DIvergence Secrets

Understanding Options Trading
With the help of Options Trading, an investor/trader can buy or sell stocks, ETFs, and others, at a certain price and within a certain date. It is a type of trading that offers investors fair flexibility to not purchase a security at a certain date/price.

How Does Options Trading Work?
When a trader/investor purchase or sell options, they attain a right to apply that option at any point in time, although before the expiration date. Merely buying/selling an option does not require an individual to exercise at the time of expiration.

Strategies in Option Trading
Long call options trading strategy
Short call options trading strategy
Long put options trading strategy
Short put options trading strategy
Long straddle options trading strategy
Short straddle options trading strategy
Participants in Options
1. Buyer of an Option
The one who, by paying the premium, buys the right to exercise his option on the seller/writer.

2. Writer/seller of an Option
The one who receives the premium of the option and thus is obliged to sell/buy the asset if the buyer of the option exercises it.

3. Call Option
A call option is an option that provides the holder the right but not the obligation to buy an asset at a set price before a certain date.

4. Put Option
A put option is an option that offers the holder, the right but not the obligation, to sell an asset at a set price before a certain date.

Notable Terms in Options Trading
1. Premium
The price that the option buyer pays to the option seller is referred to as the option premium.

2. Expiry Date
The date specified in an option contract is known as the expiry date or the exercise date.

3. Strike Price
The price at which the contract is entered is the strike price or the exercise price.

4. American Option
The option that can be exercised at any date until the expiry date.

5. European Option
The option that can be exercised only on the expiry date.

6. Index Options
These are the options that have an index as the underlying. In India, the regulators authorized the European style of settlement. Examples of such options include Nifty options, Bank Nifty options, etc.

7. Stock Options
These are options on the individual stocks (with stock as the underlying). The contract gives the holder the right to buy or sell the underlying shares at the specified price. The regulator has also authorized the American style of settlement for such options.