Option Trading 1. Introduction to Options Trading
Options trading is one of the most powerful tools in the financial markets. Unlike traditional stock trading, where you buy or sell shares directly, options allow you to control an asset without owning it outright. This gives traders flexibility, leverage, and a wide range of strategies for both profits and risk management.
At its core, an option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price (called the strike price) on or before a certain date (the expiration date).
The beauty of options lies in choice: you can profit whether markets are rising, falling, or even staying flat—if you know how to use them.
2. What is an Option?
An option is a derivative instrument, meaning its value is derived from the price of another asset (the “underlying”), such as:
Stocks (e.g., Reliance, Apple)
Indexes (e.g., Nifty, S&P 500)
Commodities (e.g., Gold, Oil)
Currencies
Two Main Types of Options:
Call Option – Gives the right to buy the underlying asset.
Put Option – Gives the right to sell the underlying asset.
Example:
A call option on Reliance with a strike price of ₹2500 expiring in one month gives you the right (not the obligation) to buy Reliance shares at ₹2500, regardless of the market price.
A put option with a strike of ₹2500 gives you the right to sell at ₹2500.
