Part 1 Trading Master Class With Experts

1. Introduction to Options

Financial markets give investors multiple tools to manage money, speculate on price movements, or hedge risks. Among these tools, options stand out as one of the most powerful instruments. Options are a type of derivative contract, which means their value is derived from an underlying asset—such as stocks, indices, commodities, or currencies.

Think of an option like a ticket. A movie ticket gives you the right to enter a cinema hall at a fixed time, but you don’t have to go if you don’t want to. Similarly, an option contract gives you the right, but not the obligation, to buy or sell an asset at a pre-decided price before or on a fixed date.

This flexibility is what makes options both exciting and risky. For beginners, it can feel confusing, but once you grasp the basics, option trading becomes a fascinating world of opportunities.

2. Basic Concepts of Option Trading

At its core, option trading revolves around three elements:

The Buyer (Holder): Pays money (premium) to buy the option contract. They have rights but no obligations.

The Seller (Writer): Receives the premium for selling the option but must fulfill the obligation if the buyer exercises it.

The Contract: Specifies the underlying asset, strike price, expiry date, and type of option (Call or Put).

Unlike stocks, where you directly buy shares of a company, in options you are buying a right to trade shares at a fixed price. This difference is what gives options their unique power.

3. Types of Options

There are mainly two types of options:

3.1 Call Option

A Call Option gives the buyer the right (but not obligation) to buy an underlying asset at a fixed price before expiry.

👉 Example: You buy a call option on Reliance at ₹2,500 strike price. If Reliance rises to ₹2,700, you can buy it at ₹2,500 and immediately gain profit.

3.2 Put Option

A Put Option gives the buyer the right (but not obligation) to sell an asset at a fixed price before expiry.

👉 Example: You buy a put option on Infosys at ₹1,500. If Infosys falls to ₹1,300, you can sell it at ₹1,500, making profit.

These two simple instruments form the foundation of all option strategies.

4. Key Option Terminology

Before trading, you must understand the language of options.

Strike Price: The fixed price at which the option can be exercised.

Premium: The cost of buying an option. Paid upfront by the buyer.

Expiry Date: The last date until the option is valid. In India, stock options usually expire monthly, while index options may expire weekly.

In-the-Money (ITM): Option that already has intrinsic value (profitable if exercised).

Out-of-the-Money (OTM): Option that currently has no intrinsic value (not profitable if exercised).

At-the-Money (ATM): Strike price is very close to the market price.

Option Chain: A list of all available call and put options for a given asset, strike, and expiry.

Knowing these terms is like learning alphabets before writing sentences.