Part 2 Support and Resistance

How Options Work

Let’s break it down simply:

If you buy a call, you are betting that the price of the stock will go up.

If you buy a put, you are betting that the price of the stock will go down.

If you sell (write) a call, you are taking the opposite bet—that the stock won’t rise much.

If you sell (write) a put, you are betting that the stock won’t fall much.

Here’s a quick example:

Stock XYZ trades at ₹100.

You buy a 1-month call option with a strike price of ₹105 by paying a ₹5 premium.

If the stock rises to ₹120, your option is worth ₹15 (120 – 105). Since you paid ₹5, your profit = ₹10.

If the stock stays below ₹105, the option expires worthless, and you lose your premium of ₹5.

This example shows that options can magnify profits if you’re right, but they can also cause losses (limited to the premium paid for buyers, unlimited for sellers).

Types of Options
A. Call Options

Right to buy.

Used when you expect prices to rise.

Buyers have limited risk (premium) but unlimited upside.

Sellers (writers) have limited gain (premium received) but unlimited risk.

B. Put Options

Right to sell.

Used when you expect prices to fall.

Buyers have limited risk but big upside if stock falls sharply.

Sellers have limited gain (premium) but large risk if stock collapses.