Part 6 Institution Trading

Introduction
In the world of financial markets, Options Trading has emerged as one of the most powerful instruments for traders and investors alike. While traditional stock trading involves buying or selling shares, options give you the right—but not the obligation—to buy or sell a stock at a certain price within a certain time. This opens up a wide range of possibilities: from hedging your risks to speculating on market moves with limited capital.

But as exciting as options trading is, it also carries complexity. This detailed guide will explain what options are, how they work, key terminologies, strategies, risks, and how you can practically start trading options in India.

Chapter 1: What Are Options?
An option is a financial contract between two parties—the buyer and the seller.

There are two types of options:

Call Option: Gives the buyer the right to buy the underlying asset at a specified price (strike price) before or on expiry.

Put Option: Gives the buyer the right to sell the underlying asset at a specified price before or on expiry.

Unlike stocks, options do not represent ownership. They are derivatives, meaning their value is derived from the price of an underlying asset (like Nifty 50, Bank Nifty, or Reliance stock).