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Let’s Begin

NEVER START WITH OPTIONS BUYING

Watch this video, before entering Options Trading.

Watch this video, before entering Options Trading.

👉 For Complete Beginners in the Stock Market

• Learn Candlesticks in detail:

  • Understand the basics of candlestick patterns and their significance in predicting market movement.
  • Study common patterns like doji, hammer, engulfing, etc., and what they indicate about bullish or bearish trends.

  You can watch the following video for the detailed course on Candlesticks.

  You can watch the following video for the detailed course on Candlesticks.

• Learn Price Action in detail:

  • Grasp the concept of price action, which involves reading past and present price movements to make trading decisions.
  • Focus on the analysis of raw price charts without the use of indicators to identify high-probability trade setups.

  Watch this video for the detailed course on Price Action.

  Watch this video for the detailed course on Price Action.

• Trade for at least 6 months in Equity only:

  • Apply the knowledge of candlesticks and price action by trading stocks, without using options to solidify your understanding of market dynamics.

  👉 People who have already been profitable in Equity from the past 3 months

  STEP 1:

  Understanding the Risk Involved in Options Trading:

  • Analyze why options buyers may lose money and the factors contributing to those losses.

    • Time Decay:
      • Options have an expiration date. As time goes on, if the market doesn’t move in the buyer's favor, the option loses value – this is known as time decay.
      • Example: You buy a call option with a month until expiration. Each day that the stock doesn’t move above the strike price, your option is worth a little less.
    • Lack of Significant Movement:
      • If the stock doesn’t move enough, the option may not gain enough value to be profitable, considering the premium paid.
      • Example: You buy a call option, but the stock only moves up slightly, not enough to cover the cost of the option plus the price paid (the premium).
    • Volatility Changes:
      • Lower than expected volatility can reduce an option's value, even if the stock moves in the right direction.
      • Example: You buy an option expecting a big price move. The move happens but is less volatile than expected, so the option doesn't gain as much in value.

  • Investigate the potential reasons why options sellers might lose money.

    Unlimited Risk:

    • Selling options can expose the seller to unlimited risk if the market moves significantly against the position.
    • Example: If you sell a call option and the stock price soars, you might have to sell the stock at a much higher market price than the strike price you agreed upon.
    • Assignment Risk:
      • The option buyer might exercise the option at an inconvenient time for the seller, forcing the seller to fulfill the contract terms.
      • Example: You sell a put option, and the stock drops significantly. The buyer exercises the option, and now you must buy the stock at a much higher price than the current market value.

  • Compare the probabilities of winning for options buyers versus sellers.

    • Options Buyers:
      • Buyers face lower probabilities since they need the market to move significantly to make a profit after paying premiums.
      • Winning is often less frequent but can result in high payouts when it happens.
    • Options Sellers:
      • Sellers usually have higher probabilities of small, consistent gains because they collect the premium upfront.
      • However, the rare losses can be very large, potentially wiping out many small gains.

  • Differences between options buying and selling, including risk profiles and strategic approaches.

    • Risk Profile:

      • Buyers have a limited risk to the premium paid but unlimited profit potential.
      • Sellers risk much more for a limited profit (the premium received).

    • Strategic Approaches:

      • Buyers might aim for big market moves or hedge existing positions.
      • Sellers often look for steady income, betting against significant market moves.

      Watch this video for better understanding.

      Watch this video for better understanding.

  • Evaluate hedging versus stop-loss strategies in managing risk in options trading.

    • Hedging:
      • Involves taking an offsetting position to mitigate risk.
      • Example: Owning a stock and buying a put option to protect against a drop in the stock’s price.
    • Stop-Loss:
      • A stop-loss is an order placed to sell an asset once it reaches a certain price, limiting losses.
      • Example: Setting a stop-loss order for a stock to sell if it drops 10% below your purchase price.
    • Risk Management:
      • Hedging can be more expensive since it requires buying an option as insurance.
      • Stop-loss orders can fail if the market is volatile and skips over the set stop price (slippage).

STEP 2:

Understand what are derivatives and How Options Trading works.

• Financial Instruments:
  • Derivatives are financial contracts whose value is derived from an underlying asset. Think of them like a bet on the future price of that asset.
• Underlying Assets:
  • These can include stocks, commodities, currency rates, or market indexes like the Nifty 50.

Types of Derivatives in the Indian Stock Market

• Futures:
  • Contracts to buy or sell the underlying asset at a predetermined price on a specific future date.
  • Example: You enter a futures contract to buy 100 shares of a company at Rs. 500 per share after 3 months, regardless of the current market price.
• Options:
  • Contracts give the buyer the right, but not the obligation, to buy (call option) or sell (put option) the underlying asset at a specified price on or before a certain date.
  • Example: You buy a call option for a premium that allows you to purchase shares at Rs. 500 anytime within the next month. If the share price rises to Rs. 600, you can exercise the option and make a profit.

Purpose of Derivatives

• Hedging Risk:
  • Investors use derivatives to protect themselves from price fluctuations in the underlying asset.
  • Example: A farmer might use derivatives to lock in a price for his crop, ensuring that he doesn't suffer if prices drop before the harvest.