Divergence SecretsIntroduction to Options Trading (Educational Foundation)
Options are one of the most important financial instruments available in modern markets. For a beginner, understanding them may feel overwhelming at first, but with the right approach, they can become a powerful tool for investment, speculation, and risk management.
An option is a financial contract that gives its holder the right (but not the obligation) to buy or sell an asset, such as a stock, at a predetermined price, within a fixed time frame.
There are two major types of options:
Call Option – Provides the right to buy the underlying asset at a fixed price (called the strike price).
Put Option – Provides the right to sell the underlying asset at a fixed price.
For example:
Imagine you believe Infosys stock, currently at ₹1600, will rise soon. Instead of buying the stock directly, you can buy a call option with strike ₹1650. If Infosys rises to ₹1700, your option increases in value, and you earn profit without investing the full cost of shares.
This flexibility is what makes options attractive—but also dangerous if used without proper strategies.
Why Beginners Need Strategies Instead of Random Trades
Options can generate huge profits, but they can also cause significant losses. Many beginners are tempted to “buy cheap options” hoping for quick riches. Unfortunately, statistics show that most lose money in the long run.
The reasons are:
Options lose value with time decay (Theta).
Market moves are unpredictable; random bets rarely succeed.
Beginners underestimate risk exposure.
That’s why structured strategies are necessary. A strategy gives:
Clarity – A defined plan for entry and exit.
Risk management – Limited losses instead of unlimited risk.
Flexibility – Ability to profit in different market conditions (bullish, bearish, sideways, or volatile).
In education terms: A strategy is like a map. Just as students need a study plan to pass exams, traders need strategies to succeed in markets.
