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Part 4 Learn Institutional Trading What Are Options? An option is a financial derivative contract that gives the holder 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) within a specified period. There are two main types of options: Call Option – gives the holder the right to buy the underlying asset at the strike price before expiry. Put Option – gives the holder the right to sell the underlying asset at the strike price before expiry. The person who buys an option is called the option buyer or holder, while the person who sells (writes) the option is called the option writer or seller.
NSE:KOTAKBANKEducation
by SkyTradingZone
Part 2 Ride The Big Moves a. Single-Leg Strategies Buy Call: Used when expecting a sharp rise. Buy Put: Used when expecting a sharp fall. Sell Call or Put: Used when expecting low volatility or price stability. b. Multi-Leg Strategies Covered Call: Holding a stock and selling a call against it to earn premium income. Protective Put: Buying a put to hedge against downside risk in a stock position. Straddle: Buying both a call and a put at the same strike to profit from volatility. Strangle: Similar to a straddle but with different strike prices. Bull Call Spread: Buying a lower strike call and selling a higher strike call to reduce cost. Bear Put Spread: Buying a higher strike put and selling a lower strike put to reduce premium outlay. These strategies help manage risk-reward ratios, making options suitable for both speculative and hedging purposes.
NSE:INFYEducation
by SkyTradingZone
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Part 2 Intraday Tradiing Master ClassHow Option Pricing Works Option prices (premiums) are influenced by several factors. The most important are: Underlying Price: The current price of the stock/index. Strike Price: The difference between the current price and strike determines moneyness. Time to Expiry: The more time left, the higher the premium (time value). Volatility: Higher volatility increases the premium since there’s a greater chance of price movement. Interest Rates & Dividends: These also affect option pricing slightly. A famous model called the Black-Scholes Model is commonly used to calculate theoretical option prices based on these factors.
FX:XAUUSDEducation
by SkyTradingZone
Part 1 Intraday Tradiing Master ClassTypes of Options There are two basic types of options: a. Call Option A Call Option gives the buyer the right to buy an underlying asset at the strike price before the expiry date. The buyer of a call expects the price of the asset to rise. The seller (writer) of a call expects the price to fall or remain stable. b. Put Option A Put Option gives the buyer the right to sell an underlying asset at the strike price before expiry. The buyer of a put expects the asset’s price to fall. The seller (writer) of a put expects the price to rise or remain stable.
NSE:TATAPOWEREducation
by SkyTradingZone
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Part 1 Support and Resistance Introduction to Options Option trading is one of the most powerful and flexible instruments in the financial markets. It allows traders and investors to speculate, hedge, or enhance returns with limited risk. Simply put, an option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset (like a stock, index, or commodity) at a predetermined price (strike price) before or on a specific date (expiry date). Unlike shares, which represent ownership in a company, an option is a derivative instrument — its value is derived from the price of an underlying asset. Options are widely traded in stock markets, especially on exchanges like the NSE (National Stock Exchange) in India and NYSE/NASDAQ in the U.S.
MCX:SILVER1!Education
by SkyTradingZone
2
Divergence SecretsOption Premium and Its Components The premium (price of an option) is determined by several factors. It consists of: Intrinsic Value (IV): The real value if the option were exercised immediately. For a call: IV = Spot Price – Strike Price (if positive). For a put: IV = Strike Price – Spot Price (if positive). Time Value (TV): The extra premium paid for the time left until expiry, reflecting the potential for price movement. So, Option Premium = Intrinsic Value + Time Value. As the option nears expiry, the time value decays—a phenomenon known as time decay or Theta decay.
NSE:INFYEducation
by SkyTradingZone
Part 1 Candle Stick PatternHow Option Trading Works Let’s understand with an example: Suppose NIFTY is trading at 22,000 points. A trader expects it to rise to 22,500 within a week. He buys a NIFTY 22,000 call option for a premium of ₹100. The lot size is 50, so he pays ₹5,000 (₹100 × 50). If NIFTY rises to 22,400 before expiry, the intrinsic value becomes 400 points (22,400 - 22,000). Profit = (400 - 100) × 50 = ₹15,000. If NIFTY stays below 22,000, the call expires worthless, and the trader loses ₹5,000 (the premium). This illustrates the asymmetric risk-reward nature of options — the buyer’s loss is limited to the premium, but the profit potential is unlimited.
NSE:BANKNIFTYEducation
by SkyTradingZone
PCR Trading StrategesKey Components of an Option Contract To understand option trading deeply, it’s essential to know its core components: Underlying Asset: The financial asset on which the option is based (e.g., Nifty index, Reliance stock). Strike Price: The fixed price at which the option holder can buy or sell the asset. Premium: The price paid by the option buyer to the seller for acquiring the contract. Expiry Date: The date on which the option contract ceases to exist. Lot Size: Each option represents a set number of shares, known as a lot (e.g., NIFTY lot size is 50).
NSE:NIFTYEducation
by SkyTradingZone
Part 12 Trading Master Class With Experts Types of Options There are two main types of options: Call Option – A call gives the buyer the right to buy the underlying asset at the strike price before expiration. Traders buy calls when they expect the price of the underlying asset to rise. Put Option – A put gives the buyer the right to sell the underlying asset at the strike price before expiration. Traders buy puts when they expect the price of the underlying asset to fall. Each option can also be American-style (exercisable anytime before expiry) or European-style (exercisable only on the expiry date). In India, most index options like NIFTY or BANKNIFTY are European-style.
Education
by SkyTradingZone
Part 11 Trading Master Class With Experts What Are Options? An option is a financial derivative contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset (such as stocks, indices, or commodities) at a predetermined price (called the strike price) before or on a specific date (called the expiry date). Unlike futures, which obligate both parties to transact, options provide flexibility. The buyer of the option pays a premium to the seller (writer) for this right.
NSE:TATAPOWEREducation
by SkyTradingZone
Part 10 Trade Like Institutions Option Trading Strategies Options offer immense flexibility. Traders can combine calls and puts in various ways to create strategies suitable for bullish, bearish, or neutral markets. Some popular ones include: Covered Call: Holding a stock while selling a call option to earn premium income. Protective Put: Buying a put option to hedge a long stock position. Bull Call Spread: Buying one call option and selling another at a higher strike to limit cost. Bear Put Spread: Buying one put and selling another at a lower strike to profit from a downtrend. Iron Condor: A non-directional strategy involving both calls and puts to profit from low volatility. Straddle: Buying both a call and a put with the same strike to profit from big moves in either direction. These strategies balance risk and reward depending on the trader’s view and volatility expectations.
NSE:INFYEducation
by SkyTradingZone
Part 9 Trading Master Class With Experts How Option Pricing Works Option prices are determined by several factors, most notably: Intrinsic Value – The real value if exercised today (difference between the current price and strike price). Time Value – The additional amount traders are willing to pay due to the time left until expiration. Volatility – Higher volatility means higher uncertainty, leading to higher premiums. Interest Rates and Dividends – These also affect pricing but to a lesser degree. The most popular model for calculating option prices is the Black-Scholes Model, which uses these variables to estimate fair value.
Education
by SkyTradingZone
Part 6 Learn Institutional Trading How Option Trading Works When you trade options, there are two sides to every contract: the buyer and the seller. Option Buyer: Pays the premium for the right to exercise the option. Their risk is limited to the premium paid but potential profit is unlimited (in calls) or substantial (in puts). Option Seller (Writer): Receives the premium upfront but assumes an obligation if the buyer exercises the option. Their potential loss can be large, depending on market movement. For example: Let’s say stock XYZ is trading at ₹100. You buy a call option with a strike price of ₹105, paying a premium of ₹3. If XYZ rises to ₹115 before expiry, your profit = (115 – 105) – 3 = ₹7 per share. If it stays below ₹105, your loss is limited to ₹3 (the premium paid).
NSE:RELIANCEEducation
by SkyTradingZone
Part 4 Learn Institutional Trading Key Terminology in Option Trading To understand options, one must be familiar with some basic terms: Underlying Asset: The instrument on which the option is based (e.g., stock, index, or commodity). Strike Price: The price at which the option holder can buy (call) or sell (put) the asset. Premium: The cost paid by the option buyer to acquire the contract. Expiration Date: The date when the option contract becomes void. In-the-Money (ITM): A call option is ITM when the underlying price is above the strike; a put is ITM when the price is below the strike. Out-of-the-Money (OTM): The opposite of ITM. The call option has no intrinsic value when the price is below the strike; a put option has none when the price is above the strike. At-the-Money (ATM): When the underlying price and strike price are nearly equal. Intrinsic Value: The actual profit if the option were exercised immediately. Time Value: The portion of the premium that reflects the probability of the option gaining value before expiry.
NSE:ICICIBANKEducation
by SkyTradingZone
Part 3 Learn Institutional Trading What Are Options? An option is a derivative contract whose value is derived from an underlying asset such as a stock, index, commodity, or currency. The buyer of an option pays a premium to the seller (also called the writer) for the right—but not the obligation—to execute the trade under specified terms. There are two main types of options: Call Option: Gives the buyer the right to buy the underlying asset at a fixed price (called the strike price) before or on the expiry date. Put Option: Gives the buyer the right to sell the underlying asset at the strike price before or on the expiry date. These contracts can be traded on exchanges (like NSE, BSE, CBOE) or over-the-counter (OTC).
Education
by SkyTradingZone
Part 2 Ride The Big Moves Advantages of Option Trading Option trading offers several benefits: Leverage: Small premiums control large positions, magnifying potential returns. Flexibility: Options can be used for income generation, speculation, or hedging. Limited Risk for Buyers: The maximum loss for option buyers is limited to the premium paid. Diverse Strategies: Traders can design complex setups for any market condition. Portfolio Protection: Helps reduce downside risks without liquidating assets. Because of these advantages, options have become integral to both institutional and retail trading strategies worldwide.
NSE:NIFTYEducation
by SkyTradingZone
2
Part 1 Ride The Big Moves Role of Options in Hedging and Speculation Options serve two primary purposes—hedging and speculation. Hedging: Investors use options to protect their portfolios from adverse price movements. For example, a fund manager expecting a market downturn might buy put options on an index to limit potential losses. Speculation: Traders use options to bet on the direction of price movements with relatively low capital compared to buying stocks outright. For instance, buying a call option allows participation in a stock’s upside potential without investing the full stock price. Thus, options balance the needs of both conservative and aggressive market participants.
Education
by SkyTradingZone
2
Part 2 Intraday Master ClassStrategies in Option Trading Options allow traders to build strategies tailored to market views—bullish, bearish, or neutral. Some popular strategies include: Covered Call: Selling a call option while holding the underlying asset to earn extra income. Protective Put: Buying a put option to hedge against possible losses in a stock you own. Straddle: Buying both a call and a put with the same strike and expiry to profit from volatility. Strangle: Similar to a straddle but with different strike prices for the call and put. Iron Condor: Combining multiple options to profit from low volatility conditions. Such strategies help traders control risk and maximize profits under different market scenarios.
NSE:BSEEducation
by SkyTradingZone
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