Part 4 Institutional Trading

Option Pricing: The Greeks
Option pricing is influenced by various factors known as Greeks:

Delta: Measures how much the option price changes for a ₹1 move in the underlying.

Gamma: Measures how much Delta changes for a ₹1 move.

Theta: Measures time decay — how much the option loses value each day.

Vega: Measures sensitivity to volatility.

Rho: Measures sensitivity to interest rates.

Time decay and volatility are crucial. OTM options lose value faster as expiry nears.

Options Trading Strategies
For Beginners:
Buying Calls: Bullish on the stock/index.

Buying Puts: Bearish on the stock/index.

For Intermediate Traders:
Covered Call: Holding the stock + selling a call for income.

Protective Put: Holding stock + buying a put to limit losses.

For Advanced Traders:
Iron Condor: Neutral strategy with limited risk/reward.

Straddle: Buy a call and put at the same strike; profits from big moves.

Strangle: Buy a call and put at different strikes.

Spreads:

Bull Call Spread: Buy a lower call, sell a higher call.

Bear Put Spread: Buy a higher put, sell a lower put.

These strategies balance risk and reward across different market outlooks.

Advantages of Options Trading
Leverage: Small capital can control larger positions.

Risk Defined: Buyers know their maximum loss (premium).

Flexibility: Strategies for bullish, bearish, or neutral markets.

Income Generation: Selling options can earn premiums regularly.

Hedging Tool: Protect portfolios from downside risks.