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Part 2 Ride The Big MovesUses of Option Trading Hedging: Protecting an existing portfolio from adverse price movements. Example: Buying a Put Option to hedge a long stock position. Speculation: Betting on price movement direction with limited capital. Example: Buying Call Options if expecting a stock to rise. Income Generation: Selling options to collect premiums in range-bound markets. Example: Covered Call Writing. Types of Option Trading Styles American Options: Can be exercised any time before expiry. European Options: Can be exercised only on the expiry date. (In India, most index and stock options are European style.)
BSE:SENSEXEducation
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Part 2 Identifying Support and ResistanceRisks in Option Trading While options offer flexibility, they also come with inherent risks: Time Decay: Option value erodes as expiry nears, especially for buyers. High Volatility: Sudden volatility spikes can cause unpredictable price swings. Leverage Risk: Small movements in the underlying can lead to large gains or losses. Unlimited Loss Potential for Sellers: Option writers face potentially large losses, especially with uncovered (naked) positions. Liquidity Risk: Some stock options may have wide bid-ask spreads, making entry and exit difficult. Proper risk management, position sizing, and stop-loss mechanisms are essential for long-term success.
NSE:ICICIBANKEducation
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Part 1 Identifying Support and ResistanceWhy Trade Options? Options serve multiple purposes in modern finance: Hedging: Investors use options to protect their portfolios from adverse price movements. For example, a stockholder may buy a put option to guard against a potential price fall. Speculation: Traders can speculate on short-term market movements with limited risk and potentially high returns. Buying calls or puts allows traders to profit from expected price directions without owning the underlying asset. Income Generation: Selling options (writing covered calls or cash-secured puts) generates regular income through premiums. Many institutional investors use this strategy to enhance portfolio returns.
NSE:TATAPOWEREducation
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PCR-basedTradingOption Pricing Option prices are influenced by several factors, known collectively as the “Greeks.” These variables determine how an option’s value changes with respect to different market conditions. Delta (Δ): Measures how much an option’s price changes for a ₹1 change in the underlying asset. Gamma (Γ): Measures the rate of change of Delta. Theta (Θ): Represents time decay — how much an option loses value as it nears expiry. Vega (ν): Sensitivity to changes in volatility. Rho (ρ): Sensitivity to changes in interest rates. The Black-Scholes model is commonly used to estimate theoretical option prices by combining these factors.
NSE:KOTAKBANKEducation
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Part 2 Understanding the Structure of a CandlestickKey Terminologies To understand options deeply, it’s essential to know the following terms: Strike Price: The fixed price at which the option holder can buy (call) or sell (put) the underlying. Premium: The price paid by the option buyer to the seller. Expiry Date: The date on which the option contract expires. In-the-Money (ITM): A call option is ITM if the underlying price is above the strike price; a put option is ITM if the price is below the strike. Out-of-the-Money (OTM): The opposite of ITM; when exercising the option would not be profitable. At-the-Money (ATM): When the underlying price is equal (or close) to the strike price. Intrinsic Value: The amount by which an option is in the money. Time Value: The portion of the option’s premium that reflects the time left until expiry and market volatility.
FXOPEN:XAUUSDEducation
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Basic Concepts of Options TradingWhat Are Options? An option is a financial derivative contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset—such as a stock, index, or commodity—at a predetermined price (called the strike price) on or before a specified date (the expiry date). Options are of two main types: Call Option: Gives the holder the right to buy the underlying asset at the strike price. Put Option: Gives the holder the right to sell the underlying asset at the strike price. Each option contract typically represents 100 shares of the underlying stock in many markets (such as the U.S.), but in the Indian derivatives market (NSE/BSE), the lot size varies for different stocks and indices.
FX:XAUUSDEducation
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Part 12 Trading Masster ClassOption Trading in India In India, options are traded on exchanges like the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). The most active instruments include NIFTY, BANKNIFTY, and FINNIFTY indices, as well as popular stocks like Reliance, TCS, and HDFC Bank. Indian traders have access to weekly and monthly expiries, providing short-term opportunities. SEBI regulates derivatives trading to ensure transparency and protect investors. Margin requirements, contract sizes, and position limits are predefined to manage systemic risk.
NASDAQ:TSLAEducation
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Part 11 Trading Masster ClassRole of Implied Volatility (IV) and Open Interest (OI) Implied Volatility (IV): Indicates expected market volatility. Rising IV increases option premiums. Traders buy options during low IV and sell during high IV. Open Interest (OI): Reflects the number of outstanding option contracts. Rising OI with price indicates strong trend confirmation, while divergence signals reversals. These metrics help traders assess market sentiment and build informed positions.
BSE:SENSEXEducation
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Part 10 Trade Like InstitutionsOption Buying vs. Option Selling Option Buyers have limited risk (premium paid) and unlimited potential profit. However, time decay works against them as Theta reduces the option’s value daily. Option Sellers (Writers) have limited profit (premium received) but potentially unlimited risk. Sellers benefit from time decay and stable markets. In the Indian market, most professional traders and institutions prefer option selling due to the high success rate when markets remain range-bound.
NSEIX:NIFTY1!Education
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Pat 9 Tradig Master ClassThe Greeks in Options The Greeks measure the sensitivity of an option’s price to various factors: Delta: Measures how much the option’s price changes for a ₹1 move in the underlying asset. Gamma: Measures the rate of change of delta; it helps traders understand how delta will change as the market moves. Theta: Measures time decay—how much the option loses value each day as expiration approaches. Vega: Measures sensitivity to volatility changes. Rho: Measures sensitivity to interest rate changes. Understanding these helps traders manage risk and create balanced strategies.
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Part 8 Trading Master ClassOption Pricing Option prices depend on several factors, collectively described by the Black-Scholes model. The main components are: Underlying price: The current price of the stock or index. Strike price: Determines whether the option is ITM, ATM, or OTM. Time to expiration: Longer duration means higher premium, as there’s more time for the market to move favorably. Volatility: Higher volatility increases premium since price movements are more unpredictable. Interest rates and dividends: These have smaller effects but are still part of option pricing. The relationship between these factors is known as the “Greeks.”
MCX:SILVER1!Education
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Part 7 Trading Master ClassBasic Terminology To understand option trading, one must know a few key terms: Strike Price: The price at which the underlying asset can be bought (call) or sold (put). Premium: The price paid by the buyer to the seller for the option contract. Expiration Date: The date on which the option contract expires. In India, options typically expire every Thursday (for weekly options) or the last Thursday of the month (for monthly options). In-the-Money (ITM): A call option is ITM when the market price is above the strike price; a put option is ITM when the market price is below the strike price. Out-of-the-Money (OTM): A call is OTM when the market price is below the strike, and a put is OTM when the market price is above the strike. At-the-Money (ATM): When the market price and strike price are roughly equal.
NSE:RELIANCEEducation
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