Part 1 Support and Resistance

Introduction to Option Trading

Option trading is a part of the derivatives market where traders buy and sell contracts whose value is derived from an underlying asset like Nifty, BankNifty, stocks, FINNIFTY, SENSEX, commodities, currency, etc.

Unlike equity trading, where you buy shares directly, in options you buy rights (not obligations) to buy or sell the underlying asset at a fixed price.

This fixed price is called the Strike Price.

The unique thing about option trading is that your risk can be limited while your profit potential can be unlimited, especially when buying options.

Options are used by retail traders, big institutions, hedge funds, FIIs, HNIs, and even companies to hedge and speculate.

The attractive part of option trading is the leverage—small premium can control large value of underlying.

But leverage is a double-edged sword; wrong decisions can result in rapid premium decay.

Options can be traded in two ways: buying options or selling/writing options.

Option trading involves understanding price action, sentiment, volatility, open interest, volume, structure, and momentum.

It is one of the most powerful instruments for intraday, swing, positional, and hedged strategies.