What is Options Trading in Share Market? | Option trading For Beginners Explained | Trade Brains | Summary and Q&A

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December 8, 2022
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What is Options Trading in Share Market? | Option trading For Beginners Explained | Trade Brains

TL;DR

Options trading allows investors to capitalize on their market views by buying call or put options, with potential for unlimited profits but limited losses.

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Key Insights

  • 👻 Options trading allows investors to capitalize on market views by buying call or put options.
  • 🫵 Call options are for bullish views, while put options are for bearish views.
  • 🦔 Options can be used as hedging instruments to protect investments against market declines.
  • 📅 Expiry dates mark the end of the option contract, with last Thursday of each month in the stock market.
  • 🧑‍🤝‍🧑 Premium represents the amount paid for the option contract, with values changing based on expiry dates and strike prices.
  • 🏃 Spot price is the current market price, while strike price is the target price at which the option can be exercised.
  • ✋ Options buyers have potential for unlimited profits but limited losses, while sellers earn the premium with higher profitability probabilities.

Questions & Answers

Q: What is the key concept of options trading?

Options trading allows investors to capitalize on market views by buying call options for bullish views or put options for bearish views, with potential for unlimited profits and limited losses.

Q: How can options be used as hedging instruments?

Options can be used to hedge investments by buying put options to protect against market declines while still holding long-term positions, enabling profit regardless of market direction.

Q: What is the difference between options buyers and sellers?

Options buyers pay a premium for the right to buy or sell at a specific price, with unlimited profit potential but limited losses. Options sellers receive the premium and have higher probabilities of making profits.

Q: How do expiries and strike prices impact options trading?

Expiry dates mark the end of the contract, and strike prices define the target price at which the option can be exercised, influencing the value of the premium and potential profits.

Summary & Key Takeaways

  • Options trading involves buying call or put options based on market views.

  • Call options are for bullish views, while put options are for bearish views.

  • Options can be used as hedging instruments to protect investments.

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