Part 2 Master Candlestick Pattern

Key Terms in Options Trading

Before diving into strategies, let’s master some core concepts:

Underlying Asset: The stock/index/commodity on which the option is based.

Strike Price: The price at which the option can be exercised.

Expiration Date: The date on which the option contract ends.

Premium: The price paid by the option buyer to the seller (writer) for the contract.

In-the-Money (ITM): Option has intrinsic value (profitable if exercised).

At-the-Money (ATM): Underlying price = Strike price.

Out-of-the-Money (OTM): Option has no intrinsic value yet (not profitable to exercise).

Lot Size: Options are traded in lots (e.g., Nifty option has a fixed lot of 50 units).

Leverage: Options allow control of large positions with smaller capital.

How Options Work

Options are like insurance. Imagine you own a house worth ₹50 lakh and buy insurance. You pay a small premium so that if the house burns down, you can recover your value. Similarly:

A call option is like paying for the right to buy a stock cheaper later.

A put option is like insurance against stock prices falling.