Options trading has been around for decades, and it has proven to be a valuable tool for investors looking to maximize their returns with a minimal investment. A single option contract gives the holder the right, but not the obligation, to buy or sell an underlying asset, such as a stock, at a specified price within a specified time frame.

One of the biggest advantages of options trading is the potential for high returns with a small investment. For example, if an option is priced at 0.05 and it is turned 500,000 times, the total return can be substantial. However, it’s important to understand that options trading is not without risk, and it’s crucial to educate yourself before jumping into the market.

In this article, we will explore the basics of options trading, including how it works and the factors that determine option prices. We will also discuss the potential rewards and risks associated with this type of investment and provide tips on how to get started.

How Does Options Trading Work?

Options trading works by allowing investors to buy or sell a contract that gives them the right to buy or sell an underlying asset at a specified price within a specified time frame. This can be done through a brokerage firm or a designated market maker.

There are two main types of options: call options and put options. Call options give the holder the right to buy an underlying asset at a specified price, while put options give the holder the right to sell an underlying asset at a specified price.

The price of an option is determined by several factors, including the current price of the underlying asset, the option’s expiration date, and the volatility of the underlying asset. Option prices are quoted in dollars and cents per share.

Potential Rewards and Risks of Options Trading

Options trading can be a lucrative investment opportunity, as it offers the potential for high returns with a small investment. However, it’s important to understand that there are also risks involved.

One of the biggest risks is that the option may expire worthless if the underlying asset does not reach the specified price. This means that the investor will lose the entire investment made in the option.

Additionally, options trading can be complex, and it’s crucial to have a solid understanding of how it works and the factors that determine option prices before jumping into the market.

Tips for Getting Started with Options Trading

If you’re interested in options trading, the first step is to educate yourself. This can be done through online resources, such as websites and forums, and through working with a financial advisor or taking a course.

It’s also important to start small and gradually increase your investment as you gain more experience and confidence. Additionally, it’s crucial to have a solid understanding of the underlying asset, including its current price, trends, and potential risks.

In conclusion, options trading can be a valuable tool for maximizing returns with a minimal investment. However, it’s important to understand the potential rewards and risks and to educate yourself before getting started. By following these tips and being mindful of the risks involved, you can start on the path to success in the options trading market.

Sharing some of the examples on Options Trading and Strategies.

Options Trading through Spreads (Timeline: Positional Trading)

TLDR:

  • Technical Analysis to indentify the trading opportunities
  • Options Trading through spreads
  • Risk Management via Hedging
  • High Probability Setup

BANKNIFTY at Supply Zone : Expecting a pull back from the Resistance Line on Monday Morning 07/25/2022

Taking a bearish position to capture the opportunity
Options Strategy: BEAR PUT SPREAD taken

Risk Management to be done through Hedging by selling far OTM PUT

Orders Executed for BEAR PUT Option Strategy
BEAR PUT Option Strategy Day 1


Option Strategy
Day 2
the movement so far in the pay off graph for option strategy

A good Bounce in Bank NIfty fut 36250 level

Options Trading
Position as on 3rd day

Position as on 3rd day

Day 4: 1st Adjustment:

Bear Put Adjustment, Adjustments in Options Trading

Day 5:

Day 6:

Day 7:

Options Trading

Day 8:

Position for Options Trading

Day 9:

Day 10:

2nd Adjustment:

Closed the 35500 PE position which brings this spread to a LONG PUT

Option Strategy Payoff Graph

Day 11:

Day 12:

Options Trading

Day 13:

Day 15:

Last week run Date: 22-Aug-2022

BhartiARTL at Demand Zone : Expecting a bounce back

BhartiARTL at Demand Zone : Expecting a bounce back

Position Trade taken through Bull Call Spread

1x  28JUL2022  680CE  – ₹ 3.5  (Option Bought)

-1x  28JUL2022  700CE  – ₹ 1.8 (Option Sold)

Max. Profit₹ +17,385 (80.34%)

Max. Loss₹ -1,615 (-7.46%)

Payoff Graph for Bull Call Spread
Payoff Graph for Bull Call SpreadPay




Bull Call Spread

Bull Call Spread: Position 1st Day.

Options Trading, Bull Call Spread: Position
Bull Call Spread: Position 2nd Day

Bull Call Spread: Position 2nd Day
Positional Trading through OPTIONS
.Bull Call Spread: Position 3rd Day
Bull Call Spread: Position 3rd Day

Bull Call Spread: Position 4th Day
BhartiArtl trading at 673.40
Time: 12:40 PM 07/20/2022

Option Buying Strategies
Position 5th Day
Options Trading
Position 6th Day : it seems stock run is exhausting. Decision needs to be made wether to book what is being offered on plate or stay patient.

Finally I closed the trade on Friday 07-22-2022
Booked the profit offered on table irrespective of what may unfold next week. Will focus on next opportunity and share my learnings from the same.

Options Trading
Options Trading through Spreads : Trade Closed
Options Trading

Tuesday 07/26/2022
Bharti on 2 days before the Mothly Expiry though the 680 CE option on Monday went upto 9.60 rs. and 700 CE went upto 2.6
Though we have

Thursday 07/28/2022

Both Options going to expire at Zero, timely exit helped in collecting some profit from this trade.

12-07-2022

ONGC Spread Trade- Expecting a Pull Back in the Stock

Stock Trading around 124.70

Buy 130 CE @ 2.65

Sell 135 CE @ 1.55

Risk & Reward Ratio 1:3

20-01-2022

Spread trading is a safer way to trade a momentum instead of Naked Option Buying.
This is how the entry point was taken and played it safe by buying ITM put option strike price 17900 at 82.15
while against the same sold the strike price 17800 PE at 17.90

Options Trading

By Pankaj

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