How to do Options Trading?
If you are starting your investment in share market investing in stocks can be an easy path for you then trading in options. But the options segment has got a lot to offer you with a little investment also. So why not to try and learn how to trade in options.
Lets us start ,
What is the options market?
The options market is known as the derivative segment of the share market. Derivative segment deals in contracts with time horizon i.e limited period. People use the options market to earn big with little investment and to minimize risk using hedging. The options market is related to the contract with time. It means the options market comes with an expiry date. Now let us learn some new terms related to option segment.
- Strike Price
- In the money
- Out the money
- Call option
- Put option
This price indicates the value on which the trader wishes to exercise the trade. For example, let’s assume the Bank Nifty is currently trading on 10000. If you want to trade-in options you have to select strike price. The value of strike price should be near this 10000 rupees now if you predict the Bank Nifty will go down from this price you can select a strike price accordingly like 9900, 9800. If Selecting the right strike price is a bit confusing task for you can check our Best Bank Nifty Tips.
Premium is the value that you have to pay while trading in options. The premium value is the price that keeps on changing with the change in the price of nifty or Bank Nifty options. Premium value depends on the strike price you choose if you choose a strike price which is in the money your premium value is high. If you choose a strike price that is out the money the premium is comparatively low.
In the money
In the money if you select strike price which is near the ongoing price of the options security it is called in the money.
Out the money
Out the money if you select the strike price which is far from the ongoing price of the options it is called out the money.
For example, if the current price of the Bank Nifty is 10,000 you select a strike price of 9800 it is called in the money because it is a nearby ongoing price but if you select 9200 is called out the money because it is far from the ongoing price.
Call option if you expect the market to move upward from the ongoing position you buy a call option.
Put option if you expect the market to move downward from the ongoing position you buy a put option.
For example, the ongoing price of Bank Nifty lets says 10000 according to you if it is about to move + 200 points you will buy a call option. If you think the market will go down from ongoing position -200 Points you will buy a put option.
In simple words,
Expiry every contract in the derivative market comes with an expiry date. This means if you have to trade in the derivatives market you have to trade on a particular time horizon.
When you are trading in the options market, you need to pay attention to a few things. Firstly, strike price now since you know what it is? While selecting a strike price you need to select the one which is near the ongoing value of options. If you select a strike price too above or too below it is a bit risky you may have to suffer losses. There are times when even after selecting a nearby strike price all you end by is by booking a loss. Trade on best bank nifty tips. This happens due to the low volume in the market. Volume plays an important role in options trading. Secondly, the entry timing of the market is very important when you are trading on the day of expiry, the market is highly volatile. So, select entry and exit time accordingly.
This articles options trading in simple words. Do leave a comment and let us know, what are your doubts? we will be happy to help.