Options trading is a popular form of trading that involves the buying and selling of options contracts. Options can be used for various purposes, such as heading and speculating. The value of an option is derived from its underlying asset. There are a few key concepts to understand about options before you start looking into them:
There are two types of option contracts: call options and put options. If your view of the market for the underlying asset is positive, you can buy a call option. If your view of the market for the underlying asset is favorable, you can buy and sell options.A strike price is a predetermined price level. To understand this simple term, let’s look at an example. The share price of Reliance is 2,000; for every 20 points, we have a strike price such as 2020, 2040, 2060, 2080, 2000, and 80.Same as that, for every different underlying asset, it has a different level of strike price.An option premium has an intrinsic value and time value based on the strike price, expiry date, and volatility of the underlying asset.It measures the risk and sensitivity of an option's price to various factors. These measures help options traders and investors better understand the behavior of their options and how they might perform under different market condition. There are four types of option Greek: delta, gamma, vega, and theta.A Few Option Trading Strategies:
There are several option trading strategies that traders can use, and the best part about up option trading is that you can make profit in all the directions of the market: up, down, and sideways.
The strategy involves buying a call option and a put option at the same time as the underlying asset with the same strike price on the expiry date. This could be a good strategy if the trader is expecting the underlying asset to move significantly in either direction.This strategy involves selling call and put options on an underlying commodity with different strike prices but the same expiration date. This strategy can be very useful for the trader, because if at all he’s expecting the underlying asset to be in a range, he will be in a position to collect the premium if the underlying is in that range.The strategy involves selling the call option premium at ATM or any other strike price and buying an open call option at a lower premium than the call option sell premium. This strategy is useful if the trader is expecting The underline would not further go towards the upside, but it can be in the same place or it can go towards the downside. She will be having only limited losses in case it goes in the opposite direction because he’s having hedging protection through an option.Risk Management:
Option trading can be risky, and traders need to manage their risk carefully. It is important to set stop-loss orders to limit potential losses and to use position sizing to limit the amount of capital invested in any one trade.
If you're looking to deep dive into option trading, we recommend you look at our option foundation course, which will make your foundation strong to start your option trading journey. In order to make money from option trading, which can be easy if you have a rules-based trading system that will make you a disciplined trader with proper entry time, exit time, and stop loss, the best part is we have given a proper rules-based strategy in our option strategy course that will help you a lot to be a disciplined trader and make profit consistently from option trading.
Conclusion:
Option trading can be a profitable form of investing, but it requires careful planning and risk management. Understanding the key concepts and strategies involved in option trading can help traders make informed decisions and achieve their investment goals. As with any form of trading, it is important to do research and educate oneself before getting started with option trading..
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