Part 1 Support And Resistance

Introduction to Option Trading

The stock market offers multiple instruments to trade and invest—stocks, futures, commodities, currencies, and derivatives. Among these, Options have gained tremendous popularity worldwide because they give traders flexibility, leverage, and strategies to profit in all types of market conditions—bullish, bearish, or even sideways.

At its core, an Option is a contract that gives a buyer the right but not the obligation to buy or sell an asset at a predetermined price (called the strike price) before or on a specific date (called the expiry date).

This right comes at a cost, known as the premium, which is paid by the option buyer to the option seller (also called the writer).

Options are widely traded on stocks, indices, commodities, and currencies. In India, for example, options on Nifty 50, Bank Nifty, Sensex, and individual stocks are among the most liquid contracts.

Why Options Exist?

Options exist to manage risk and to create trading opportunities. Think of them as financial insurance. Just like you pay a premium for car insurance to protect against damage, in options trading, investors pay a premium to protect themselves against adverse price moves.

For Hedgers: Options act as insurance. A stock investor can buy a put option to protect his portfolio if the market falls.

For Speculators: Options provide leverage. With small capital, traders can take large directional bets.

For Arbitrageurs: Options open opportunities to exploit price inefficiencies between the spot, futures, and options markets.