Unlocking Investment Fundamentals

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  22 Chapters | Duration:

  9Option Basics

  Master the fundamentals of options trading like calls, puts, pricing, volatility, and strategies which are designed for beginners keen to explore India’s derivatives market.

Course Objectives

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  Understand the basics of options trading

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  Learn calls, puts, and strike price concepts

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  Explore option moneyness and pricing factors

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  Interpret payoffs, volatility, and open interest

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  Apply strategies for buying and selling options

• Chapter - 1

  4 mins read

  Lessons in Options Trading

  Options, in the context of the derivatives market, are contracts that grant the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on a future date.

• Chapter - 2

  4 mins read

  Types of Options

  Market movements are typically driven by either bullish (rising) or bearish (falling) sentiment. These trends serve as the foundation for two primary types of option contracts: call options and put options.

• Chapter - 3

  4 mins read

  Call Options

  A call option, often denoted as CE, is a type of derivative contract that grants the buyer the right (but not the obligation) to purchase an underlying asset at a fixed price (called the strike price) within a specified timeframe (expiry period).

• Chapter - 4

  4 mins read

  Strike Price in Options Trading

  In options trading, the strike price refers to the predefined rate at which the buyer has the right to buy (in a call option) or sell (in a put option) the underlying asset, within a set timeframe. It is also the price at which the contract can be exercised if the buyer chooses to do so.

• Chapter - 5

  3 mins read

  Open Interest in Options Trading

  In the spot market, once a buyer and a seller execute a transaction, the trade is settled, and the contract ends. If the trade doesn’t go through during the session, it’s simply cancelled and needs to be reinitiated the next day.

• Chapter - 6

  4 mins read

  Option Expiry – Importance of Duration and Rollovers

  Unlike equity shares or mutual funds, options contracts come with a defined lifespan. These contracts cease to exist after a pre-specified expiry date, set by the exchange. All open positions must be settled by the end of the trading session on expiry day, or as per exchange-defined timelines.

• Chapter - 7

  6 mins read

  Buying Options vs Selling Options

  Options contracts are financial instruments derived from underlying assets like equities, currencies, commodities, or bonds. These contracts grant the buyer the right, but not the obligation, to buy or sell the asset at a predetermined price on or before a specified future date.

• Chapter - 8

  3 mins read

  Call Option Payoff Diagrams: Explained

  Buying call options through m.Stock is one of the most straightforward entry points into the world of derivatives. The appeal lies not in unlimited returns alone but in the certainty that potential losses are capped. This balance of risk and reward can be easily visualised using payoff diagrams.

• Chapter - 9

  4 mins read

  Put Options: How to Profit from Falling Markets

  When you expect weakness in the broader market or a specific stock, the instinctive strategy is to sell high and buy low. For example, if you believe the price of A Ltd will drop from ₹100 to ₹80, you might consider selling it now and repurchasing it later. This helps reduce your holding cost and allows you to stay invested in the long run. But there's a catch—you can only use this strategy if you already own the stock.

• Chapter - 10

  3 mins read

  Put Option Payoff Diagram Explained

  In bearish or declining markets, traders commonly prefer buying put options over using Futures. Why? Because the risk in put options is predefined and limited to the premium paid. This makes it easier to manage your risk-reward balance, especially for directional trades.

• Chapter - 11

  4 mins read

  Option Moneyness

  When trading in options, it’s critical to understand option moneyness, as it differs fundamentally from buying or selling stocks. Unlike stocks that can be bought low and sold high, options are time-bound instruments subject to expiry and value decay.

• Chapter - 12

  4 mins read

  The Intrinsic and Extrinsic Value of Options

  Options are among the most versatile instruments available in financial markets. To use them effectively, understanding how their prices are derived is essential.

• Chapter - 13

  4 mins read

  Volatility

  Stock prices rarely remain constant—they rise and fall, sometimes gradually and sometimes with sharp swings. This fluctuation is what we refer to as volatility. It measures the rate at which a stock’s price changes over time.

• Chapter - 14

  4 mins read

  Option Greeks and Theoretical Prices of Options

  Options, unlike stocks, do not have intrinsic value by default, they derive their price from several influencing variables. As derivative instruments, their valuation depends on external factors, not direct market demand.

• Chapter - 15

  4 mins read

  Option Greek – Delta

  Delta, the first of the option Greeks, reflects how much an option’s price changes with respect to a change in the underlying asset's price.

• Chapter - 16

  4 mins read

  Gamma

  Gamma is considered the second-order derivative in options trading, following Delta, which is the first-order derivative.

• Chapter - 17

  3 mins read

  Theta

  Theta represents the rate at which the time value of an option erodes as it approaches its expiration date.

• Chapter - 18

  3 mins read

  Vega

  Vega is one of the key Greeks used by traders on platforms like m.Stock to assess how sensitive an option’s premium is to changes in implied volatility.

• Chapter - 19

  5 mins read

  Relationship Between Option Greeks

  Options and futures are classified as derivative instruments since their value is derived from an underlying asset

• Chapter - 20

  3 mins read

  Using Greek Calculators

  As a trader, it's crucial to actively monitor positions. While managing a stock portfolio is relatively straightforward, tracking option positions is more demanding.

• Chapter - 21

  4 mins read

  Max Pain

  Option buyers incur losses when the underlying asset doesn't move in their anticipated direction. A call buyer loses money if the market fails to rise, remains flat, or declines.

• Chapter - 22

  3 mins read

  Put Call Ratio: A Guide for Options Traders

  In the world of options trading, the Put Call Ratio (PCR) serves as a popular sentiment indicator that reflects the balance between put and call option activity.