Introduction
Options trading is an extremely interesting financial strategy that can be put into practice by purchasing and/or selling options, which are financial derivatives that entitle the holder to (but do not oblige) to buy or sell an underlying asset at a certain price by a certain time. In India the following two types of expires exist in the options trading Weekly Expiry and Monthly Expiry. The different option period options differ in the number of expiry days. The option trading is a way to earn a really good job.
Table of Contents
What can you learn here?
In this blog, we aim to equip the both the beginner and also advanced traders with the complete concept of options trading strategies, risk management methods, and also market dynamics. Whether this will be the first time you’re entering the financial markets or you want to sharpen your current know-how, this blog is very supposed to be a very precious resource to you. Through reading this blog, you will have a more comprehensive *know-how* of the options trading, being capable of making more logical decisions as well as managing the risks well. In the end, you will be a much more successful and also confident trader in the options market.
Types of the Options Trading:
- Call Option: Gives the holder the right to buy an underlying asset at a predetermined price before or at the expiration date.
- Put Option: Gives the holder the right to sell an underlying asset at a predetermined price before or at the expiration date.
Key Components of the options trading:
- Strike Price: The price at which the option holder can buy (call option) or sell (put option) the underlying asset.
- Expiration Date: The date by which the option must be exercised or it becomes invalid.
- Option Premium: The price paid for the option contract.
Basic Option Trading Strategies:
- Buying Call Options: Profiting from an expected increase in the price of the underlying asset.
- Buying Put Options: Profiting from an expected decrease in the price of the underlying asset.
- Selling Covered Calls: Generating income by selling call options against owned shares of the underlying assets.
Advanced Strategies:
- Straddle: Simultaneously buying a call and a put option with the same strike price and expiration date to profit from significant price movements.
Iron Condor: Combining a bull put spread and a bear call spread to benefit from low volatility.
Risks and Rewards:
- Limited Risk: The maximum loss is usually limited to the premium paid for the option.
- Unlimited Profit Potential: Especially with certain option buying strategies.
- Leverage: Options allow traders to control a larger position with a relatively small amount of capital.
Risk Management:
- Stop-Loss Orders: Setting predefined exit points to limit potential losses.
- Diversification: Spreading investments across different assets or strategies to manage risk.
Market Terminology:
- Implied Volatility: A measure of the market’s expectation of future price volatility.
- In-the-Money (ITM): An option that would be profitable if exercised immediately.
- Out-of-the-Money (OTM): An option that would not be profitable if exercised immediately.
Options Expiry:
In the context of Indian financial markets, the expiry of options refers to the date on which the options contract ceases to exist. There are many main expiry cycles for stock options and derivative options in India, and these are categorized as follows:
| Day | Contracts expired |
| Tuesday | Finnifty weekly and monthly |
| Wednesday | Bank Nifty weekly |
| Thursday | Nifty Weekly and Monthly and Bank Nifty Monthly |
| Friday | SENSEX |
Conclusion
Options trading can be complex, and it is of paramount importance for the traders to be familiar with the risks and reward that come along. Also, you need to stay up to date with the market conditions, and you need to keep on learning different strategies for the options trading success.
Videos for the Options Trading
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