Option Trading Basics
Option Trading Basics
Let’s see in detail about the option trading basics every option trader should be aware of.
Why Option Trading is Famous?
Where the money goes, people’s energy flows. Since 85% of all the market action and market money is concentrated on option trading, option trading is extremely famous.
Also, the capital required for buying option is too low, but profit potential is extremely high when compared to stock/futures trading.
Strike Price
Strike price is the various price points at which option contracts are available for each stock.
For nifty, we have strike prices for every 50 rupees. For banknifty, strike price is in multiples of 100.
Underlying Price
Underlying price is the spot price of the actual stock or index from which option price is derived.
Option Premium
Option Premium is the value at which option is currently trading. It is simply the Last Traded Price (LTP) of the option contract.
If you are an option buyer, you need to pay the option premium to buy options.
If you are an option seller, you can sell options and collect the option premium.
Option Expiration
Option Expiration denotes the date in which the option contact will go void/invalid.
In India, stock options generally expires on last Thursday of each month (has monthly expiry contracts) whereas index options expires on every Thursday (has weekly expiry contracts).
Hope this post helps you to understand the basics of Option Trading.