Article

The Ultimate Guide to Option Trading

date 25  July,  2023
time 4 mins read

There are multiple ways in the market to make money and generate some extra income. Have you ever wondered or thought that perhaps there is a more interesting approach to making money in the stock market than simply purchasing or buying shares? Something that gives you the feeling of being in a superior position that you are a financial superhuman with the power to foresee market movements and feel like the king of the financial industry. Well, if not, then don’t worry, we’re here to inform you that options trading is the answer to all your prayers, and you can easily start your trading journey with Bigul, the best options trading platform in India.

Let’s Understand Options Trading

Let’s first understand what options trading is all about before digging into more detail about options strategies. Options trading is similar to playing chess on the stock market, where you can use strategy to increase gains and decrease losses. It’s comparable to having superpowers in that you can purchase or sell stocks at a fixed price and choose when to use that choice.

Options are simply monetary agreements that give you the right (but not the accountability) to buy or sell an underlying asset, such as stocks, at a particular price on or before a particular date. There are fundamentally two categories of options:

  1. Call Options: These allow you to purchase an item at an agreed-upon cost. Purchasing a call option indicates confidence in the asset’s potential price growth.
  2. Put Options: These allow you to sell an item for an established cost. Purchasing a put option indicates your belief that the asset’s value will decline in the future.

Let’s put on our superhero hats and capes & get ready to dive into some common and basic options trading methods now that we have a basic understanding of options trading:

Let’s explore some of these strategies together:

Fundamental Option Strategies

  1. Long Call: With this method, you buy a call option on an asset that you think is going to rise in value. For instance, you could buy a call option in order to profit from Reliance Industries’ stock’s upward movement if you believe its price would rise.
  2. Long Put: In contrast to a long call, this tactic is short-term. You acquire a put option on a stock that you anticipate losing value. If you anticipate a decrease in the price of Infosys, you could buy a put option and possibly profit from the stock’s downward trend.

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  1. Short Call: With this method, you sell a call option that you do not currently possess. This pessimistic approach pays off when the stock price stays beneath the strike price. For instance, you can sell a call option and perhaps earn income if you believe the stock price of Tata Motors will fall or remain unchanged.
  2. Short Put: In this method, you sell a call option that you do not already currently hold. If the stock price stays above the strike price while using this bullish method, you win. For instance, you might sell a put option and perhaps generate money if you think HDFC Bank’s stock price is going to rise or remain stable.

As we mentioned earlier as well, options trading or trading, in general, is not as easy as it may seem, but it isn’t as tricky or complex that you cannot do it; you can surely start trading today; the bottom line is, you would require a team of experts and skilled traders like the ones we have at Bigul, the best trading platform in India. It’s your cue to start your trading journey with Bigul today!

Now that we’ve uncovered all the basic and common strategies, it’s time to move on to a more intermediate level:

Intermediate Option Strategies:

Understanding basic strategies is very important in order to dive deep into more comprehensive or detailed strategies like the ones we will be discussing now. These strategies are basically the ones that have been in the market for a very long period of time now, and your fathers or maybe their fathers must have experimented with these.

  1. Vertical Spreads: In vertical spreads, you buy and sell options of the same type (call or put) with the same expiration date but different strike or stock prices.

The expert at Bigul will be more than happy to guide you; just download the best trading app on your smartphone today!

There are four major forms of vertical spreads:

  • Bull Call Spread: You acquire a call option with a lower strike price and sell a call option with a higher striking price, just like a cricket fan betting on Team India to win, predicting a little increase in the stock price.
  • Bull Put Spread: This strategy can be compared to exchanging your old money for new ones. In anticipation of a modest increase in the stock price, you sell a put option with a higher price for the strike and buy a put option with a lower strike price.
  • Bear Call Spread: You sell a call option with a lower strike price and purchase a call option with a higher strike price in anticipation of a little decline in the stock price, just as you would hold an umbrella during the rainy season, it may or may not make you wet, but it is still there.
  • Bear Put Spread: You purchase a put option with a higher strike price and sell a put option with a lower strike price in anticipation of a little decline in the stock price; much like trading in your old scooter for a newer one, you wish to keep the older one too, for the sake of memories and attachment.

Want to start your trading journey today? Choose Bigul, the best trading platform in India, where your funds and stocks are absolutely safe, sound and secure for as long as you want!

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