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What is option Trading in simple way 2023|| How does option trading make money? || roj 1000₹ kamyo option trading sa

 A financial tactic called option trading is purchasing and disposing of option contracts. An option is a type of derivative contract that grants the buyer the right—but not the obligation—to purchase or sell a specific asset, such as commodities, stocks, or currencies, at a fixed price (the strike price), within a certain window of time (the expiry date), and for a predetermined period of time.

To put it simply, option trading enables investors to hedging their positions by speculating on the potential price shift of a particular asset without really holding it. There are mainly two categories of choices:

Call Option: Before the expiration date, the buyer of a call option has the option to purchase the asset in question at the striking price. When they anticipate an increase in the asset's price, traders frequently purchase call options.

Put Option: With a put option, the purchaser has the opportunity to sell the asset that is being offered at the price at which it strikes before the option expires. Traders typically purchase put options since they believe the asset's price will decline.

Different techniques for option traders to benefit include:

Purchasing Options: Traders can purchase call or put options to make predictions about the underlying asset's price movement. If they are right about their prognosis, the options' value can rise, giving them the chance to sell them for more money.

Trading professionals may also make money by selling options. They earn a premium on the buyer when they sell options. The seller keeps the cost of the premium as profit if the option ends worthless (the price does not rise to the strike price).

Option Premium: The premium is the amount paid for or earned when selling an option. The cost of the underlying asset, its volatility, the amount of time to expiration, and the rate of interest rates all have an impact on the premium. Higher premiums are typically associated with options that have a longer period until expiry or that are "within the money" (the price of the underlying asset is favorable).

The words "in the money," "at the money," and "out of the money" define the correlation between an option's strike price and the current value of the asset that it represents.

When a call option is in the money (ITM), it signifies the price of the underlying asset is higher than the strike price. It denotes that the price of the underlying asset is lower than the strike price for a put option.

At the Money (ATM): When the price of the underlying asset is roughly equal to the price of the strike.

Out of the Money (OTM) signifies that the price of the underlying asset is unfavorable for exercise. It denotes that the price of the underlying asset is lower than the strike price for a call option. It denotes that the price of the underlying asset is higher than the strike price for a put option.

Every choice has a deadline after which it expires and is no longer valid. Options might be long-term (a few months or years) or short-term (weekly or monthly). When an option ends, it is closed out by the trader and loses all of its value.

Option Strategies: To achieve specific financial goals or control risk, traders can use a variety of option strategies. Several typical tactics include:

Selling a call options: on an existing underlying asset is known as a covered call.

Buy a put option: as a protective measure against a possible decline in the value of the underlying asset.

Purchasing a call option & a put option at the same time with the identical strike price & expiration time in anticipation of a large price change is known as straddling.

Butterfly Spread: A limited-risk, limited-reward trading technique that combines a number of call and put options.

The "Greeks" are elements that have an impact on option risk and pricing. These consist of:Measures how sensitive an option's price is to changes in the value of the underlying asset.

 Delta: Measures how sensitive an option's price is to changes in the value of the underlying asset.

Gamma: Calculates how quickly the delta of an option changes in reaction to changes in the price of the underlying asset.

Theta: Calculates how time decay affects an option's value.

Vega: Actions the response of a stock's price to swings in fluctuation.

Rho: Calculates how sensitive an option's price is to interest rate movements.

Keep in mind that trading options may be challenging and dangerous. Before starting to trade options, it is essential to properly educate yourself, think about your risk acceptance, and even seek advice from financial experts.


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