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Harmonic Patterns

Part 2 Support and ResistanceHow Options Work Let’s break it down simply: If you buy a call, you are betting that the price of the stock will go up. If you buy a put, you are betting that the price of the stock will go down. If you sell (write) a call, you are taking the opposite bet—that the stock won’t rise much. If you sell (write) a put, you are betting that the stock won’t fall much. Here’s a quick example: Stock XYZ trades at ₹100. You buy a 1-month call option with a strike price of ₹105 by paying a ₹5 premium. If the stock rises to ₹120, your option is worth ₹15 (120 – 105). Since you paid ₹5, your profit = ₹10. If the stock stays below ₹105, the option expires worthless, and you lose your premium of ₹5. This example shows that options can magnify profits if you’re right, but they can also cause losses (limited to the premium paid for buyers, unlimited for sellers). Types of Options A. Call Options Right to buy. Used when you expect prices to rise. Buyers have limited risk (premium) but unlimited upside. Sellers (writers) have limited gain (premium received) but unlimited risk. B. Put Options Right to sell. Used when you expect prices to fall. Buyers have limited risk but big upside if stock falls sharply. Sellers have limited gain (premium) but large risk if stock collapses.
NSE:TATASTEELEducation
by SkyTradingZone
5
Part 1 Support and Resistance1. Introduction to Options In the world of financial markets, traders and investors use various tools to manage risk, speculate on price movements, or generate additional income. One of the most powerful and flexible tools is options trading. An option is a financial derivative, which means its value is derived from another underlying asset. This underlying asset could be a stock, an index, a commodity, or even a currency. Unlike stocks, where you own a piece of the company, an option is a contract that gives you certain rights related to buying or selling the underlying asset at a specific price and within a specified time. Options are incredibly versatile. Traders use them for hedging (protection against loss), speculation (betting on future price moves), or income generation (selling options for premiums). But with great flexibility comes complexity, and that’s why understanding option trading deeply is essential before jumping in. 2. Basic Terminology in Option Trading Before diving deep, let’s clear some essential terms: Call Option: A contract giving the right (not obligation) to buy an asset at a predetermined price (strike price) before expiration. Put Option: A contract giving the right (not obligation) to sell an asset at a predetermined price before expiration. Strike Price: The fixed price at which the option holder can buy (for calls) or sell (for puts) the underlying. Premium: The cost of purchasing an option contract. This is the price paid upfront by the buyer to the seller (writer). Expiration Date: The date when the option contract expires. After this, the option becomes worthless if not exercised. In the Money (ITM): An option that has intrinsic value. For calls, when the stock price > strike price. For puts, when stock price < strike price. Out of the Money (OTM): An option with no intrinsic value (only time value). For calls, stock price < strike price. For puts, stock price > strike price. At the Money (ATM): When the stock price and strike price are roughly equal. Option Writer: The seller of the option contract. They receive the premium but take on obligation. Lot Size: Options are traded in fixed quantities called lots (e.g., 50 or 100 shares per contract depending on the market). Understanding these terms is like learning the alphabet before writing sentences—you need them to progress.
NSE:BANKNIFTYEducation
by SkyTradingZone
5
Part 4 Institutional Trading Types of Option Strategies Here’s the heart of the discussion: strategies. Single-Leg Strategies (Simple & Beginner-Friendly) a) Long Call (Buying a Call) View: Bullish Risk: Limited to premium paid Reward: Unlimited (theoretically) Example: Buy Reliance 2800 CE @ ₹50 → If Reliance goes to 2900, profit = ₹50. b) Long Put (Buying a Put) View: Bearish Risk: Limited to premium paid Reward: Large downside profit potential Example: Buy Nifty 22,000 PE → If Nifty falls, profit rises. c) Covered Call View: Neutral to mildly bullish How it works: Hold stock + Sell a Call option Goal: Earn income from option premium Risk: Stock falls significantly. d) Cash-Secured Put View: Neutral to bullish How it works: Sell a Put with enough cash to buy stock if assigned. Goal: Collect premium or buy stock cheaper.
NSE:ICICIBANKEducation
by SkyTradingZone
6
Part 2 Ride The Big MovesBasics 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. Why Traders Use Options Options are powerful because they can serve three main purposes: Hedging – Protecting an existing portfolio from adverse price moves. Example: A long-term investor holding Infosys shares may buy a Put option to protect against a fall. Speculation – Betting on market direction with limited capital. Example: Buying a Call if you expect bullish momentum. Income Generation – Selling options to collect premium regularly. Example: Writing Covered Calls on stocks you own. The same instrument (options) can be used very differently by traders with different goals. That’s why strategies matter.
NSE:RELIANCEEducation
by SkyTradingZone
5
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.
BSE:SENSEXEducation
by SkyTradingZone
5
Option Trading Option Greeks – The Core of Option Pricing Options are complex instruments whose prices change with many factors. To understand price behavior, traders rely on Option Greeks. Delta (Δ) Measures sensitivity of option price to underlying asset movement. Call delta ranges 0 to +1; Put delta ranges 0 to -1. Example: If Delta = 0.5, a ₹10 stock move increases option price by ₹5. Theta (Θ) Time decay. Options lose value as expiry approaches. Bad for buyers, good for sellers. Vega (ν) Sensitivity to volatility. Higher volatility increases option premium. Gamma (Γ) Measures change in Delta when the stock price moves. Rho (ρ) Sensitivity to interest rate changes (less relevant in short-term trading). 👉 Mastering Greeks is key for professional option traders because they help predict how option premiums will behave under changing conditions.
BSE:SENSEXEducation
by SkyTradingZone
6
PCR Trading How Option Trading Works Let’s simplify with an example: Stock Price: ₹1000 Call Option Strike: ₹1050 Premium: ₹20 Lot Size: 100 shares If you buy the call option: Break-even = Strike Price + Premium = ₹1070 If stock goes to ₹1100 → Profit = (1100-1050-20) × 100 = ₹3000 If stock stays below ₹1050 → You lose only the premium = ₹2000 If you sell (write) the call option: You collect ₹2000 premium upfront. If stock stays below 1050, you keep the entire premium as profit. But if stock goes to ₹1100, you face unlimited loss: (1100-1050-20) × 100 = -₹3000. 👉 This shows: Option buyers have limited risk but unlimited profit potential, while sellers have limited profit but unlimited risk.
TVC:GOLDEducation
by SkyTradingZone
8
Part 1 Support And ResistanceIntroduction to Option Trading The stock market offers multiple instruments to trade and invest—stocks, futures, commodities, currencies, and derivatives. Among these, Options have gained tremendous popularity worldwide because they give traders flexibility, leverage, and strategies to profit in all types of market conditions—bullish, bearish, or even sideways. At its core, an Option is a contract that gives a buyer the right but not the obligation to buy or sell an asset at a predetermined price (called the strike price) before or on a specific date (called the expiry date). This right comes at a cost, known as the premium, which is paid by the option buyer to the option seller (also called the writer). Options are widely traded on stocks, indices, commodities, and currencies. In India, for example, options on Nifty 50, Bank Nifty, Sensex, and individual stocks are among the most liquid contracts. Why Options Exist? Options exist to manage risk and to create trading opportunities. Think of them as financial insurance. Just like you pay a premium for car insurance to protect against damage, in options trading, investors pay a premium to protect themselves against adverse price moves. For Hedgers: Options act as insurance. A stock investor can buy a put option to protect his portfolio if the market falls. For Speculators: Options provide leverage. With small capital, traders can take large directional bets. For Arbitrageurs: Options open opportunities to exploit price inefficiencies between the spot, futures, and options markets.
NSE:TATASTEELEducation
by SkyTradingZone
4
Part 1 Master Candle Sticks PatternRisk Management in Options Position Sizing: Don’t risk more than 1–2% of capital in one trade. Stop Loss: Exit before premium erodes completely. Avoid Over-leverage: Options look cheap but risk is real. Hedge Positions: Combine with futures or other options. Psychology of Option Traders Greed: Chasing high-return trades without risk control. Fear of Missing Out (FOMO): Jumping in near expiry due to excitement. Patience: Waiting for correct setup is key. Discipline: Stick to rules, avoid revenge trading. Modern Trends in Option Trading Weekly Expiry Craze: Thursday = biggest trading day. 0DTE (Zero Day to Expiry) Options: Popular for scalping. Algo & AI Trading: Automated strategies now dominate. Retail Participation Explosion: India has seen retail option traders grow 5x in 3 years.
CRYPTO:BTCUSDEducation
by SkyTradingZone
4
Part 3 Learn Institutional TradingCall Options & Put Options Explained Options are of two types: 🔹 Call Option Gives the right to buy an asset at a fixed price. Buyers of call options are bullish (expect prices to rise). 👉 Example: If Nifty is at 22,000 and you buy a 22,100 Call Option for ₹100 premium, you pay ₹100 × lot size (say 50) = ₹5,000. If Nifty rises to 22,400, the 22,100 call is worth 300 points. Profit = (300 - 100) × 50 = ₹10,000. If Nifty stays below 22,100, you lose only the premium ₹5,000. 🔹 Put Option Gives the right to sell an asset at a fixed price. Buyers of put options are bearish (expect prices to fall). 👉 Example: If Bank Nifty is at 48,000 and you buy a 47,800 Put for ₹200 premium, lot size = 15. If Bank Nifty falls to 47,000, option value = 800 points. Profit = (800 - 200) × 15 = ₹9,000. If Bank Nifty stays above 47,800, you lose only premium = ₹3,000. So: Call = Bullish bet. Put = Bearish bet.
NSE:ICICIBANKEducation
by SkyTradingZone
6
Part 1 Ride The Big MovesIntroduction to Options Trading In the world of financial markets, options trading is considered one of the most powerful and flexible forms of trading. Unlike simple stock buying and selling, options allow traders to control larger positions with less capital, hedge their risks, and design strategies that fit different market conditions — bullish, bearish, or even sideways. An option is essentially a contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a specific price (called the strike price) within a given period of time. If you buy an option, you are purchasing a right. If you sell (or write) an option, you are giving someone else that right and taking on an obligation. Options are traded on stocks, indexes (like Nifty 50 or Bank Nifty in India), commodities, currencies, and even cryptocurrencies in some global markets. They are widely used by: Investors to hedge portfolios. Speculators to make money from price moves. Institutions to manage large exposures.
NSE:RELIANCEEducation
by SkyTradingZone
3
Part 8 Trading Master Class Calls & Puts with Real-Life Examples Call Option Example Suppose Reliance stock is trading at ₹2,500. You buy a Call Option with strike price ₹2,600, paying a premium of ₹50. If Reliance goes to ₹2,800, your profit = (2800 - 2600 - 50) = ₹150 per share. If Reliance stays below 2600, you lose only the premium = ₹50. A call option = bullish bet (you expect prices to rise). Put Option Example NIFTY is at 22,000. You buy a Put Option strike 21,800, premium ₹80. If NIFTY falls to 21,200 → Profit = (21800 - 21200 - 80) = ₹520 per lot. If NIFTY rises above 21,800, you lose only ₹80. A put option = bearish bet (you expect prices to fall). Why Traders Use Options Options are powerful because they allow: Leverage – Control large value with small money (premium). Example: Buying Reliance stock directly at ₹2,500 may cost ₹2.5 lakh (100 shares). But buying a call option may cost just ₹5,000. Hedging – Protect portfolio from losses. Example: If you hold Infosys shares, you can buy a put option to protect against downside. Speculation – Bet on market direction with limited risk. Income generation – Selling options (covered calls, cash-secured puts) generates steady income.
BSE:SENSEXEducation
by SkyTradingZone
4
PCR Trading StrategyMoneyness of Options Moneyness shows whether the option has intrinsic value: In the Money (ITM): Already profitable if exercised. At the Money (ATM): Strike price = market price. Out of the Money (OTM): No intrinsic value, only time value. Factors Affecting Option Prices (Option Greeks) Options are influenced by multiple factors: Delta: Sensitivity to underlying price changes. Gamma: Sensitivity of Delta. Theta: Time decay – options lose value as expiry nears. Vega: Sensitivity to volatility. Rho: Sensitivity to interest rates. Payoff Profiles Buyer of Call/Put: Limited loss (premium), unlimited profit. Seller of Call/Put: Limited profit (premium), unlimited or large risk.
NSE:TCSEducation
by SkyTradingZone
7
Part 2 Support And ResistanceWhy Trade Options? Leverage – You control large positions with small capital (premium). Hedging – Protect portfolio from losses. (Insurance-like function). Speculation – Bet on price movement (up, down, or sideways). Income Generation – By selling options (collecting premiums). Example in Real Life Suppose you think Nifty (index) will go up: Instead of buying Nifty futures (which needs big margin), You buy a Nifty Call Option by paying just a small premium. If Nifty rises, your profit multiplies due to leverage. If Nifty falls, your maximum loss is only the premium paid. In simple words: Options = flexibility + leverage + risk control. They are widely used by retail traders, institutions, and hedgers across the world.
CRYPTO:BTCUSDEducation
by SkyTradingZone
6
Part 1 Support And ResistanceWhat are Options? Options are a type of derivative instrument in financial markets. This means their value is derived from an underlying asset, such as stocks, indices, commodities, or currencies. An option gives you the right, but not the obligation, to buy or sell the underlying asset at a predefined price (strike price) before or on a specific date (expiry date). Types of Options Call Option – Right to buy an asset at a fixed price before expiry. Example: If you buy a call option of Reliance at ₹2,500, and the stock goes up to ₹2,700, you can still buy at ₹2,500 and profit. Put Option – Right to sell an asset at a fixed price before expiry. Example: If you buy a put option of Infosys at ₹1,500, and the stock falls to ₹1,300, you can still sell at ₹1,500 and profit. Key Terms in Options Premium – Price you pay to buy the option. Strike Price – Pre-decided price at which you can buy/sell. Expiry – The last date till which the option is valid. ITM (In the Money) – Option has intrinsic value. OTM (Out of the Money) – Option has no intrinsic value (only time value).
NSE:KOTAKBANKEducation
by SkyTradingZone
6
Paer 6 Learn Institutional Trading Options Trading Strategies Basic Strategies Long Call → Buy call, bullish. Long Put → Buy put, bearish. Covered Call → Own stock + sell call for income. Protective Put → Own stock + buy put for protection. Intermediate Strategies Straddle: Buy Call + Put at same strike (bet on volatility). Strangle: Buy Call (higher strike) + Put (lower strike). Bull Call Spread: Buy low strike call + sell higher strike call. Bear Put Spread: Buy put + sell lower strike put. Advanced Strategies Iron Condor: Range-bound strategy selling OTM call + put spreads. Butterfly Spread: Profit from low volatility near strike. Ratio Spreads: Adjust risk/reward with multiple options. Margin Requirements & Leverage Option buyers: Pay only premium (small capital). Option sellers (writers): Need large margin (higher risk). NSE SPAN + Exposure margin system determines requirements. For example, selling 1 lot of Bank Nifty option may require ₹1.5–2 lakh margin depending on volatility.
CRYPTO:BTCUSDEducation
by SkyTradingZone
2
Paer 3 Learn Institutional Trading Options Trading Strategies Basic Strategies Long Call → Buy call, bullish. Long Put → Buy put, bearish. Covered Call → Own stock + sell call for income. Protective Put → Own stock + buy put for protection. Intermediate Strategies Straddle: Buy Call + Put at same strike (bet on volatility). Strangle: Buy Call (higher strike) + Put (lower strike). Bull Call Spread: Buy low strike call + sell higher strike call. Bear Put Spread: Buy put + sell lower strike put. Advanced Strategies Iron Condor: Range-bound strategy selling OTM call + put spreads. Butterfly Spread: Profit from low volatility near strike. Ratio Spreads: Adjust risk/reward with multiple options. Margin Requirements & Leverage Option buyers: Pay only premium (small capital). Option sellers (writers): Need large margin (higher risk). NSE SPAN + Exposure margin system determines requirements. For example, selling 1 lot of Bank Nifty option may require ₹1.5–2 lakh margin depending on volatility.
NSE:ICICIBANKEducation
by SkyTradingZone
Part 1 Ride The Big MovesWhy Trade Options? Leverage: Trade larger positions with smaller capital. Hedging: Protect your portfolio against market falls. Speculation: Bet on market direction with limited risk. Income Generation: Write (sell) options to earn premium. Options Market in India Introduced in 2001 by NSE with index options. Stock options followed in 2002. India now has weekly expiries for Nifty, Bank Nifty, and FinNifty. SEBI & Exchanges regulate margin rules, position limits, and trading practices. The retail participation in options has exploded post-2020 with apps like Zerodha, Upstox, Angel One, Groww, making it extremely easy to trade.
BSE:SENSEXEducation
by SkyTradingZone
PCR Trading StrategyNon-Directional Strategies Used when you expect low or high volatility but no clear trend. Straddle When to Use: Expecting big move either way. Setup: Buy call + Buy put (same strike, same expiry). Risk: High premium cost. Reward: Large if price moves sharply. Strangle When to Use: Expect big move but want lower cost. Setup: Buy OTM call + Buy OTM put. Risk: Lower premium but needs bigger move to profit. Iron Condor When to Use: Expect sideways movement. Setup: Sell OTM call + Buy higher OTM call, Sell OTM put + Buy lower OTM put. Risk: Limited. Reward: Premium income. Butterfly Spread When to Use: Expect price to stay near a target. Setup: Combination of long and short calls/puts to profit from low volatility.
NSE:TCSEducation
by SkyTradingZone
9
Trading Master Class With ExpertsDirectional Strategies These are for traders with a clear market view. Long Call (Bullish) When to Use: Expecting significant upward movement. Setup: Buy a call option. Risk: Limited to premium paid. Reward: Unlimited. Example: NIFTY at 20,000, you buy 20,100 CE for ₹100 premium. If NIFTY closes at 20,500, your profit = ₹400 - ₹100 = ₹300. Long Put (Bearish) When to Use: Expecting price drop. Setup: Buy a put option. Risk: Limited to premium. Reward: Large if the asset falls. Example: Stock at ₹500, buy 480 PE for ₹10. If stock drops to ₹450, profit = ₹30 - ₹10 = ₹20. Covered Call (Mildly Bullish) When to Use: Own the stock but expect limited upside. Setup: Hold stock + Sell call option. Risk: Stock downside risk. Reward: Premium income + stock gains until strike price. Example: Own Reliance at ₹2,500, sell 2,600 CE for ₹20 premium.
NSE:TATASTEELEducation
by SkyTradingZone
6
Divergence SecretsHow Options Work in Trading Imagine a stock is trading at ₹1,000. You believe it will rise to ₹1,100 in a month. You could: Buy the stock: You need ₹1,000 per share. Buy a call option: You pay a small premium (say ₹50) for the right to buy at ₹1,000 later. If the stock rises to ₹1,100: Stock profit = ₹100 Call option profit = ₹100 (intrinsic value) - ₹50 (premium) = ₹50 net profit (but with much lower capital). This leverage makes options attractive but also risky — if the stock doesn’t rise, your premium is lost. Categories of Options Strategies Options strategies can be divided into three main categories: Directional Strategies – Profit from price movements. Non-Directional (Neutral) Strategies – Profit from sideways markets. Hedging Strategies – Protect existing positions.
CRYPTO:BTCUSDEducation
by SkyTradingZone
8
Part 1 Support And ResistanceIntroduction to Options Trading Options trading is one of the most flexible and powerful tools in the financial markets. Unlike stocks, where you simply buy and sell ownership of a company, options are derivative contracts that give you the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time frame. The beauty of options lies in their strategic possibilities — they allow traders to make money in rising, falling, or even sideways markets, often with less capital than buying stocks outright. But with that flexibility comes complexity, so understanding strategies is crucial. Key Terms in Options Trading Before we jump into strategies, let’s understand the key terms: Call Option – Gives the right to buy the underlying asset at a fixed price (strike price) before expiry. Put Option – Gives the right to sell the underlying asset at a fixed price before expiry. Strike Price – The price at which you can buy/sell the asset. Premium – The price you pay to buy an option. Expiry Date – The date the option contract ends. ITM (In-the-Money) – When exercising the option would be profitable. ATM (At-the-Money) – Strike price is close to the current market price. OTM (Out-of-the-Money) – Option has no intrinsic value yet. Lot Size – Minimum number of shares/contracts per option. Intrinsic Value – The real value if exercised now. Time Value – Extra premium based on time left to expiry.
TVC:IN10YEducation
by SkyTradingZone
7
Option TradingHow Options Work in Trading Imagine a stock is trading at ₹1,000. You believe it will rise to ₹1,100 in a month. You could: Buy the stock: You need ₹1,000 per share. Buy a call option: You pay a small premium (say ₹50) for the right to buy at ₹1,000 later. If the stock rises to ₹1,100: Stock profit = ₹100 Call option profit = ₹100 (intrinsic value) - ₹50 (premium) = ₹50 net profit (but with much lower capital). This leverage makes options attractive but also risky — if the stock doesn’t rise, your premium is lost. Categories of Options Strategies Options strategies can be divided into three main categories: Directional Strategies – Profit from price movements. Non-Directional (Neutral) Strategies – Profit from sideways markets. Hedging Strategies – Protect existing positions. Directional Strategies These are for traders with a clear market view.
NSE:TCSEducation
by SkyTradingZone
4