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Harmonic Patterns

Divergence Secrets How Option Pricing Works The price (premium) of an option is influenced by several factors, collectively known as the “Option Greeks”: Delta: Measures how much the option price changes with a ₹1 change in the underlying asset. Gamma: Indicates the rate of change of Delta. Theta: Represents the time decay of the option’s value as it approaches expiry. Vega: Measures sensitivity to volatility. Rho: Indicates sensitivity to interest rate changes. Additionally, the volatility of the underlying asset and time to expiry play crucial roles in determining option prices. Higher volatility increases the premium, as uncertainty boosts the potential for profit.
NSE:ICICIBANKEducation
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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
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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
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Part 2 Support and Resistance Key Terminologies in Option Trading To understand options, it’s important to know certain key terms: Underlying Asset: The financial instrument on which the option is based (e.g., a stock like TCS or an index like NIFTY50). Strike Price: The price at which the holder can buy (call) or sell (put) the asset. Premium: The price paid by the buyer to acquire the option contract. Expiry Date: The last date on which the option can be exercised. In the Money (ITM): When exercising the option is profitable (e.g., for a call option, when the market price is above the strike price). Out of the Money (OTM): When exercising the option would not be profitable. At the Money (ATM): When the strike price and market price are almost equal. Understanding these terms is essential for evaluating an option’s value and potential profit or loss.
Education
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Part 1 Support and Resistance Introduction to Option Trading Option trading is a type of derivative trading where investors buy and sell contracts that give them the right—but not the obligation—to buy or sell an underlying asset (such as stocks, indices, or commodities) at a predetermined price within a specified period. The two basic types of options are Call Options and Put Options. A Call Option gives the holder the right to buy an asset, while a Put Option gives the holder the right to sell. Unlike futures, options provide flexibility and limited risk for buyers because they can choose not to exercise the contract if the market moves against them. This characteristic makes options one of the most versatile financial instruments in modern markets.
CRYPTO:BTCUSDEducation
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Option TradingTypes of Options: Calls and Puts Options are divided into two main categories: Call Options: The buyer of a call expects the underlying asset’s price to rise. For example, if a trader buys a call option on Reliance stock with a strike price of ₹2500, and the stock rises to ₹2600 before expiry, the trader can exercise the option and profit from the difference. Put Options: The buyer of a put expects the asset’s price to fall. If the same Reliance stock falls to ₹2400, the put option buyer profits by selling at ₹2500 (the strike price). Call and put options can be used separately or in combination to create complex strategies based on different market conditions.
NSE:INFYEducation
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PCR Trading Strategies How Option Trading Works Let’s take an example. Suppose you believe Infosys stock will go up from ₹1,500 to ₹1,600 soon. You buy a call option with a strike price of ₹1,500 for a premium of ₹20. If the stock rises to ₹1,600, your option’s value also rises. You can sell it for a profit. If the stock stays below ₹1,500, the option expires worthless, and you lose only the ₹20 premium. Risks and Rewards Option trading can be highly rewarding but also risky. The risk for buyers is limited to the premium paid, but sellers (writers) of options can face unlimited losses if the market moves against them. Hence, it’s important to understand how options work before investing.
FX:XAUUSDEducation
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2
Part 1 Master Candle Stick PatternOption trading is a popular part of the financial market that allows investors to buy or sell the right—but not the obligation—to trade a stock or asset at a specific price within a certain time period. It’s a flexible and powerful tool used by traders to make profits, hedge risks, or plan future investments. What is an Option? An option is a contract between two parties — the buyer and the seller. It gives the buyer the right to buy or sell an asset (like a stock) at a fixed price, known as the strike price, before a set date called the expiry date. There are two main types of options: Call Option – Gives the holder the right to buy an asset at the strike price. Put Option – Gives the holder the right to sell an asset at the strike price.
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Part 12 Tradig Master ClassUses of Options Hedging: Investors use options to protect their portfolios against adverse price movements. For instance, a trader holding stocks can buy puts to guard against potential declines. Speculation: Traders use options to profit from expected price movements with limited initial capital. Income Generation: Writing (selling) options, especially covered calls, allows investors to earn premium income. Advantages of Option Trading Leverage: Options allow control over large positions with smaller capital. Flexibility: They can be used in various strategies like spreads, straddles, and strangles. Risk Management: Losses are limited to the premium paid for option buyers.
NSE:NIFTYEducation
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Part 10 Trade Like Institutions Types of Options There are two main types of options: Call Options and Put Options. A Call Option gives the holder the right to buy an asset at a predetermined price, known as the strike price, within a specific time frame. Investors buy calls when they expect the asset’s price to rise. A Put Option gives the holder the right to sell an asset at the strike price before expiration. Traders buy puts when they anticipate a price decline.
FXOPEN:XAUUSDEducation
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Part 9 Tradig Master ClassOption Trading Explained Option trading is a form of derivative trading where the value of a contract is based on an underlying asset, such as stocks, indices, commodities, or currencies. Options give traders the right, but not the obligation, to buy or sell an asset at a specific price before or on a certain date. This flexibility makes options powerful tools for both hedging risk and speculating on price movements. How Option Trading Works Option trading involves two parties — the buyer (holder) and the seller (writer). The buyer pays a premium for the right to execute the trade, while the seller receives the premium in exchange for the obligation to fulfill the contract if exercised.
NSE:HDFCBANKEducation
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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
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Part 6 Learn Instiutitonal Trading Factors Influencing Option Prices Option prices (premiums) are affected by several variables, collectively analyzed under option pricing models such as the Black-Scholes model. The main factors include: Underlying Asset Price: Higher prices increase call premiums and decrease put premiums. Strike Price: The closer the strike price is to the current price, the higher the premium. Volatility: More volatility means higher premiums due to increased uncertainty. Time to Expiry: Longer durations mean more time value. Interest Rates: Higher interest rates slightly increase call premiums. Dividends: Expected dividends can reduce call premiums and increase put premiums.
NSE:AXISBANKEducation
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Part 4 Learn Instiutitonal Trading Intrinsic and Time Value An option’s premium has two parts: Intrinsic Value: The amount by which an option is “in the money.” For a call option, it’s the difference between the current price and the strike price. For a put option, it’s the difference between the strike price and the current price. Time Value: Represents the potential for the option to gain more value before expiration. The longer the time to expiry, the higher the time value. Example: If a stock is trading at ₹1,200 and a call option with a strike price of ₹1,000 is priced at ₹220, then: Intrinsic Value = ₹200 (₹1,200 - ₹1,000) Time Value = ₹20 (₹220 - ₹200)
NSE:RELIANCEEducation
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Part 2 Ride The Big Moves Key Components of an Option Contract To understand option trading, it’s essential to know the basic elements that define each contract: Underlying Asset: The financial instrument (stock, index, currency, or commodity) on which the option is based. Strike Price: The price at which the option holder can buy or sell the asset. Expiration Date: The date on which the option contract expires. After this date, the option becomes worthless if not exercised. Premium: The price paid by the buyer to the seller (writer) of the option. Lot Size: The number of units of the underlying asset in one option contract (for example, 50 shares per lot).
SP:SPXEducation
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Part 1 Ride The Big Moves What Are Options? An option is a financial contract that gives the buyer the right, but not the obligation**, to buy or sell an underlying asset at a predetermined price (called the strike price) before or on a specific date (the expiry date). Options are categorized into two types: Call Option: Grants the holder the right to buy the underlying asset. Put Option: Grants the holder the right to sell the underlying asset. For example, if an investor believes a stock’s price will rise, they might buy a call option. Conversely, if they expect the price to fall, they might buy a put option.
OANDA:XAUUSDEducation
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Part 1 Candle Stick PatternOption Greeks – Measuring Risk Factors Option traders use Greeks to analyze the sensitivity of an option’s price to various factors: Delta: Measures the rate of change of option price relative to the underlying asset. Gamma: Measures the rate of change of Delta itself. Theta: Measures time decay — how much value the option loses as expiry nears. Vega: Measures sensitivity to volatility. Rho: Measures sensitivity to interest rates. Understanding Greeks helps traders manage their portfolio risk effectively.
NSE:HDFCBANKEducation
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Part 2 Support and ResistanceOption Pricing – The Black-Scholes Model The price of an option (premium) is determined using models like the Black-Scholes Model, which considers several factors: Underlying Asset Price Strike Price Time to Expiry Volatility of the Underlying Asset Risk-Free Interest Rate Dividends (if applicable) Of these, volatility and time decay have the most significant influence. As expiry approaches, options lose value due to time decay, especially for out-of-the-money contracts.
BINANCE:BTCUSDEducation
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