Part12 Trading Masterclass

Introduction to Options Trading
Options trading is one of the most powerful tools in financial markets. Unlike traditional stock trading, where you buy and sell shares directly, options give you the right but not the obligation to buy or sell an asset at a predetermined price before a specific date. This flexibility allows traders to hedge risks, generate income, and speculate on price movements with limited capital.

In recent years, options trading has seen a surge in popularity, especially among retail investors. With the growth of online trading platforms and educational resources, more traders are exploring this complex yet rewarding field.

What Is an Option?
An option is a financial derivative contract. It derives its value from an underlying asset—commonly a stock, index, ETF, or commodity.

There are two types of options:

Call Option: Gives the holder the right to buy the asset at a fixed price (strike price) before or on the expiry date.

Put Option: Gives the holder the right to sell the asset at a fixed price before or on the expiry date.

Key Terms to Know:
Strike Price: The price at which the option can be exercised.

Premium: The price paid to purchase the option.

Expiration Date: The last date on which the option can be exercised.

Underlying Asset: The financial instrument (like a stock) the option is based on.

In the Money (ITM): When exercising the option would be profitable.

Out of the Money (OTM): When exercising the option would not be profitable.

At the Money (ATM): When the strike price is equal to the market price.