Options Trading in Indore

If you are a trader, then you must be aware of the term 'Option Trading'. 
In short, Option trading is a derivative product that allows you to buy or sell rights of an underlying asset. The underlying asset can be stocks, commodities, currencies and indices.

You can buy the call or put option only if you have a good understanding of the underlying asset and its volatility. If you do not understand the underlying asset, then it will be difficult for you to make money from trading options.

Trading bells provide a platform where you can buy and sell your stock/options as per your own convenience and at any time of the day.

Types of Options Trading 

CALL OPTION 
The buyer of a call option has the right to purchase an asset at a specified price before the expiration date for an up-front premium paid to the seller.
Call options are initially valued by adding time value and intrinsic value of the contract. As the asset's value increases, call option premiums rise with it.
 

PUT OPTION
The buyer of a put option receives the right, but not an obligation, to sell an asset at the strike price anytime before expiration in return for a premium paid up front.
Because you can sell a stock at any given point of time, if the spot price falls during the contract period, the buyer protects itself from this fall in price by setting a strike price.
This explains why put options become more valuable when the price of the underlying stock falls.

How Option Trading Works in India

You Need an Options Trading Account
Options trading is done in lots. There are always the same number of underlying instruments in a single lot size.
The following documents are required to open an options trading account.

• Aadhaar Card
• Pan Card 
• A canceled check with an IFSC or MICR code
• Slip of Pay, IT Return, or Form -16 (for F&O segment)

You need to choose F&O (derivatives) while account opening.

Need Margin Money

Due to the numerous underlying instruments and volatility, option trading carries greater risks.

You might require a small sum equal to the premium amount times the underlying contract value to purchase options contracts.

In comparison to buying options, selling options contracts has greater exchange-mandated margin requirements based on the volatility of the underlying securities.

Depending on your trading needs, you should generally retain between Rs. 1.5 lakh and Rs. 2 lakh in your trading account.

Types of Option Trading 

Options Day Trading

Depending on your trading approach, you can trade options either day-to-day or positionally.

Options Similar to day trading of stocks, day trading of options involves purchasing and selling a certain option contract. You must be aware of the specific stock and trade in accordance with price movement.

You can perform technical analysis and trade in accordance with your methods with the use of charting tools and indicators.

Your overall profit/loss will be determined by the movement of the option price and the number of profitable trades.

Options Position Trading: 

Positional trading in options involves buying and selling multiple options to create an option strategy that generates positive cash flows until the options are exercised.

After forming an opinion about a specific index or stock, option positions are formed. Multiple options are used to limit the loss in this case.

OPTION STRATEGIES

1) Bull Put Spread: When an options trader believes that the underlying asset's price will rise moderately in the near future, they will employ the Bull Put Spread Option Trading Strategy. This option is typically classified as Credit Spreads. Although it is not the most difficult Option Trading Strategy, buying and selling puts and calls is more complicated.

- Make money even if you are slightly wrong, i.e. the stock falls slightly.

- If you are wrong, the lower buy put prevents large losses and acts as a stop loss.

2) Bull Call Spread: Bull Call Spread is an Option Trading Strategy that is classified as Debt Spreads. If you're bullish on a stock or ETF but don't want to take the risk of buying the stock openly, consider buying a call option for a lower-risk bullish trade.

Even Call Options, however, can be costly and expose you to more risk than you are used to. To reduce your initial cost and risk, you could buy a Bull Call Spread.

A Bull Call Spread is created by buying one call option and simultaneously selling another call option with a lower cost and a higher strike price, both with the same expiration date. Furthermore, this is regarded as the most effective option selling strategy.

- It is less expensive than purchasing a call.

- Only pay for the limited upside you would want.

3) Bear Call Spread: When one's market outlook is primarily bearish, a double options trading strategy known as a Bear Call Spread may be employed.

A trader uses this method to sell a shorter-term call option while simultaneously purchasing a longer-term call option with the same underlying commodity and expiration date but a higher strike price. A net profit is achieved by receiving a higher option premium on the call sold than the cost of the call purchased.

- Make income Even if you are slightly wrong, the stock will rise gently.

- If you are wrong, the higher buy call acts as a stop loss, preventing large losses.

4) Bear Put Spread: When a trader or investor believes that the price of a security or asset will fall slightly, they will use a Bear Put Spread. A Bear Put Spread is formed by purchasing Put Options and selling the same number of puts on the same asset with the same expiration date at a relatively low target price.

The difference between these two strike prices represents the maximum profit a trader can make using this strategy, less the total cost of the options.

- It is less expensive than purchasing a Put.

- Only pay for the limited upside you really want.

5) Long Straddles & Short Straddles: Straddle is regarded as one of the most effective Option Trading Strategies for the Indian Market. A Long Straddle is one of the simplest market-neutral trading strategies to implement. Profit and loss are unaffected by the direction of the market's movement after it has been applied. The market's movement can be either up or down, but one constant is its direction.

And, regardless of the trend, profit and loss are generated as long as it moves. A trader uses a Long Straddle Options Strategy to buy a long call and a long put.

- Big Upside is there is a breakout

- Make money if nothing happens

- Delta Neutral – Immune to small moves.