As you know, there are two ways to trade in the stock market, through cash markets and derivatives. While most novice traders are familiar with trading stocks in the cash market, derivatives still remain a mystery. In this blog, we will discuss option trading for beginners through simple option strategies.
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http://www.options-trading-education.com/24043/straddle-options/
Straddle Options
When an options trader is not sure which way prices will go in a volatile market he or she often uses straddle options. Straddle options both long and short let a trader stake out potentially profitable positions for both rising and falling markets. Which route a trader takes in using straddle options will depend on whether he wants to buy or sell options contracts.
Going Long
A long straddle is buying both a call and a put on the same stock with the same expiration date. In a long straddle options strategy the worst a trader can do is lose the cost of the premiums paid for the call and the put if the stock does not change price. These straddle options have potentially unlimited potential if the stock price changes significantly, up or down.
Long Straddle Calls
If the stock price goes up the trader exercises the call option, sells the stock at the spot price and buys at the strike price. The profit is the price of 100 shares per contract at the spot price minus the strike price, minus the cost of premiums on both put and call options.
Long Straddle Puts
If the stock goes down in price the trader exercises the put option and sells the stock at the strike price and buys at the new, lower market price, the spot price. The profit will be the price of 100 shares per contract at the strike price minus the spot price minus the premium cost of both put and call options.
This strategy is useful in a volatile and unpredictable market. It carries twice the overhead of a call or put trade. But, the trader cuts down on the risk of missing out on an unexpected market move by covering both up and down eventualities. The only time when a trader loses with a long straddle is when the stock price does not change and then he is only out the cost of two options contracts.
Going Short
A short straddle strategy is selling both a put and a call on the same stock with the same options expiration dates. If the stock does not go up or down the options trader gains two premiums, one for the call and one for the put. Straddle options like these can be cash cows for a trader who has done his homework and only sells contracts on stocks that have very little likelihood of going up or down.
Volatile Markets and Big Losses
Whereas a long straddle is ideal for a volatile market a short straddle should only be used in a quiet market. As with all selling of options contracts the losses can be enormous if a stock price changes greatly. Which is why selling options contracts is so commonly limited to traders with very deep pockets.
Volatile Markets and Big Gains
Volatile markets bring us back to the long straddle. This is the ideal strategy for a market that is crazy in its volatility.
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Advance Option Trading Strategy Mentorship Program - For More Details Visit - https://www.ptaindia.com/advance-option-trading-strategies-mentorship-program/
Or Call +91 9261211003
Advance Option Trading Strategy Mentorship Program - For More Details Visit - https://www.ptaindia.com/advance-option-trading-strategies-mentorship-program/
Or Call +91 9261211003
http://www.options-trading-education.com/24043/straddle-options/
Straddle Options
When an options trader is not sure which way prices will go in a volatile market he or she often uses straddle options. Straddle options both long and short let a trader stake out potentially profitable positions for both rising and falling markets. Which route a trader takes in using straddle options will depend on whether he wants to buy or sell options contracts.
Going Long
A long straddle is buying both a call and a put on the same stock with the same expiration date. In a long straddle options strategy the worst a trader can do is lose the cost of the premiums paid for the call and the put if the stock does not change price. These straddle options have potentially unlimited potential if the stock price changes significantly, up or down.
Long Straddle Calls
If the stock price goes up the trader exercises the call option, sells the stock at the spot price and buys at the strike price. The profit is the price of 100 shares per contract at the spot price minus the strike price, minus the cost of premiums on both put and call options.
Long Straddle Puts
If the stock goes down in price the trader exercises the put option and sells the stock at the strike price and buys at the new, lower market price, the spot price. The profit will be the price of 100 shares per contract at the strike price minus the spot price minus the premium cost of both put and call options.
This strategy is useful in a volatile and unpredictable market. It carries twice the overhead of a call or put trade. But, the trader cuts down on the risk of missing out on an unexpected market move by covering both up and down eventualities. The only time when a trader loses with a long straddle is when the stock price does not change and then he is only out the cost of two options contracts.
Going Short
A short straddle strategy is selling both a put and a call on the same stock with the same options expiration dates. If the stock does not go up or down the options trader gains two premiums, one for the call and one for the put. Straddle options like these can be cash cows for a trader who has done his homework and only sells contracts on stocks that have very little likelihood of going up or down.
Volatile Markets and Big Losses
Whereas a long straddle is ideal for a volatile market a short straddle should only be used in a quiet market. As with all selling of options contracts the losses can be enormous if a stock price changes greatly. Which is why selling options contracts is so commonly limited to traders with very deep pockets.
Volatile Markets and Big Gains
Volatile markets bring us back to the long straddle. This is the ideal strategy for a market that is crazy in its volatility.
TrailingCrypto is one of the best crypto exchanges trading platforms that can be used to perform advanced trading operations on BitMEX like Trailing Take Profit, Conditional Buy, OCO, OSO, Trigger Based Custom OSO, etc.
Advance Option Trading Strategy Mentorship Program - For More Details Visit - https://www.ptaindia.com/advance-option-trading-strategies-mentorship-program/
Or Call +91 9261211003
Advance Option Trading Strategy Mentorship Program - For More Details Visit - https://www.ptaindia.com/advance-option-trading-strategies-mentorship-program/
Or Call +91 9261211003
Advance Option Trading Strategy Mentorship Program - For More Details Visit - https://www.ptaindia.com/advance-option-trading-strategies-mentorship-program/
Or Call +91 9261211003
Options are excellent tools for both position trading and risk management, but finding the right strategy is key to using these tools to your advantage. This presentation helps you understand what options are and how they work
An exchange where buyers and sellers meet to trade financial assets such as bonds, stocks, derivatives, currencies, and commodities is known as a financial market. A financial market’s primary goals are to increase capital, transfer risk and liquidity, and establish prices for international trade. Maintaining and expanding your wealth are the two approaches to managing it. Making the right decision might be challenging. Additionally, recent claims of growing inflation are unsettling investors and they get to do a lot of research before investing anywhere in the market.
As an investor, you must evaluate the company before making a decision on whether to invest in it or not. This evaluation would help you take trades with most potential for profit and least probability of risk. Such evaluation is carried out through Fundamental Analysis. Fundamental Analysis involves evaluating the company’s financial status by studying its Balance Sheet, Income Statement (also called Profit and Loss Statement), Cash Flow Statement, and its Financial Ratios. Out of these, Financial Ratios help us compare two or more financial parameters of the company to understand its financial status better. Using these ratios, you can understand the company’s financial health and also compare the company to its peers that operate in the same industry or sector. One such parameter is Debt to Equity Ratio. In this blog, we will find out more about Debt to Equity Ratio and the debt to equity ratio formula.
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Advance Option Trading Strategy Mentorship Program - For More Details Visit - https://www.ptaindia.com/advance-option-trading-strategies-mentorship-program/
Or Call +91 9261211003
Advance Option Trading Strategy Mentorship Program - For More Details Visit - https://www.ptaindia.com/advance-option-trading-strategies-mentorship-program/
Or Call +91 9261211003
Options are excellent tools for both position trading and risk management, but finding the right strategy is key to using these tools to your advantage. This presentation helps you understand what options are and how they work
An exchange where buyers and sellers meet to trade financial assets such as bonds, stocks, derivatives, currencies, and commodities is known as a financial market. A financial market’s primary goals are to increase capital, transfer risk and liquidity, and establish prices for international trade. Maintaining and expanding your wealth are the two approaches to managing it. Making the right decision might be challenging. Additionally, recent claims of growing inflation are unsettling investors and they get to do a lot of research before investing anywhere in the market.
As an investor, you must evaluate the company before making a decision on whether to invest in it or not. This evaluation would help you take trades with most potential for profit and least probability of risk. Such evaluation is carried out through Fundamental Analysis. Fundamental Analysis involves evaluating the company’s financial status by studying its Balance Sheet, Income Statement (also called Profit and Loss Statement), Cash Flow Statement, and its Financial Ratios. Out of these, Financial Ratios help us compare two or more financial parameters of the company to understand its financial status better. Using these ratios, you can understand the company’s financial health and also compare the company to its peers that operate in the same industry or sector. One such parameter is Debt to Equity Ratio. In this blog, we will find out more about Debt to Equity Ratio and the debt to equity ratio formula.
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Individuals do investments as they look for future aspects in their life and they often look for credible things to invest their hard-earned money in. So, they end up investing in mutual funds, stocks, derivatives, etc. Over the past few years, people are trying to involve themselves in the non-conventional types of investment options as well, and one of them is the top Alternative Investment Funds in India.
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Best Option Trading Strategies For Beginners word (1).pdf
1. Best Option Trading Strategies For
Beginners
Best Trading Option Trading
Introduction – Best Option Trading Strategies
For Beginners
As you know, there are two ways to trade in the stock market, through cash markets and derivatives. While most
novice traders are familiar with trading stocks in the cash market, derivatives still remain a mystery. In this blog, we
will discuss option trading for beginners through simple option strategies.
What are Derivatives?
Derivatives are financial contracts whose values are derived from the value of the underlying asset. These contracts
generally have pre-defined parameters such as quantity (lot size), quality (in case of commodities), and expiry date.
Derivatives make it possible for traders to take trades with indices as the underlying assets, which would not be
possible through cash market trading. They are traded on the National Stock Exchange, which also allows trading of
currency derivatives. Let us take a look at the different types of derivative contracts.
Futures Contract
A futures contract signifies an agreement between two parties for the purchase and delivery of an asset, where the
price is decided at the time of entering the contract but the contract is executed at a future date. Futures are
standardized contracts that are traded on an exchange. These contracts are often used for hedging and speculation
rather than for delivery. It is traders of the contract are obligated to fulfill the commitment to buy or sell the underlying
asset if the contract is not squared off before expiry.
Call Option Contract
A Call option gives the buyer of the contract the right, but not the obligation, to buy the asset at the selected strike
price on the day of the expiry. The buyer can exercise this right irrespective of the actual price on the day of expiry.
Put Option Contract
A Put option gives the buyer of the contract the right, but not the obligation, to sell the asset at the selected strike
price on the day of the expiry. The contract buyer can exercise this right irrespective of the actual price on the day of
expiry.
What are Options Trading Strategies?
While it is possible to trade naked options, i.e. single option trade, it is safer to hedge your positions and reduce your
risk by trading with option strategies. Most of these strategies ensure that loss is limited and the probability of booking
profit is higher. Strategies employed by traders are based on their views about the expected price movement in the
2. underlying asset. Thus, option strategies can be for bullish, bearish, range bound / sideways/sluggish, and volatile
price movements.
Furthermore, to make it easy to understand, some important terms and facts are stated below:
The strike closest to the underlying asset’s price is called the at-the-money (ATM) option. In case of Call Options, all
strikes less than ATM are considered in-the-money (ITM) and all strikes above ATM are considered out-of-the-money
(OTM). The reverse is true for Put Options; strikes less than ATM are OTM, while strikes higher than ATM are ITM.
All strategies listed here require that each leg of the strategy should have the same expiry. Index Options generally
have weekly and monthly expiry, while stock options only have monthly expiry. Whereas, futures of indices and
stocks always have monthly expiry, usually on the last Thursday of the month. If that day is a holiday, then expiry is
on the preceding trading day.
10 Best Option Trading Strategies for Beginners:
For ease of understanding, we will take an example of Nifty trading at 17000 points (ATM strike is 17000). Unless
specified, the strategy must be executed with only one lot. Where more than one lot is required, number of lots is
clearly mentioned.
1. Bull Call Spread
Bull Call Spread is a strategy for moderately bullish markets. It involves buying one ATM Call and selling one OTM
Call of the same expiry. This strategy will give profits when the increase in underlying asset’s price is more than the
spread minus the net premium paid, where net premium paid is calculated by subtracting premium received from the
premium paid. Loss is incurred when price of underlying asset decreases instead of increasing. But loss is restrained
as we have carried out one call writing trade.
For example, if we apply Bull Call Spread on Nifty, it would be as follows:
Long ATM Call – Buy 17000 CE
Short OTM Call – Sell 17100 CE
Bear Put Spread
Bear Put Spread is used when expecting moderately bearish price movement. It is executed by going long on an ITM
Put and shorting an OTM Put. This strategy works on the same principles as Bull Call Spread but in the opposite
direction of price movement.
For example, applying Bear Put Spread on Nifty, we would take the following trades:
Long ATM Put – Buy 17000 PE
Short OTM Put – Sell 16900 PE
Bull Call Ratio Back Spread
This is a three leg strategy used when a trader has a strong bullish view. It gives unlimited profits if market goes in
our favour and gives limited profits when market goes against us. Loss is only incurred if the market stays within a
specific range. Thus, this strategy is profitable when market is volatile.
3. This strategy can be understood through the following example of Nifty:
Long Two OTM Calls – Buy 17100 CE – 2 lots
Short ITM Call – Sell 16900 CE
Synthetic Call or Protective Put
This is a strategy used by traders who have a long term bullish view but are concerned that the stock may show
bearish movement in the short term. It employees a combination of Futures and Options contracts, with an unlimited
potential for profits and limited risk. To execute this trade, one must buy a futures contract and an ATM Put. In this
case, the Put option acts as an insurance and protects the trade from a bearish move.
For example, in Nifty, this strategy would be:
Futures Contract – Buy Nifty Futures
Long ATM Put – Buy 17000 PE
Synthetic Put or Protective Call
This is a strategy used by traders who have a long term bearish view but are concerned that the stock may show
bullish movement in the short term. It employees a combination of Futures and Options contracts, with an unlimited
potential for profits and limited risk. To execute this trade, one must sell a futures contract and buy an ATM Call. In
this case, the Call option acts as an insurance and protects the trade from a bullish move.
For example, in Nifty, this strategy would be:
Futures Contract – Sell Nifty Futures
Long ATM Call – Buy 17000 CE
Long Straddle
Long Straddle is a strategy which is used when market is volatile but one cannot predict which direction it will move
to. This strategy has potential for unlimited profits once price crosses outside a specific range, on any side. It can be
executed through going long on ATM Call and ATM Put.
For example, long straddle in Nifty would look like:
Long ATM Call – Buy 17000 CE
Long ATM Put – Buy 17000 PE
Short Straddle
Short Straddle is a strategy which is used when market is range-bound. This strategy gives maximum profit if price
stays at or near ATM strike but has potential for unlimited loss once price crosses outside a specific range, on any
side. It can be executed through going short on ATM Call and ATM Put.
For example, long straddle in Nifty would look as follows:
4. Short ATM Call – Sell 17000 CE
Short ATM Put – Sell 17000 PE
Strip
This is a bearish strategy which is executed by going long on one ATM Call and two ATM Puts. It gives unlimited
profits when price is volatile and gives max limited loss if price stays near ATM Strike.
For example, on Nifty we can apply strip as follows:
Long ATM Call – Buy 17000 CE
Long 2 ATM Puts – Buy 17000 PE – 2 lots
Butterfly
Butterfly is neutral options trading strategy which employees a combination of bull and bear spreads. This strategy
has a fixed profit and limited risk. The strike prices on either side of the ATM options will be at the same strike
distance.
A long butterfly call spread would consist of one long ITM Call, writing two ATM Calls, and one long OTM Call. The
short butterfly spread strategy would consist of writing one ITM Call, two long ATM Calls, and writing one ATM Call.
This strategy can also be executed in Put Options.
For example, if we apply long butterfly call spread on Nifty, then the trade would be executed as follows:
Long ITM Call – Buy 16900 CE
Writing two ATM Calls – Sell 17000 CE – 2 lots
Long OTM Call – Buy 17100 CE
Maximum profit would be incurred if Nifty closes at the ATM Strike i.e. 17000.
1. Iron Condor
Iron Condor is a four leg, non-directional strategy with limited profit and limited loss. It consists of two Call Options
(long Call and short Call) and two Put Options (long Put and short Put).
For example, on Nifty an Iron Condor Option Strategy would be executed as follows:
Long Put – Buy 16800 PE
Short Put – Sell 16900 PE
Short Call – Sell 17100 CE
Long Call – Buy 17200 CE
5. Maximum profit would be incurred if Nifty closed within the middle strike prices, between 16900 to 17100 on expiry.
We hope this blog has succeeded in educating you so you can start using these strategies to gain profits. You can
use online strategy builders to check the payoff charts and find out how much price needs to move for getting
sufficient profits. This way, you will be able to decide which strategy is most suitable based on your view on price
movement.