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Part 4 Institutional Trading Key Terms in Options Trading Understanding options requires familiarity with several technical terms: Strike Price: The predetermined price at which the underlying asset can be bought (call) or sold (put). Expiration Date: The last date on which the option can be exercised. Options lose value after this date. Premium: The price paid to purchase the option, influenced by intrinsic value and time value. Intrinsic Value: The difference between the underlying asset’s price and the strike price if favorable to the option holder. Time Value: The portion of the premium reflecting the probability of the option becoming profitable before expiration. In-the-Money (ITM): A call is ITM if the underlying price > strike price; a put is ITM if the underlying price < strike price. Out-of-the-Money (OTM): A call is OTM if the underlying price < strike price; a put is OTM if the underlying price > strike price. At-the-Money (ATM): When the underlying price ≈ strike price. How Options Trading Works Options trading involves buying and selling contracts on exchanges like the National Stock Exchange (NSE) in India, or over-the-counter (OTC) markets globally. Each contract represents a fixed quantity of the underlying asset (e.g., 100 shares per contract in equity options). The price of an option, called the option premium, is determined by multiple factors: Underlying Price: Directly impacts call and put options differently. Calls gain value as the underlying price rises; puts gain as it falls. Strike Price: The relationship of the strike to the current asset price defines intrinsic value. Time to Expiration: More time increases the option’s potential to become profitable, adding to the premium. Volatility: Higher expected price fluctuations increase the chance of profit, making options more expensive. Interest Rates and Dividends: Slightly affect option pricing, especially for longer-term contracts. Options traders use strategies to profit in various market conditions. They can combine calls and puts to create complex structures like spreads, straddles, strangles, and iron condors. Popular Options Trading Strategies Covered Call: Holding the underlying asset and selling a call option to earn premium. It generates income but limits upside potential. Protective Put: Buying a put on a held asset to limit losses during downturns. Essentially an insurance policy. Straddle: Buying a call and a put at the same strike price and expiry, betting on high volatility regardless of direction. Strangle: Similar to a straddle but with different strike prices, cheaper but requires larger movements to profit. Spreads: Simultaneously buying and selling options of the same type with different strikes or expiries to reduce risk or capitalize on specific movements. Examples include bull call spreads and bear put spreads. These strategies allow traders to tailor risk/reward profiles, hedge portfolios, or speculate with leverage.
Education
by SkyTradingZone
Part 2 Ride The Big MovesHow Options Trading Works Options trading involves buying and selling contracts on exchanges like the National Stock Exchange (NSE) in India, or over-the-counter (OTC) markets globally. Each contract represents a fixed quantity of the underlying asset (e.g., 100 shares per contract in equity options). The price of an option, called the option premium, is determined by multiple factors: Underlying Price: Directly impacts call and put options differently. Calls gain value as the underlying price rises; puts gain as it falls. Strike Price: The relationship of the strike to the current asset price defines intrinsic value. Time to Expiration: More time increases the option’s potential to become profitable, adding to the premium. Volatility: Higher expected price fluctuations increase the chance of profit, making options more expensive. Interest Rates and Dividends: Slightly affect option pricing, especially for longer-term contracts. Options traders use strategies to profit in various market conditions. They can combine calls and puts to create complex structures like spreads, straddles, strangles, and iron condors. Popular Options Trading Strategies Covered Call: Holding the underlying asset and selling a call option to earn premium. It generates income but limits upside potential. Protective Put: Buying a put on a held asset to limit losses during downturns. Essentially an insurance policy. Straddle: Buying a call and a put at the same strike price and expiry, betting on high volatility regardless of direction. Strangle: Similar to a straddle but with different strike prices, cheaper but requires larger movements to profit. Spreads: Simultaneously buying and selling options of the same type with different strikes or expiries to reduce risk or capitalize on specific movements. Examples include bull call spreads and bear put spreads. These strategies allow traders to tailor risk/reward profiles, hedge portfolios, or speculate with leverage. Risk and Reward in Options Options can offer leverage, allowing traders to control large positions with relatively small capital. However, this comes with significant risks: Buyers risk only the premium paid. If the option expires worthless, the entire premium is lost. Sellers can face unlimited loss (for uncovered calls) if the market moves sharply against them. Time decay (theta) erodes the value of options as expiration approaches, which works against buyers of options but favors sellers. Volatility changes can impact options pricing (vega risk). Because of these dynamics, options require careful planning, risk management, and market understanding.
NSE:BAJFINANCEEducation
by SkyTradingZone
Part 1 Ride The Big MovesIntroduction to Options Trading Options trading is a sophisticated financial practice that allows investors to speculate on the future price movements of underlying assets or to hedge existing positions. Unlike direct stock trading, options provide the right—but not the obligation—to buy or sell an asset at a predetermined price within a specified time frame. This flexibility makes options a powerful tool in modern financial markets, used by retail traders, institutional investors, and hedge funds alike. Options fall under the category of derivatives, financial instruments whose value is derived from an underlying asset, which can be stocks, indices, commodities, currencies, or ETFs. The two fundamental types of options are call options and put options. 1. Call and Put Options Call Option: A call option gives the buyer the right to buy the underlying asset at a specific price (known as the strike price) before or on the option’s expiration date. Traders purchase calls when they expect the asset’s price to rise. For example, if a stock is trading at ₹100, and you buy a call option with a strike price of ₹105, you will profit if the stock price exceeds ₹105 plus the premium paid. Put Option: A put option gives the buyer the right to sell the underlying asset at the strike price. Traders buy puts when they anticipate a decline in the asset’s price. For instance, if the same stock is at ₹100, a put option with a strike price of ₹95 becomes valuable if the stock price falls below ₹95 minus the premium paid. The option seller (writer), on the other hand, assumes the obligation to fulfill the contract if the buyer exercises the option. Sellers earn the option premium upfront but take on potentially unlimited risk, especially in the case of uncovered calls. 2. Key Terms in Options Trading Understanding options requires familiarity with several technical terms: Strike Price: The predetermined price at which the underlying asset can be bought (call) or sold (put). Expiration Date: The last date on which the option can be exercised. Options lose value after this date. Premium: The price paid to purchase the option, influenced by intrinsic value and time value. Intrinsic Value: The difference between the underlying asset’s price and the strike price if favorable to the option holder. Time Value: The portion of the premium reflecting the probability of the option becoming profitable before expiration. In-the-Money (ITM): A call is ITM if the underlying price > strike price; a put is ITM if the underlying price < strike price. Out-of-the-Money (OTM): A call is OTM if the underlying price < strike price; a put is OTM if the underlying price > strike price. At-the-Money (ATM): When the underlying price ≈ strike price.
CRYPTO:ETHUSDEducation
by SkyTradingZone
Divergence SecretsLong Straddle Setup: Buy 1 Call + Buy 1 Put (same strike & expiry). When to Use: Expect huge volatility but uncertain direction. Logic: Profit if stock makes big move either way. Example: Stock at ₹100. Buy Call 100 for ₹4 + Put 100 for ₹4 (total ₹8). If stock goes to ₹115, Call worth ₹15 (profit ₹7). If stock goes to ₹85, Put worth ₹15 (profit ₹7). Loss if stock stays near ₹100. Long Strangle Setup: Buy Out-of-the-Money Call + Buy Out-of-the-Money Put. When to Use: Expect big move but cheaper than Straddle. Logic: Profitable in strong moves but needs bigger movement than Straddle. Example: Stock at ₹100. Buy Call 105 for ₹3 + Put 95 for ₹3. Total cost ₹6. Profit only if stock moves above 111 or below 89. Bull Call Spread Setup: Buy Call at lower strike + Sell Call at higher strike. When to Use: Moderately bullish. Logic: Reduces cost compared to naked Call. Example: Stock ₹100. Buy Call 100 for ₹5, Sell Call 110 for ₹2. Net cost ₹3. Max profit = ₹7 (if stock > ₹110). Bear Put Spread Setup: Buy Put at higher strike + Sell Put at lower strike. When to Use: Moderately bearish. Logic: Cheaper than long Put. Example: Stock ₹100. Buy Put 100 for ₹5, Sell Put 90 for ₹2. Net cost ₹3. Max profit = ₹7 (if stock < ₹90). Iron Condor Setup: Sell Out-of-the-Money Call Spread + Sell Out-of-the-Money Put Spread. When to Use: Expect sideways movement with low volatility. Logic: Earn premium as long as stock stays in range. Example: Stock ₹100. Sell 90 Put, Buy 85 Put, Sell 110 Call, Buy 115 Call. Net premium collected ₹4. Profit if stock stays between 90–110. Butterfly Spread Setup: Buy 1 Call (low strike) + Sell 2 Calls (middle strike) + Buy 1 Call (high strike). When to Use: Expect very low volatility, price near middle strike. Logic: Profits if stock stays near center strike. Example: Stock ₹100. Buy Call 95 for ₹7, Sell 2 Calls 100 for ₹4 each, Buy Call 105 for ₹2. Net cost = ₹1. Max profit at ₹100 = ₹4. Collar Strategy Setup: Buy stock + Buy Put + Sell Call. When to Use: Want to protect downside while capping upside. Logic: Provides range-bound protection. Example: Stock ₹100. Buy Put 95 for ₹3, Sell Call 110 for ₹3. Net zero cost. Loss limited below ₹95, profit capped above ₹110. Calendar Spread Setup: Sell short-term option + Buy long-term option (same strike). When to Use: Expect stock to remain stable short-term but move long-term. Logic: Benefit from time decay in near-term option. Example: Stock ₹100. Sell 1-month Call 100 for ₹3, Buy 3-month Call 100 for ₹6. Net cost ₹3.
NSE:BIOCONEducation
by SkyTradingZone
PCR Tradng StrategiesTypes of Options Strategies Options strategies can be classified based on complexity and purpose: A. Basic (Beginner) Strategies Covered Call Protective Put Long Call / Long Put B. Intermediate Strategies Bull Call Spread Bear Put Spread Collar Strategy Straddle and Strangle C. Advanced (Professional) Strategies Butterfly Spread Iron Condor Calendar Spread Ratio Spreads Diagonal Spreads Each of these strategies has its own setup, payoff diagram, and risk–reward profile. Let’s explore the most important ones. Popular Options Strategies Explained with Examples Covered Call Setup: Buy stock + Sell Call option (same stock). When to Use: Mildly bullish or neutral view. Logic: You earn premium from the call while holding stock. If stock rises, gains are capped at strike price. Example: Stock at ₹100. Buy stock and sell a Call at strike ₹110 for ₹5. If stock goes to ₹115, your profit is capped at ₹15 (₹10 from stock + ₹5 premium). If stock stays flat, you still keep the ₹5 premium. Protective Put Setup: Buy stock + Buy Put option. When to Use: Bullish but want downside protection. Logic: Works like insurance—limits potential loss if stock falls. Example: Stock at ₹100. Buy stock + Put at strike ₹95 for ₹3. If stock drops to ₹80, your loss is capped (you can sell at ₹95).
NSE:NIFTYEducation
by SkyTradingZone
Option Trading Introduction to Options Trading Strategies Options trading is one of the most versatile areas of financial markets. Unlike buying and selling stocks directly, options allow traders to take advantage of different market conditions—whether bullish, bearish, neutral, or highly volatile. An option is essentially a financial contract that gives the buyer the right, but not the obligation, to buy (Call option) or sell (Put option) an underlying asset at a predetermined price (strike price) within a certain time (expiry). While options can be used for speculation, hedging, or income generation, their real power lies in combining them into strategies. A strategy is nothing but a structured position involving one or more options (and sometimes the underlying asset) to create a favorable risk–reward setup. Why are strategies important? Because trading options without a plan is risky—premiums decay, volatility shifts, and market direction can change suddenly. With the right strategy, a trader can limit losses, protect gains, and even profit when the market doesn’t move much. This is why professional traders, institutions, and hedge funds rely on well-designed options strategies to manage risk and generate consistent returns. Why Strategies Are Needed in Options Options are unique compared to equities or futures. While buying a stock means unlimited upside and downside exposure, options introduce time decay (theta), volatility risk (vega), and sensitivity to price changes (delta). Without strategies, a trader might: Lose money despite being directionally correct. Face unlimited risk when shorting naked options. Fail to take advantage of sideways or volatile markets. For example: Suppose you are bullish on a stock trading at ₹100. You buy a Call at strike ₹105 for ₹5. If the stock moves to ₹110, you gain ₹5. But if it just stays at ₹100 till expiry, you lose the entire premium—even though your view wasn’t wrong about stability. This is why strategies like spreads, straddles, and condors exist—they help fine-tune payoffs. Thus, option strategies allow you to customize risk and reward as per your market outlook.
NSE:BANKNIFTYEducation
by SkyTradingZone
Part 2 Support and Resistance Advantages of Options Trading Leverage: Control a large position with limited capital. Hedging: Protect stock holdings from adverse movements. Flexibility: Multiple strategies for different market conditions. Income Generation: Sell options for premium income. Speculation: Profit from both rising and falling markets. Market Dynamics and Participants Options markets involve diverse participants: Retail Traders – Individual investors trading for speculation or hedging. Institutional Traders – Hedge funds, mutual funds, and banks use options for portfolio strategies. Market Makers – Ensure liquidity by continuously quoting bid-ask prices. Regulators – SEBI in India, SEC in the US, maintain fair and transparent trading practices. Options trading occurs in exchanges like NSE, BSE, CBOE, offering standardized contracts. Indian markets primarily trade in equity options and index options. Practical Tips for Options Trading Start Small – Begin with limited capital while learning strategies. Understand Greeks – They help manage risk and strategy adjustments. Focus on Liquid Options – Avoid thinly traded contracts for better execution. Use Stop Loss and Risk Management – Limit losses in volatile markets. Monitor Time Decay – Be aware of how options lose value as expiration nears. Combine Strategies – Mix calls, puts, and spreads for hedging or speculation. Stay Updated on Market News – Earnings, policy changes, and global events impact volatility.
BSE:SENSEXEducation
by SkyTradingZone
Part 1 Support and Resistance Option Trading Strategies Options are highly versatile, allowing traders to implement strategies for bullish, bearish, or neutral markets. Some key strategies include: a) Basic Strategies Long Call – Buy a call option expecting price rise. Long Put – Buy a put option expecting price fall. Covered Call – Own the underlying stock and sell a call for income. Protective Put – Own the stock and buy a put for downside protection. b) Intermediate Strategies Straddle – Buy both call and put with the same strike to profit from volatility. Strangle – Buy out-of-the-money call and put to capture larger moves. Bull Call Spread – Buy a lower strike call and sell a higher strike call to reduce premium. Bear Put Spread – Buy a higher strike put and sell a lower strike put to limit risk. c) Advanced Strategies Iron Condor – Sell an out-of-the-money call and put while buying further OTM options to limit loss; profits in low volatility. Butterfly Spread – Use multiple calls/puts to profit from minimal movement. Calendar Spread – Sell a near-term option and buy a long-term option to profit from time decay differences. Risk and Reward in Options Options provide leverage, meaning a small price movement can result in substantial gains or losses. Understanding risk is crucial: For Buyers Maximum loss is the premium paid. Potential profit can be unlimited (for calls) or substantial (for puts). For Sellers (Writers) Maximum loss can be unlimited if uncovered (naked) calls. Premium received is the maximum gain. Key Risks Time decay (Theta) erodes value. Volatility risk (Vega) can reduce option price. Liquidity risk if the option is thinly traded.
NSE:KOTAKBANKEducation
by SkyTradingZone
Part 2 Candle Stick Pattern Types of Options There are two primary types of options: a) Call Options Gives the holder the right to buy an underlying asset at a specified strike price. Investors buy calls when they expect the underlying asset price to rise. Example: If stock ABC is trading at ₹100 and you buy a call with a strike price of ₹110, you profit if ABC rises above ₹110 plus the premium paid. b) Put Options Gives the holder the right to sell an underlying asset at a specified strike price. Investors buy puts when they expect the underlying asset price to fall. Example: If stock XYZ is trading at ₹200 and you buy a put with a strike price of ₹190, you profit if XYZ falls below ₹190 minus the premium paid. Option Pricing and Valuation Option pricing is crucial in determining potential profits and risks. Two main components influence the price of an option: a) Intrinsic Value For a call option: Current Price – Strike Price For a put option: Strike Price – Current Price Intrinsic value is zero if the option is out-of-the-money. b) Time Value Time value depends on: Time to Expiry: Longer time increases the premium. Volatility: Higher volatility increases the likelihood of profitable movements. Interest Rates: Small effect on option premiums. Dividends: Impact options on dividend-paying stocks. c) Black-Scholes Model Widely used for European-style options pricing. Formula incorporates current stock price, strike price, time to expiration, volatility, and risk-free rate. d) Greeks Measures the sensitivity of option prices to various factors: Delta: Sensitivity to the underlying asset price. Gamma: Rate of change of delta. Theta: Time decay effect. Vega: Sensitivity to volatility. Rho: Sensitivity to interest rate changes.
NSE:HDFCBANKEducation
by SkyTradingZone
Part 1 Candle Stick Pattern Introduction Options trading is one of the most versatile and powerful instruments in the financial markets. Unlike traditional stock trading, options allow traders and investors to gain exposure to an asset's price movements without actually owning the asset. Options belong to the derivatives family because their value derives from an underlying asset, such as stocks, indices, commodities, currencies, or ETFs. Options trading has become increasingly popular in India, the United States, and global markets due to its flexibility, potential for leveraged profits, and ability to hedge risks. Investors use options for speculation, income generation, and risk management, making it a crucial tool in modern portfolio strategies. Basics of Options An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specific date. This differentiates options from futures, where both parties are obligated to execute the contract. Key terms in options trading: Underlying Asset: The stock, index, commodity, or currency on which the option is based. Strike Price: The price at which the option holder can buy (call) or sell (put) the underlying asset. Expiry Date: The date on which the option contract expires. Premium: The cost of buying an option, paid by the buyer to the seller. Intrinsic Value: The difference between the current price of the underlying and the strike price, if favorable to the option holder. Time Value: The extra value based on the time remaining until expiration and expected volatility. In-the-Money (ITM), At-the-Money (ATM), Out-of-the-Money (OTM): Terms used to describe an option’s profitability status. Options provide flexibility, allowing investors to profit from rising, falling, or sideways markets, depending on the chosen strategy.
OKX:BTCUSDEducation
by SkyTradingZone
Part 9 Trading master ClassOptions trading involves the buying and selling of financial contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price (the strike price) before a set expiration date. There are two main types: call options, which grant the right to buy, and put options, which grant the right to sell. Traders pay a premium to the seller for this right. Options can be used to speculate on an asset's price movements or to manage risk by hedging existing positions. How it Works The Contract: An options contract specifies the underlying asset (like a stock), the strike price (the agreed-upon price for the transaction), and the expiration date (the deadline for the contract to be valid). The Buyer: The buyer pays a premium to the seller for the option. They gain the right to exercise the contract if it becomes profitable but is not obligated to do so The Seller: The seller receives the premium and is obligated to fulfill the contract if the buyer chooses to exercise it. Exercise: If the price of the underlying asset moves favorably, the buyer can exercise the option. For example, with a call option, if the stock price is above the strike price, the buyer can purchase the stock at the lower strike price. Expiration: If the market price doesn't reach a profitable level by the expiration date, the option can expire worthless, and the buyer loses the premium paid. Why Trade Options? Leverage: Options require less upfront capital than buying the underlying asset directly, allowing traders to potentially profit more from smaller price movements Risk Management (Hedging): Options can be used to protect existing investments from potential losses. Flexibility: Options offer greater flexibility than traditional stocks, allowing traders to profit from both rising and falling markets without needing to own the asset.
NSE:HINDALCOEducation
by SkyTradingZone
4
Part 8 Trading master ClassWhy Trade Options? Options are popular because of their flexibility. They can serve multiple purposes: Hedging (Insurance) Just like insurance, options protect against downside risk. Example: Buying a put option to protect your stock holdings. Speculation (Profit from Price Movements) Traders use options to bet on direction, volatility, or even stability of prices. Income Generation Selling covered calls or cash-secured puts generates steady premium income. Leverage Options allow large exposure with smaller capital compared to stocks. How Options Work: Pricing Option pricing is complex, but two main values exist: Intrinsic Value → Difference between stock price and strike (if favorable). Time Value → Extra value based on time left till expiry and expected volatility. Example: Stock = ₹1,000 Call strike = ₹950, Premium = ₹70 Intrinsic = ₹1,000 – ₹950 = ₹50 Time Value = ₹20 Options Market Structure The options market involves: Buyers of Options – Limited risk (premium), unlimited potential reward. Sellers (Writers) of Options – Limited reward (premium), potentially high risk. Exchanges (like NSE in India, CBOE in US) – Standardized contracts. Clearing Corporations – Ensure smooth settlement, reduce counterparty risk.
BITSTAMP:BTCUSDEducation
by SkyTradingZone
2
Part 7 Trading master ClassIntroduction to Options Trading Financial markets offer countless opportunities for investors and traders to grow wealth. Among them, options trading stands out as one of the most versatile, powerful, and misunderstood tools. Options can help protect a portfolio from risk, generate extra income, or allow a trader to speculate on price movements with limited upfront capital. At its core, options trading is about making calculated decisions on probabilities — the probability of a stock rising, falling, or staying stable. While stocks represent ownership in a company, options are contracts that give special rights tied to those stocks (or other assets). Before diving deep, remember this: options are not inherently risky. Misuse of options is risky. With the right understanding, options can be a trader’s best friend. Basics of Options What is an Option? An option is a financial 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 certain date (expiry date). Two main types exist: Call Option → Right to buy the underlying at strike price. Put Option → Right to sell the underlying at strike price. The buyer pays a fee, known as the premium, to acquire this right. Example: Stock: Reliance Industries trading at ₹2,500 You buy a Call Option with strike ₹2,600, expiring in 1 month, premium ₹50. If Reliance rises to ₹2,700 before expiry: You can buy at ₹2,600, sell at ₹2,700, and profit (₹100 – ₹50 = ₹50 per share). If Reliance stays below ₹2,600: The option expires worthless, and you lose only the premium (₹50). Key Terms Strike Price → Fixed price at which option can be exercised. Expiry Date → Last date to exercise the option. Premium → Cost of buying the option. Lot Size → Minimum quantity per option contract. In the Money (ITM) → Option has intrinsic value. Out of the Money (OTM) → Option has no intrinsic value. At the Money (ATM) → Strike price is close to current market price.
CRYPTO:BTCUSDEducation
by SkyTradingZone
Part 6 Institutional TradingStrategies in Option Trading Basic Strategies Buying Calls: Profiting from price increases. Buying Puts: Profiting from price decreases. Covered Calls and Protective Puts Covered Call: Holding a stock and selling a call to earn premium. Protective Put: Buying a put to hedge potential losses in a stock position. Spreads Bull Call Spread: Buy a call at a lower strike, sell at a higher strike. Bear Put Spread: Buy a put at a higher strike, sell at a lower strike. Calendar Spreads: Different expiration dates for long and short options. Advanced Strategies Straddles: Buying a call and put at the same strike, betting on volatility. Strangles: Buying out-of-the-money calls and puts. Iron Condors & Butterflies: Limited-risk strategies combining multiple options for steady income. Real-World Examples Apple Stock Call: Investor buys 100 Apple call options at ₹150. Stock rises to ₹180; profit realized by exercising or selling the call. Hedging a Portfolio: Investor holds ₹10 lakh in shares, buys put options to limit losses during market decline. Income Generation: Investor sells covered calls on a stock they own to earn premium income.
NSE:KOTAKBANKEducation
by SkyTradingZone
Part 4 Institutional TradingOption Styles Options come in different styles, which dictate when they can be exercised: American Options Can be exercised anytime before expiration. European Options Can be exercised only on the expiration date. How Option Trading Works Buying vs Selling Options Buying an option: You pay the premium for the right to buy/sell. Selling an option (writing an option): You collect the premium but take the obligation if the buyer exercises it. Exercising Options Exercising is when the holder uses their right to buy or sell at the strike price. Options in the Secondary Market Options can also be traded without exercising. Traders can buy and sell options in the market to profit from changes in premiums. Hedging and Speculation with Options Options are used both for hedging (reducing risk) and speculation (betting on price movement). For example: Hedging: Buying put options to protect a stock portfolio. Speculation: Buying call options to profit from anticipated upward movement.
NSE:NIFTYEducation
by SkyTradingZone
2
Part 3 Learn Institutional Trading Types of Options Call Options A call option gives the holder the right to buy the underlying asset at the strike price before or on the expiration date. Investors buy calls when they anticipate the price of the underlying asset will rise. Example: You buy a call option for a stock at ₹100 strike price. If the stock price rises to ₹120, you can exercise your option, buy the stock at ₹100, and make a profit. Put Options A put option gives the holder the right to sell the underlying asset at the strike price. Investors buy puts when they expect the price of the asset to fall. Example: You buy a put option for a stock at ₹100. If the stock falls to ₹80, you can sell it at ₹100, making a profit. Option Pricing: How Options Are Valued The price of an option is called the premium, and it consists of two components: Intrinsic Value Intrinsic value represents the real, tangible value of the option if it were exercised today. Call Option Intrinsic Value = Current Stock Price − Strike Price Put Option Intrinsic Value = Strike Price − Current Stock Price Time Value Time value is the extra cost investors are willing to pay for the potential of future gains. It decreases as the option approaches expiration, a process known as time decay. Factors Affecting Option Prices (The Greeks) Options are affected by multiple factors called the Greeks: Delta: Measures how much the option price changes with the underlying asset price. Gamma: Measures the rate of change of delta. Theta: Measures the effect of time decay on the option. Vega: Measures sensitivity to volatility. Rho: Measures sensitivity to interest rates.
NSE:BANKNIFTYEducation
by SkyTradingZone
Part 2 Ride The Big MovesIntroduction to Options Option trading is a sophisticated financial strategy that allows investors to hedge, speculate, or generate income in financial markets. Unlike buying a stock or a commodity directly, trading options gives you the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time period. The concept of options is not new. Options have been used for centuries to hedge risks and manage investments. In modern financial markets, options are widely used by retail investors, institutional investors, and professional traders because they provide flexibility, leverage, and strategic opportunities that are not available in traditional stock trading. An option derives its value from the underlying asset, which can be a stock, commodity, index, currency, or ETF. Because options have time-limited value, they are classified as derivatives, meaning their price depends on the price movement of the underlying asset. Key Terminology Understanding option trading requires familiarity with basic terms: Underlying Asset: The security or instrument on which the option is based. For example, Apple stock for an Apple options contract. Strike Price: The predetermined price at which the option can be exercised. Expiration Date: The date when the option contract expires. After this date, the option is worthless if not exercised. Premium: The price paid to buy the option. Think of it as the cost of the “insurance” provided by the option. In-the-Money (ITM): A call option is ITM when the stock price is above the strike price; a put option is ITM when the stock price is below the strike price. Out-of-the-Money (OTM): Opposite of ITM. Call options are OTM when the stock price is below the strike price, and put options are OTM when the stock price is above the strike price. At-the-Money (ATM): When the stock price equals the strike price.
BSE:SENSEXEducation
by SkyTradingZone
1
Part ! Ride The Big MovesWhat is an Option? An option is a financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (strike price) on or before a specified date (expiration date). Underlying Asset: This can be a stock, index, commodity, currency, or ETF. Strike Price: The price at which the asset can be bought or sold. Expiration Date: The date on which the option contract expires. Premium: The price paid to purchase the option. There are two main types of options: 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. Call Options Explained A call option becomes profitable when the price of the underlying asset rises above the strike price plus the premium paid. Example: Stock price: ₹1,000 Strike price: ₹1,050 Premium: ₹20 If the stock rises to ₹1,100: Profit = (Stock Price – Strike Price – Premium) = 1,100 – 1,050 – 20 = ₹30 If the stock remains below ₹1,050, the option expires worthless, and the loss is the premium paid.
TVC:GOLDEducation
by SkyTradingZone
1
Part 2 Trading Master ClassTypes 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. Key Terminologies in Option Trading To understand options, you must master the vocabulary: Strike Price → Pre-decided price where option can be exercised. Premium → Price paid by the option buyer to the seller. Expiry Date → Last day the option can be exercised. In-the-Money (ITM) → Option already has intrinsic value. At-the-Money (ATM) → Strike price is equal to current market price. Out-of-the-Money (OTM) → Option has no intrinsic value. Lot Size → Options are traded in lots, not single shares. For example, Nifty lot = 50 units.
NSE:COALINDIAEducation
by SkyTradingZone
14