Introduction to Options Trading Options trading is a market where profits and losses can be significant. The speaker shares their personal experience of both gains and losses in options trading, emphasizing the importance of proper mindset, learning, and experience.
Understanding Options Contracts - Options are contracts with a specific validity period. - There are buyers and sellers in the options market. - Two types of options: call options (C) and put options (P). - Call option prices increase when the underlying asset goes up; put option prices decrease. - European-style options are followed in Indian markets.
Impact on Call & Put Option Prices The movement of call option prices depends on whether the underlying asset is going up or down. When Bank Nifty goes up, call option price increases; when it goes down, call option price decreases. On the other hand, put option prices move inversely to Bank Nifty's movement.
Understanding Call and Put Options Call options increase in value when the market goes up, while put options increase in value when the market goes down.
Profit Opportunities with Market Movements - When the market is going up, we can profit by buying call options or selling put options. - When the market is going down, we can profit by buying put options or selling call options.
Understanding In-the-Money and Out-of-the-Money In options trading, the strike price determines whether an option is in the money or out of the money. If a stock's current price is above all strike prices, they are considered in the money. Conversely, if it's below all strike prices, they are out of the money.
Determining Option Bias "Option bias" refers to how call and put options behave based on market trends. When markets are trending upwards (uptrend), call option values increase; when markets trend downwards (downtrend), put option values increase; during sideways movement (range-bound market), both call and put option values decrease.
Impact of Time Value on Option Prices The value of an option consists of two components: intrinsic value and time value. Intrinsic value is calculated by subtracting the spot price from the strike price for a given contract. The remaining amount represents time value which decreases as expiration approaches.