Introduction to Options Trading
Options are power tools for your capital. They allow you to control large amounts of stock (or indices like Nifty) with a fraction of the cost. But with great power comes great risk.
What is an Option?
An option is a contract. It gives the buyer the right (but not the obligation) to buy or sell an asset at a specific price on a specific date.
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Call Option (CE): You profit if the market goes UP. Think "Calling" the price up.
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Put Option (PE): You profit if the market goes DOWN. Think "Putting" the price down.
The Two Players
Option Buyer
Pays a "Premium" to buy the right.
- Risk: Limited to Premium Paid.
- Reward: Unlimited.
- Odds: Lower (~33% win rate).
Option Seller (Writer)
Receives the "Premium" to take the risk.
- Risk: Unlimited (theoretically).
- Reward: Limited to Premium Received.
- Odds: Higher (~67% win rate due to Time Decay).
AlgoStraddle Insight: Most institutional players are Option Sellers. They profit from time passing (Theta). As a beginner, you might start by buying, but aim to understand selling mechanics early.
Key Terms
- Spot Price: The current market price of Nifty/BankNifty.
- Strike Price: The price at which you agree to buy/sell.
- Premium: The cost of the option contract (LTP).
- Expiry: The date the contract dies (Weekly: Tuesday).
*Disclaimer: NSE/BSE frequently revise Lot Sizes and Expiry Days (e.g., SEBI Circulars 2024/2025). Always check the latest circular on nseindia.com before trading.
Standard Disclosure: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The content provided here is for educational purposes only and does not constitute financial or investment advice. AlgoStraddle Academy is not a SEBI registered investment advisor. Trading options involves high risk and capital can be lost.