- Options Strategy | Complete Strategy Of Call/Put/Call Ladder | Guide & Best Practice
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- 10 Options Strategies to Know
Option trading is an excellent way of minimizing the risks. The buyer of the option can enter into the contract anticipating the market to move in a certain direction, and then he may exercise the option if the anticipation turns out correct and make profits and limit losses. Whereas, if the anticipation was not correct, he can simply choose to not exercise his option keeping his capital safe and just paying the contract fee.
Option Trading involves two parties — the buyer of the option and the seller or writer of the option.
Options Strategy | Complete Strategy Of Call/Put/Call Ladder | Guide & Best Practice
While the buyer has the right to exercise his option or not, the writer has the obligation to sell the option if the buyer decides to exercise it. Selling or writing an options contract is riskier, but it involves a lot of profit too if the right moves are made at the right time. Option Trading can be done in two different styles:. European : In European option trading, the option can be exercised only at the options expiration date, which is a single predetermined time. American : In American option trading, the option can be exercised anytime between the purchase and the expiration date of the option.
It is to be noted that in India only the European style of option trading is available. As discussed, an options trader can either buy an option to buy a security or sell a security. Depending on that, option trading can be of two types :. Call Option is a derivative contract between two parties wherein the buyer of the call option has the right to be able to exercise his option and buy a particular asset during a specified period of time, at a specified price.
It is to be noted here that the buyer of the call option has the right and not the obligation. Put Option is an options contract wherein the buyer has the right to sell the underlying financial instruments at a specified price during a specified time in the future.
The owner of the security insures himself against any heavy downtrends in the market by fixing his sale price at a predetermined position. If the price of the security falls below the strike price before the expiration date, the buyer exercises his option and sells the security at the strike price thus saving himself from the loss of selling at the lower current market price. However, if the price of security remains the same or increases, he can choose to not exercise the option and earn a profit.
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This has been observed multiple times that a lot of traders, especially beginners, jump into option trading without any understanding and know-how of the concept. This needs to be understood that options trading if done with correct strategies, can help to limit your losses and uplift your profits. To get to that level, you just need to understand some of the basic and advanced level option trading strategies and you will be good to go. There are tons of other option strategies too that have their own set of provisions, actions and related risks and profits.
If you are completely new to the world of option trading, then here are a few quick tips for you. You will have to consider all of these while making your trading decisions. Following these tips will not even assist you to increase your profits but also put a cap on your potential losses. Although performing options trading within an intraday setup will bring its own pressure and requirement of analysis expertise, you can definitely perform this form of trading within a single trading session.
However, you will be required to make use of multiple option trading strategies depending on the market situation, trend, and expectations. Furthermore, it makes sense to look for multiple opportunities since your profit takeaway will be limited on a per-trade basis and thus, with multiple option contracts, you get a larger number of situations to make a profit and minimize losses.
If you are looking to choose an app specifically for option trading, well honestly, there is no such specialized app for this form of trading. You may choose any of the top mobile trading apps and there is a high chance that that mobile app will provide an optimal trading experience for call and put options investments.
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However, for your reference, here are some of the well-designed and highly user-friendly mobile trading apps in India:. Well, that is pretty much applicable here. Of course, you will need to take care of some of the specific aspects while following the option trading strategies, and you will more or less be making out profit on an overall basis.
10 Options Strategies to Know
Similarly, when we talk about the risks associated with this form of trading, that is definitely there too. Obviously, it is not rocket science but you are required to consider all forms of permutations that are likely to happen with the stock.
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And of course, you will be vouching for the most probable scenario that you think will happen as per your stock market analysis. Depending on the strategy you are using, most of the time, the monetary amount which is at risk is basically the premium you pay to get into the contract. It can be more than that, however, that will basically imply you had no idea about what you are getting into.
Well, when it comes to stock market investments or option trading specifically, there are no quick guides. You will have to learn and understand and experience different trading strategies while keeping a lot of patience. The only thing we can tell you that they are just fooling around. Speculations : Option trading is an effective way of speculating. Using options contracts, the traders can earn huge profits and limit their losses. Options can also be used for hedging.
Income from the existing portfolio : The investors who hold the securities for the long-term can also earn income on their holdings by writing the options contracts. It is risky but if handled well, it can give higher than normal income in the form of a premium. Leverage : Options contract help in a significant reduction in costs and is attractive for small budget traders.
Tax Management : Option trading also helps a lot in managing taxes as the tax paid on the entire capital gain would be way higher than the tax paid on just the premium. A person who holds certain shares and knows that the prices are going to decline, he might as well sell the stock and buy later at the lower prices; but by doing so, he will have to pay huge taxes on the capital gain from the sale of the stock.
Instead, by using the put option, he is only going to end up paying taxes only on that put option trade. As the bottom line, Option Trading is a smart and efficient way of trading in order to maximize the profits from short-term investments and to limit the risks. If handled well, option trading can make the trader take limitless profits while conserving the capital to a large extent.
Apart from this, you can review our detailed article on Pros and Cons of Option Trading to reap its benefits. So, in case you are looking to gear up for the share market trading, and especially for derivatives trading — just fill in the details below. If you wish to learn more about option trading or stock market investments in general, here are a few references for you:. Your opinions on trading are remarkable, I am going to send many of my fans to your web site. Your email address will not be published. Now Trending: Online Trading in Angel Trailing Stop Loss Zerod Types of Derivatives What is Futures Trading?
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