Part 2 Candle Stick Pattern Introduction to Options Trading
In the world of financial markets, traders are always looking for ways to manage risk, generate income, or profit from price movements. Stocks, bonds, and futures are common instruments, but options trading adds a completely new layer of flexibility.
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 specific price (called the strike price) on or before a certain date (called the expiry date).
Unlike stocks, which represent ownership in a company, options are derivative contracts—their value is derived from the movement of an underlying asset such as Nifty, Bank Nifty, Reliance Industries, Tesla, Gold, Crude Oil, etc.
The beauty of options is that they allow traders to benefit in bullish, bearish, or even sideways markets, depending on the strategy used. That’s why understanding option trading strategies is like learning the different moves in a chess game—you pick the right one for the right situation.
Basics of Options
Before jumping into strategies, let’s revisit some fundamentals:
Call Option: Gives the buyer the right to buy the asset at a specific strike price.
Put Option: Gives the buyer the right to sell the asset at a specific strike price.
Option Premium: The price paid to buy an option.
Strike Price: The price at which the underlying can be bought/sold.
Expiry Date: The last date the option can be exercised.
ITM (In-the-Money): Option has intrinsic value (profitable if exercised).
OTM (Out-of-the-Money): Option has no intrinsic value (not profitable if exercised).
ATM (At-the-Money): Strike price is very close to current market price.
💡 Quick Example:
Nifty is at 22,000. You buy a 22,000 Call Option for ₹200 premium. If Nifty rises to 22,500, your option has value (ITM). If Nifty stays flat or goes down, you may lose the premium.
Now, depending on whether you buy or sell Calls/Puts, you can build hundreds of strategies.
