🧠 What is Option Trading?
Option trading is the practice of buying and selling options contracts on stocks, indices, currencies, or commodities.
An option is a financial derivative — a contract that gives the buyer the right (but not the obligation) to buy or sell an underlying asset at a predetermined price on or before a specific date.
There are two types of options:
✅ Call Option: Right to buy the asset.
✅ Put Option: Right to sell the asset.
📝 Key Terms:
Strike Price: The price at which the option can be exercised.
Premium: The cost of buying the option.
Expiry Date: The last date the option is valid.
Lot Size: Options are traded in fixed quantities, known as lots.
Underlying: The asset the option is based on (e.g., Nifty, stock, commodity).
📊 Basic Example of Option Trading
Imagine stock ABC is trading at ₹100.
You buy a Call Option with strike price ₹105, expiring in 1 week, paying ₹3 as premium.
If ABC goes to ₹110, your option is worth ₹5 (profit = ₹2 per share).
If ABC stays below ₹105, your loss is limited to ₹3 (the premium paid).
Options allow you to leverage trades — you control large value positions with smaller capital.
🔍 Why Trade Options?
✅ Low Investment, High Potential: You pay only the premium, not the full asset price.
✅ Hedging: Protect long-term investments from market downturns.
✅ Strategic Flexibility: Make profits in bullish, bearish, or even sideways markets.
✅ Defined Risk: In buying options, your maximum loss is limited to the premium.
🧱 Types of Option Trading Strategies
There are two categories of traders:
Option Buyers
Option Sellers (Writers)
Let’s explore both with common strategies.
🔼 1. Option Buying Strategies
✔️ Bullish Strategies
Long Call: Buy Call expecting price to rise.
Bull Call Spread: Buy one Call and Sell higher strike Call to reduce cost.
✔️ Bearish Strategies
Long Put: Buy Put expecting price to fall.
Bear Put Spread: Buy higher strike Put and sell lower strike Put.
✔️ Volatile Market Strategy
Long Straddle: Buy both Call and Put at the same strike (profits in big moves).
Long Strangle: Buy OTM Call and OTM Put — cheaper than Straddle.
🔽 2. Option Selling (Writing) Strategies
Option sellers benefit from time decay and collect premium from buyers.
✔️ Range-Bound Strategies
Short Straddle: Sell both Call and Put at same strike (profits if price stays stable).
Iron Condor: Sell OTM Call and Put, buy further OTM Call and Put (limited risk).
✔️ Directional Strategies
Covered Call: Hold stock, sell Call for income.
Naked Put: Sell Put expecting price to stay above strike.
🛑 Warning: Selling options can have unlimited risk if not hedged properly. Only experienced traders should use these strategies.
🕰️ Time Decay & Option Greeks
Option prices are influenced by multiple factors. The most important ones are called Option Greeks:
🔹 Delta – Measures how much the option price moves for a ₹1 move in the underlying.
Call: Delta between 0 to +1
Put: Delta between 0 to -1
🔹 Theta – Measures time decay. Options lose value as they approach expiry.
🔹 Vega – Measures sensitivity to volatility. Higher volatility = higher premium.
🔹 Gamma – Measures how Delta changes as the underlying moves.
Understanding Greeks helps you manage risk, timing, and volatility in trades
💼 Option Trading in Institutional Trading
Institutions like hedge funds, FIIs, and banks use options to:
Hedge portfolios
Build complex arbitrage positions
Exploit volatility
Earn passive income via writing options
They don’t just guess direction — they analyze Open Interest, volume, VIX (volatility index), and option chains to create data-driven positions.
Retail traders can track institutional activity by analyzing:
Option Chain Data
Open Interest Build-up
Put-Call Ratios (PCR)
Volume Spikes in OTM options
📈 Real-World Example: Bank Nifty Intraday Option Buy
Bank Nifty is at 48,000.
You buy a 48,100 CE for ₹150.
It jumps to 48,400 within 1 hour.
Your CE premium rises to ₹350.
You book profit: ₹200 * 15 lot size = ₹3,000 profit (before brokerage/taxes).
Such short-term intraday moves can yield high returns, but also come with high risk.
📉 Common Mistakes in Option Trading
🚫 Holding options till expiry without purpose
🚫 Buying OTM (far out-of-money) options hoping for big moves
🚫 Ignoring Theta decay
🚫 Not managing position size
🚫 Lack of understanding of Option Greeks
🛡️ Risk Management Tips
💰 Never risk more than 2-5% of capital per trade.
✅ Use stop-loss or premium SL.
📚 Always trade with a defined strategy.
🧊 Avoid overtrading in high-volatility news events.
📊 Backtest your setups and understand risk-reward ratios.
🧠 Mindset for Option Trading
Be logical, not emotional.
Accept losses as part of the game.
Focus on probability, not certainty.
Be a risk manager first, trader second.
Learn from your trades — both wins and losses.
🎯 Final Words: Why You Should Learn Option Trading
Option trading is not gambling. It’s a skill — one of the most strategic tools in the financial markets. With proper education, discipline, and practice, options can give you:
🔹 More ways to profit in any market
🔹 Better control over risk
🔹 Flexible strategies for every condition
Whether you want to day trade Nifty options or hedge your long-term investments, mastering option trading puts you ahead of 90% of retail traders
Option trading is the practice of buying and selling options contracts on stocks, indices, currencies, or commodities.
An option is a financial derivative — a contract that gives the buyer the right (but not the obligation) to buy or sell an underlying asset at a predetermined price on or before a specific date.
There are two types of options:
✅ Call Option: Right to buy the asset.
✅ Put Option: Right to sell the asset.
📝 Key Terms:
Strike Price: The price at which the option can be exercised.
Premium: The cost of buying the option.
Expiry Date: The last date the option is valid.
Lot Size: Options are traded in fixed quantities, known as lots.
Underlying: The asset the option is based on (e.g., Nifty, stock, commodity).
📊 Basic Example of Option Trading
Imagine stock ABC is trading at ₹100.
You buy a Call Option with strike price ₹105, expiring in 1 week, paying ₹3 as premium.
If ABC goes to ₹110, your option is worth ₹5 (profit = ₹2 per share).
If ABC stays below ₹105, your loss is limited to ₹3 (the premium paid).
Options allow you to leverage trades — you control large value positions with smaller capital.
🔍 Why Trade Options?
✅ Low Investment, High Potential: You pay only the premium, not the full asset price.
✅ Hedging: Protect long-term investments from market downturns.
✅ Strategic Flexibility: Make profits in bullish, bearish, or even sideways markets.
✅ Defined Risk: In buying options, your maximum loss is limited to the premium.
🧱 Types of Option Trading Strategies
There are two categories of traders:
Option Buyers
Option Sellers (Writers)
Let’s explore both with common strategies.
🔼 1. Option Buying Strategies
✔️ Bullish Strategies
Long Call: Buy Call expecting price to rise.
Bull Call Spread: Buy one Call and Sell higher strike Call to reduce cost.
✔️ Bearish Strategies
Long Put: Buy Put expecting price to fall.
Bear Put Spread: Buy higher strike Put and sell lower strike Put.
✔️ Volatile Market Strategy
Long Straddle: Buy both Call and Put at the same strike (profits in big moves).
Long Strangle: Buy OTM Call and OTM Put — cheaper than Straddle.
🔽 2. Option Selling (Writing) Strategies
Option sellers benefit from time decay and collect premium from buyers.
✔️ Range-Bound Strategies
Short Straddle: Sell both Call and Put at same strike (profits if price stays stable).
Iron Condor: Sell OTM Call and Put, buy further OTM Call and Put (limited risk).
✔️ Directional Strategies
Covered Call: Hold stock, sell Call for income.
Naked Put: Sell Put expecting price to stay above strike.
🛑 Warning: Selling options can have unlimited risk if not hedged properly. Only experienced traders should use these strategies.
🕰️ Time Decay & Option Greeks
Option prices are influenced by multiple factors. The most important ones are called Option Greeks:
🔹 Delta – Measures how much the option price moves for a ₹1 move in the underlying.
Call: Delta between 0 to +1
Put: Delta between 0 to -1
🔹 Theta – Measures time decay. Options lose value as they approach expiry.
🔹 Vega – Measures sensitivity to volatility. Higher volatility = higher premium.
🔹 Gamma – Measures how Delta changes as the underlying moves.
Understanding Greeks helps you manage risk, timing, and volatility in trades
💼 Option Trading in Institutional Trading
Institutions like hedge funds, FIIs, and banks use options to:
Hedge portfolios
Build complex arbitrage positions
Exploit volatility
Earn passive income via writing options
They don’t just guess direction — they analyze Open Interest, volume, VIX (volatility index), and option chains to create data-driven positions.
Retail traders can track institutional activity by analyzing:
Option Chain Data
Open Interest Build-up
Put-Call Ratios (PCR)
Volume Spikes in OTM options
📈 Real-World Example: Bank Nifty Intraday Option Buy
Bank Nifty is at 48,000.
You buy a 48,100 CE for ₹150.
It jumps to 48,400 within 1 hour.
Your CE premium rises to ₹350.
You book profit: ₹200 * 15 lot size = ₹3,000 profit (before brokerage/taxes).
Such short-term intraday moves can yield high returns, but also come with high risk.
📉 Common Mistakes in Option Trading
🚫 Holding options till expiry without purpose
🚫 Buying OTM (far out-of-money) options hoping for big moves
🚫 Ignoring Theta decay
🚫 Not managing position size
🚫 Lack of understanding of Option Greeks
🛡️ Risk Management Tips
💰 Never risk more than 2-5% of capital per trade.
✅ Use stop-loss or premium SL.
📚 Always trade with a defined strategy.
🧊 Avoid overtrading in high-volatility news events.
📊 Backtest your setups and understand risk-reward ratios.
🧠 Mindset for Option Trading
Be logical, not emotional.
Accept losses as part of the game.
Focus on probability, not certainty.
Be a risk manager first, trader second.
Learn from your trades — both wins and losses.
🎯 Final Words: Why You Should Learn Option Trading
Option trading is not gambling. It’s a skill — one of the most strategic tools in the financial markets. With proper education, discipline, and practice, options can give you:
🔹 More ways to profit in any market
🔹 Better control over risk
🔹 Flexible strategies for every condition
Whether you want to day trade Nifty options or hedge your long-term investments, mastering option trading puts you ahead of 90% of retail traders
Hello Everyone! 👋
Feel free to ask any questions. I'm here to help!
Details:
Contact : +91 7678446896
Email: skytradingmod@gmail.com
WhatsApp: wa.me/7678446896
Feel free to ask any questions. I'm here to help!
Details:
Contact : +91 7678446896
Email: skytradingmod@gmail.com
WhatsApp: wa.me/7678446896
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Hello Everyone! 👋
Feel free to ask any questions. I'm here to help!
Details:
Contact : +91 7678446896
Email: skytradingmod@gmail.com
WhatsApp: wa.me/7678446896
Feel free to ask any questions. I'm here to help!
Details:
Contact : +91 7678446896
Email: skytradingmod@gmail.com
WhatsApp: wa.me/7678446896
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.