Part 2 Support and Resistance

Why Use Options?

Options provide traders with:

Leverage: Control a large position with a smaller investment.

Flexibility: Create strategies for any market scenario.

Risk Management: Hedge against adverse price movements.

Income Generation: Sell options to collect premium.

Simple Options Trading Strategies

These strategies are suitable for beginners. They involve limited positions and simple risk-reward profiles.

Long Call

Outlook: Bullish

How it works: Buy a call option when expecting price to rise.

Risk: Limited to premium paid.

Reward: Unlimited upside.

Example: Stock trading at ₹100, buy a call with strike ₹105 for ₹3 premium. If stock rises to ₹120, profit = (120–105–3) = ₹12.

Long Put

Outlook: Bearish

How it works: Buy a put option when expecting price to fall.

Risk: Limited to premium paid.

Reward: Potential profit increases as price drops (limited to strike price minus premium).

Example: Stock at ₹100, buy a put strike ₹95 for ₹2. If stock falls to ₹85, profit = (95–85–2) = ₹8.

Covered Call

Outlook: Neutral to mildly bullish

How it works: Own stock and sell a call against it.

Risk: Downside risk in stock, upside capped at strike.

Reward: Earn premium income.

Protective Put

Outlook: Hedge

How it works: Own stock and buy a put to protect downside.

Risk: Limited (stock downside hedged).

Reward: Unlimited upside, protection from losses.