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What is Options Trading?

Introduction:

What is options trading? There are different kind of peoples in stock market who fill their pockets by different ways, one of the way is option trading. In this blog we will learn about basics of options trading.

What is Investment?

Investing in a stock is plain and simple, we buy stocks we hold the stock to reach a particular price and then we exit our position when the stock reaches a particular price.
That is we maintain our ownership until the stock hits that particular price and then we exit our position.

Investment word is generally use for long term… we are supposed to wait.
This is what we call investment.

But what if we are such that the level of the stock doesn’t reaches that particular target for months, people who are just dependent on stock market for their bread and butter can not wait for long.
There comes the value of

  • Option Trading,
  • Future Trading, &
  • Intraday trading.

In this blog we will be learning about options trading.

Click & Read our recent blog on Stock Market : What is Stock Market?

What is Option?


Option in detail is a broader topic to dive into, since learning about the history of pot makers is not necessary for the art of moulding the pots hence having an idea of option is good enough.

In the previous recent blog we learned about the word stock which refers to ownership of yours at the company i.e., you have complete obligation with the ownership status, but in contrary options are the contracts between buyers and sellers of the stock.
Options doesn’t provides obligation to the option contractors. Hence options and stocks are different from each other.

What is trading?

Trading word refers to buying or selling something, in simple words trading is nothing but a way to generate regular income from stock market, buying or selling options or stocks or ownership of a particular company or a group of company or indexes or bonds, etc…

What is Option trading?

Thus, Option trading is nothing but buying and selling of options in a particular span of time to generate regular income.

What are the types of Options & the types of contractors?

There are basically two types of options:

  1. Call Option, &
  2. Put Option.

& there are basically two types of contractors:

  1. Option Buyers, &
  2. Option Sellers.

What are Call and Put Options?

Call options refers to the contract between option buyers and option sellers in which call option buyer, by his/her analysis believes that the market will be bullish and buys the right of the underlying asset at lower price.

While,

Put Options refers to the contract between option buyers and option sellers in which put option buyer, by his/her analysis believes that the market will be bearish and sells the right of the underlying asset at higher price.

In simple words, when we are sure that the market will be bullish we buy a call option and when we are sure that market will be bearish, we buy a put option.

Note: We become sure after our market analysis.

How do option seller makes money?

As we discussed earlier, if our analysis is right we must make money as we will buy the right of the stock at lower prices and must sell the right when our target price reaches.

But why don’t option seller holds their right and makes money themselves, the confusion can be cleared simply as,

Option Buyers only earns when the market goes towards his predicted trend but an option sellers earn from different ways, if market goes towards their predicted trend they earn if market doesn’t move even – sideways , then also they earns i.e., by theta decay – part of option greeks.

Thus, this is the basic outline of option trading, there are much more deeper aspects related to this, every term mentioned in the blog is important and holds great significant importance.

IMPORTANT NOTE:

This blog is just for educational purposes only, in option trading only 1 out of 10 people make profit and have the risk of vanishing all the capital invested, hence it should be done after proper planning.
We do not promote any kind of tip services.

Thanks for reading the blog till the end.
I hope that this might have put some importance in your life.

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