What is Option Trading?
When you hear the term Option Trading, what are the first thoughts that come to your mind?
- Is it gambling?
- Is it a loss-making trade?
- Should only FIIs and DIIs perform this trading?
- Should retail traders avoid it?
These are common misconceptions! In reality, options trading is a systematic business that, when approached with proper learning and discipline, can be profitable.
Understanding Options in Trading
An option is a financial contract that grants the holder the right—but not the obligation—to buy or sell an underlying asset at a predetermined price before a specific expiration date. This flexibility allows traders to manage risk and take advantage of market movements.
Key Components of Option Trading
- Buying Options: Traders can buy option contracts through a Demat account. They purchase Call (CE) options in an uptrend and Put (PE) options in a downtrend.
- Premium: When buying options, traders pay a premium. For example, if Bank Nifty is at 48,500 and the trend is upward, a trader may buy a 48,500 CE at a premium of 400. Given a lot size of 30, the required investment would be Rs. 12,000.
- Strike Price: This is the predetermined price at which the option can be exercised. For Bank Nifty at 48,500, traders can choose strike prices like 48,400, 48,500, or 48,600 based on the available margin.
- Lot Size: SEBI assigns lot sizes for stocks and indices. For example, Nifty has a lot size of 75, while Bank Nifty has 30.
- Expiry Date: Options contracts have expiration dates. Nifty and Bank Nifty expire weekly, while stock options expire monthly.
Difference Between Call and Put Options
- Call Option (CE): Used when the market is trending upwards. Traders buy CE premiums to profit from rising prices.
- Put Option (PE): Used when the market is trending downwards. Traders buy PE premiums to profit from falling prices.
Types of Option Traders
- Option Buyers: Traders who purchase option contracts by paying the premium, expecting the price to move in their favor.
- Option Sellers: Traders who sell option contracts and benefit from premium decay.
Proven Option Trading Strategies
To generate consistent income, traders use various strategies. Tradeshala has developed a mathematical system for option trading, offering daily levels on a 5-minute timeframe. Once the market opens, buy and sell levels are displayed on the chart, allowing traders to make informed decisions.
Tradeshala’s Strategies for Success
- Price Matching with Open Price
- Daily 50 Points Strategy
- EMA Setup with Single-Leg & Hedge Strategy
- Intraday Short Straddle with Stop Loss
- Tradeshala Scalping Strategy with 10 Lots
- CE & PE Mathematical Levels with Excel Automation
- Stock Option Intraday Trading with Math System
- Stock Option Consistent Income Strategy (No Risk)
- Bank Nifty & Nifty Swing Trading Monthly Strategy
- Long-Term Strategy with Hedge for Consistent Income
Many Tradeshala students have successfully applied these strategies to earn consistent income through options trading.
Choosing the Right Broker for Option Trading
Selecting the right broker is crucial for successful option trading. Look for a broker that offers:
- A user-friendly trading platform
- Real-time Open Interest (OI) data
- Advanced option chain analysis tools
- Low brokerage fees
Conclusion
Option trading is not gambling—it is a skill that requires knowledge, discipline, and strategic execution. Traders should first learn the fundamentals, practice with backtesting, and implement proven strategies to achieve consistent success.
Recommended Resources:
- NSE India – Option Chain (Official data)
- Tradeshala Instagram (@tradeshala.in) (Latest market insights)
- Beginner’s Guide to Option Trading (Investopedia)
