Mr SG - What is recommended way to start learning options?
Best,
B.G Maxine
Best,
B.G Maxine
There are 2 types of options... PUT Options and CALL options.
You buy PUT options when you expect stock price or market to go down and CALL options when you expect markets to go up.
How does it work?
1. PUT Option
PUT option gives you the option to SELL a stock or index at the strike price at expiry date.
For example. Today, IFCI is @60. You think IFCI is going to go below 60, or lower in the future. So, you buy a PUT option with a strike price of 60. IFCI PA@60.
Now, if IFCI does indeed go down... maybe around 55 before expiry, then your PUT option would allow you to buy IFCI at market price and sell it @60.
You might as well sell that PUT option instead of exercising it for a decent profit.
2. CALL Option
CALL option gives you the option of BUYING a stock or index at the strike price.
For example, IFCI is @60. You expect it might go above 60 in the future. So, you buy CALL option. IFCI CA@60.
Now, if IFCI does indeed go above your strike price... say 65 before expiry, then your CALL option would allow you to buy IFCI at strike price of 60 and sell it at market rate...
In the same way, you might as well sell that CALL option in a profit instead of exercising it.
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There are some advanced strategies to effectively trade in options.
Please see Low Risk Options Trading Strategy - Option Spreads by AW10
There are other things too.. like Time Decay which affect the price of options. That means, the sooner the stock or index moves in your direction, the better it is for your profits.
There may be things I might have left out. SG sir and other members here would help you (and me) with it...
Cheers!