pay premium, receive right)
  • S to sell/write (go short the option, receive premium, take on obligation)

Buying is appropriate for:

  • Speculating on directional moves
  • Hedging an existing portfolio
  • Limiting risk to the premium paid

Selling is appropriate for:

  • Premium income strategies (writing options you believe will expire worthless)
  • Part of spreads (buying one option, selling another)
  • Selling requires much higher capital due to SPAN + ELM margin

Fill in the order form

Product type:

  • NRML for positions to be held overnight or until expiry.
  • MIS for intraday positions that will be closed before 3:25 PM IST.

Order type:

  • Limit is strongly recommended for options. Options spreads can be wide (especially OTM and weekly expiry contracts), and a market order may execute at a significantly worse price than the current LTP.
  • Set the limit price at the current bid (if selling) or current ask (if buying), or between the bid and ask.

Quantity: In lots. Confirm the lot size. For Nifty the lot size is 75 after October 2024; for Bank Nifty it is 30. The monetary exposure is: quantity (lots) × lot size × premium.

Margin/premium display: For bought options, the form shows the total premium outflow (quantity × lot size × premium). No margin is required. For sold options, the form shows the SPAN + ELM margin required.

Place the order

Click Buy or Sell. A confirmation modal shows the instrument, side, quantity, price, and estimated margin or premium. Confirm.

The order lands in the Orders tab with status Open. For limit orders, it sits in the exchange order book. For market orders, it fills immediately if the underlying is liquid. The Kite Orders page shows the fill status, executed quantity, and average price.

Monitor the position and Greeks

Under Positions → F&O, the options position shows:

  • P&L, live unrealised P&L (vs. average entry price for today, or vs. previous settlement for overnight positions).
  • LTP, current option premium.

For Greeks (Delta, Gamma, Theta, Vega), go to the options chain on Kite or Sensibull. See How to read option Greeks on Kite for interpretation.

Key Greek considerations for new traders:

  • Theta decay is the enemy of bought options: time erodes the premium daily, accelerating as expiry approaches.
  • Delta measures how much the option premium moves per one-point move in the underlying.
  • Vega means the premium swells when implied volatility rises and shrinks when it falls.

Exit or manage at expiry

Before expiry: Sell the option (if you bought) or buy it back (if you sold) through the Positions exit button or a manual order.

At expiry, index options: Index options (Nifty, Bank Nifty) are cash-settled. ITM options are automatically exercised by the exchange and the intrinsic value is credited/debited. OTM options expire worthless. No action is required for index options.

At expiry, stock options: Stock options are physically settled. See How to physically settle an ITM option for the full procedure. If you do not want physical settlement, see How to avoid physical settlement (manual close-out). Zerodha issues alerts via email and SMS when a stock option moves into the money in the expiry week.

What can go wrong

  • Limit order not filling. If the market moves away from your limit price, the order remains open unfilled. Monitor and adjust the price, or switch to a market order for liquid contracts.
  • Writing options without adequate margin. Option writing on Zerodha requires SPAN + ELM margin before order placement. If margin is insufficient, Kite rejects the order. Check the SPAN calculator first.
  • Physical settlement surprise on stock options. A stock option that was OTM at the start of expiry week can move ITM by Thursday. Zerodha issues alerts, but the trader must act before 3:30 PM on expiry day.
  • Theta decay erosion. Bought options bought on Monday and not sold by Thursday expiry may be worth a fraction of the entry price due to rapid theta decay in the last week, even if the underlying has not moved adversely.
  • Wide bid-ask spreads on illiquid strikes. Deep OTM options and far-expiry options often have wide spreads. A market order on these can cause significant slippage.
  • Order rejected due to freeze quantity. The exchange limits single-order size. See How to handle freeze quantity on F&O for how to split large orders.

References

  1. Zerodha support article: “How do I buy/sell options on Kite?”, support.zerodha.com.
  2. NSE options contract specifications, nseindia.com/products/content/derivatives/equities/contract_specification.htm.
  3. SEBI Circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/120 dated October 2024, Rationalisation of weekly index derivatives contracts.
  4. SEBI Circular SEBI/HO/MRD/DP/CIR/P/2018/167, Physical settlement of stock derivatives.
  5. NSE circular on automatic exercise of options at expiry, NSE/FAOP series.
  6. Zerodha brokerage and charges, zerodha.com/charges.

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