Part 1 Candle Stick Pattern

Introduction to Options

Financial markets offer multiple instruments to trade: equities, futures, commodities, currencies, bonds, and derivatives. Among derivatives, options stand out as one of the most flexible and powerful tools available to traders and investors.

An option is not just a bet on direction. It’s a structured contract that can protect a portfolio, generate income, or speculate on volatility. Unlike buying stocks, where profits are straightforward (stock goes up, you gain; stock goes down, you lose), option trading allows for non-linear payoffs. This means you can design trades where:

You profit if the market goes up, down, or even stays flat.

You control large exposure with limited capital.

You cap your risk but keep unlimited potential reward.

Because of this flexibility, options have become an essential part of modern trading strategies across the world, from Wall Street hedge funds to Indian retail investors trading on NSE’s F&O segment.

What are Options? Basic Concepts

At its core, an option is a contract between two parties:

Buyer of the option → Pays a premium for rights.

Seller (writer) of the option → Receives the premium but takes on obligations.

Definition

An option is a financial derivative that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (called strike price) on or before a certain date (expiry date).

Underlying assets can be:

Stocks (Infosys, Reliance, Apple, Tesla)

Indices (Nifty, Bank Nifty, S&P 500)

Commodities (Gold, Crude oil)

Currencies (USD/INR, EUR/USD)

Types of Options: Calls and Puts

There are only two fundamental types of options:

Call Option – Gives the right to buy the underlying asset at the strike price.

Example: Nifty is at 20,000. You buy a call option with a strike of 20,100. If Nifty rises to 20,400, you can buy at 20,100 and profit.

Put Option – Gives the right to sell the underlying asset at the strike price.

Example: Infosys is at ₹1,500. You buy a put option with a strike of ₹1,480. If Infosys falls to ₹1,400, you can sell at ₹1,480 and profit.

So, calls = bullish bets; puts = bearish bets.