Tradebulls

trade talk

Basics of Options : Part – 2
Derivatives - Options

Hi Friends!!! As promised earlier, we are finally starting our series on Options Strategies.

Oh yes we know, many of you do not have the basic knowledge of Options. So do not worry about it. We are here to take care of all your worries. We will start with the basics and then will take up the strategies, one at a time. But you are requested to religiously follow these and we are sure all the followers of this blog will one day become Masters in Options Trading. And if this happens, we will be the happiest people in this world.

So let’s start with understanding the meaning of options. Well I will not explain that to you again, as I have already done that here. Please visit this blog we posted earlier. If you have any queries, I will be glad to answer those.

Now moving beyond the basic meaning of options, today we will go one step further and understand what all is specified in an Option’s contract. So Let’s take them up one at a time.

  1. Option Type

There are two types of Options. The “Call Option” and the “Put Option”.

Call Option: You can call them “Call Option” or simply “Call”. A call gives its holder the right to buy an asset (which can be a stock, currency or index in context to Indian Market) at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires.

Put Option: You can call them “Put Option” or simply “Put”. A put gives its holder the right to sell an asset (which can be a stock, currency or index in context to Indian Market) at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires.

  1. Strike Price

The strike price is the price at which the underlying asset is to be bought or sold when the option is exercised. It’s relation to the market value of the underlying asset affects the moneyness of the option and it contributes mainly in determining the premium of the option. Don’t worry about the term “Moneyness”. We will take it up in our next blog when we discuss the basic terminologies which are used when we trade in Options.

  1. Premium

Premium is the price paid to buy the option. You may also call it as Option Price. The premium of the option is dependent on market price of the underlying asset, volatility in the underlying and time remaining for the contract to expire.

  1. Expiration Date

All options contracts come with an expiry date. Once the stock option expires, the right to exercise your option no longer exists and the stock option becomes worthless. The expiration month is specified for each option contract. In Indian context, the options contract expires on the last Thursday of every month for stock and index options. In case of currency options, contracts expire two working days prior to the last business day (i.e. Last trading day at exchange) of the expiry month.

  1. Underlying Asset

The underlying asset is the financial instrument (e.g., stock, currency, index) on which option’s price is based. In the case of stock options, the underlying asset refers to the shares of a specific company. Options are also available for other types of securities such as currencies and indices.

We know this is a difficult topic, so we will definitely not rush through it. So we will stop at this point and will start with more terminologies related to options trading in the next blog. If you have any doubts in your mind relating to the current or the previous blog on Options, please do not hesitate to ask. Because if we miss out on the basics, we will not be able to excel in the strategies. This is the most important part of Options trading and needs to be understood in depth before me move further.

We will come up with the next blog really soon, so stay tuned to TradeTalk. Happy trading and happy learning friends.

COMMENTS
No Comments Found
leave your comment
ABOUT TRADE TALK EXPERT
Pratyush DixitConsultant - Digital Marketing and Content

Pratyush is a Post Graduate in Marketing Management and has a leadership experience of nearly a decade in diversified industry including Stock Broking. Having headed companies for over half a decade, Pratyush brings with him, rich Marketing and....

OUR TRADE TALK EXPERTS
636297234239146146_Pratyush-Dixit.jpgPratyush DixitConsultant - Digital Marketing and Content
CATEGORIES
Equity0Mutual Fund0Stock Market Basics8Investment10Derivatives - Futures1Derivatives - Options14Trading1Economy3Tutorials0
ATTENTION INVESTORS -
Prevent Unauthorized Transactions in your demat/Trading account, Update your Mobile Number and Email with your Depository Participant/stock broker and Receive alerts on your Registered Mobile Number/Email for all debit and other important transactions in your demat/Trading account directly from CDSL/Stock Exchanges on the same day......issued in the interest of investors.     
KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.    
No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account.    
We Moneypalm Commodities Pvt. Ltd do not do any Proprietary Trading
Consolidated Account Statement (i.e. Single Statement of Investment in Mutual Funds and Securities across DP’s ) has been started by CDSL w.e.f February 2015.
Do write to your Depository Participant if CAS Facility is Not Required.
Logo
Guidance Note on FATCA and CRS May 2016
Right and Obligation, RDD, Guidance Note in Vernacular Language

SEBI Registration No. BSE: (Cash) INB 011461036, (F&O) INF 011461036 | NSE: (Cash) INB 231461030, (F&O) INF 231461030, (Currency Derivatives) INE 231461030 | CDSL: IN-DP-CDSL-667-2012. Commodity Trading through Moneypalm Commodities Private Limited MCX Membership Number: 55175 | FMC Code: MCX/TCM/COPR/0743
Registered Address : Plot No. - 122, Institutional Sector - 44, Gurgaon - 122003 For any complaints email at : info@moneypalm.in. If not satisfied with the response provided by us, you may approach SEBI or BSE or NSE or MCX.

Copyright © 2017 Moneypalm.in. All Rights Reserved
Designed , Developed & Content Powered by    Accord Fintech Pvt. Ltd.