So, option trading, not only we talk about people who are new in option trading today, but when I am talking about you, you have been learning since childhood. You are the third generation in the stock market today. There is only one focus of this that if there is no value in the content.
You should get so much value that more than any paid course, the value is in this content. I assure you that if you have seen the free series of this option, you can run any paid series against it. Compare which was simple, which was easy to use and which was more valuable for you.
You will get more value than any paid content in this course, which we are able to make because of Pushkar. No, nothing is because of me. You have all the knowledge and if you are speaking with this confidence, then you know what you are going to teach. In fact, I do not know what to say now, but yes, this is clear that I want that our audience should get the utmost value.
So the first question comes, we are going to learn option trading. What are options? Option is a type of derivative. We did not know the option till now, now we do not even know the derivative. So first of all, let’s understand what Isa derivative? Derivatives such an instrument that derives its value from any other instrument.
For example, we always use a credit card. In that, we get cashback. The value of cashback depends on how much we swipe the credit card. So cashback has become a derivative for us because itis deriving value from the credit card. In the same way, the option is a type of derivative. Derivative is such a thing that takes its value from something else because we are talking about the stock market.
Here the value is going to come out from the stock or from the index, like Nifty. So the value will come out of all of them. This is called derivative. You can see a very simple example here, because the example sir took very well that how many times you use a credit card, how many points will be there in proportion to how many times you swipe.
Similarly, if I talk about the orange juice, the juice is sour or the juice is not good, so what do we know from this, maybe the orange is not good. So the juice that has become, has become a derivative, has been derived and the underlying was that it was orange. So I hope you have cleared the concept up to this point, we can move forward. So this is the derivative.
We are talking about the option, as the name says that you are going to get an option, you are going to get right. Let’s talk straight which right do you get? You can get two types of rights. The first can be the call option, the second can be the put option. First let’s understand what a call is. Call is an option.
Option means you have liberty, you have a right and call option gives you the right to purchase particular security. What will be the security here? What will be the asset here? Any particular stock that we are trying to buy a call. Because you are getting a right, you will have to pay a cost for it. You don’t get anything for free here. If you are getting right, you will have to pay a cost for it.
We call that price premium here. And itis not that I have given youth right, today you can come to the live side. That right will be valid for a particular time. It may be valid for a week, it may be valid for a month, it may be valid for a quarter, it will depend on how long you have bought the right. This is the call option.
An option that gives you the right to buy a particular security at a particular price for a defined period of time. Put, understand this, it is the opposite brother. It is a pair, but the work is done in reverse. This is also an option that gives youth right to sell a particular security. Instead of buying, you get the right to sell here.
The way you have to pay something to buy any right, here too you will have to pay a price, which will be valid for a particular time. This has become your put option. Now, just as sir explained, I would like to add one more thing here. Let’s come to this slide. See, don’t be confused about the price written here.
When we are talking about buying, we are talking about the call option, we are talking about buying. When do you get profit in buying? When you buy something and its rate increases. So you get profit in the call option when you are buying the call option of any stock, the stock rate increases, the underlying rate will increase, the premium of your option will increase.
If you sell, when will you benefit? You benefit when you see here, you know that you can do this in the stock market that you can sell first and then buy. You cannot sell only what you have bought. Youkan sell if you want and when will you benefit from selling? We will benefit from selling when the rate of the thing decreases.
Because you understand that we sold first and then we will buy. So were going to explain this a little more ahead. Just in case if you still have any doubts or doubts, then I am going to bring my favorite game example of cricket in front of you. A game that everyone plays in India, likes it. We are going to take the name of Hardik Pandya and Hardik Pandya’s example.
We understand the call very easily. Putt will understand this. I think that Hardik Pandya will not make more than 50 runs in the next match. I think that he will make more than50 runs. Do one thing Anent, Hardik Pandya will make more than 50 runs, you pay me 1 rupee for every run. I will say yes, I will pay. I don’t think he will make more than 50runs. But because I am giving you a right to purchase, I will take a fixed cost from you, which is 5 rupees in our case.
This has become a buyer for us, of the call. Why buyer of the call? Because we are talking about increasing the share. We are talking here that Hardik Pandya will make more than 50 runs. It is bullish, you are buying, you paid5 rupees, I got 5 rupees’ income. Now let’s understand what happened in this case.
Suppose Hardik Pandya made45 runs. You wanted to make 50 runs, you made 45. You have 5rupees, I have 5 rupees’ income, the matter is over. If you make 50 runs, you have 5 rupees, I have 5 rupees, the matter is over. I have to pay 1 rupee for every run above50 runs. I didn’t have to pay anything up to 50 runs.
If we talk about 55 rupees, here you have paid me 5 rupees. Hardik Pandya has made 55 runs. I have to pay 1 rupee for every50 runs, so I have to pay 5 rupees. Neither your income nor mine. You paid me a premium of 5 rupees. I had to pay you 5 rupees again because Hardik Pandya has made 55. I don’t know why he made tithe final scenario comes.
I hope it doesn’t happen because Aim in the against party. Hardik Pandya has made 75 runs. I have to pay you 75 minus 50,25 rupees. And you have5 rupees. You have 20 rupees’ income; I have 20 rupees’ outflow. This is your very simple example in which you have understood what is the call option. Real life example. Andrea life example is of such a share which I always call only Vial.
If you don’t know why it is called only Vial, then you can see Reliance’s ads in the 90s or 95s. Therein is written only Vial. If needed, then put that ad because everyone asks why Reliance is called only Vial by many investors and traders. Only VI mallet’s take an example of Reliance. The time when we are writing the blog, the price of Reliance is almost around 2400.
First, we are understanding the example of call option. Pushkar thinks that Reliance’s price will go above 2500. So Pushkar buys Reliance’s call option. Because I think the price will increase, so I have to buy call option. If I think that Reliance’s price is going to break, what would we do in that scenario? We will discuss that in the next slide.
But now we are bullish on Reliance. Clear this example. Try to understand it from the base. Pushkar thinks that Reliance’s price is going to go above 2500. So he buys Reliance’s call option. The call. Suppose an ex-party has sold the call, you, I, anyone has sold the call. What is the profit of the call buyer?
What is the profit of the call seller? Let’s discuss in every situation. In fact, I am also going to tell you that now you are listening to the buyer has bought the call option. What can happen now? He has bought and seller.
You have heard that you can buy and sell the option. We can also make a dedicated blog on option selling for you. You can follow him on Invest Charge for Gold channel.
We have bought a call for₹ 2500. Suppose the prices 2500. We will not get anything. The cost of the call buyer has come to 40. The one who has sold has directly got an income of 40. The second scenario has gone little further. The price of 2510 has remained. So what will happen to us? We have already got an outflow of 40.
The one who has bought is a fixed cost. If you have bought, then your fixed cost has come to 40 plus 10 because it has reached 10 from 2500.₹ 30 is your net loss and the one who has sold has a net profit of 30. The third scenario is the cost of 2540. We bought a call for₹ 2500. The cost of my premium has come to 40.
My income has become 40 because the price has increased by₹ 40. Zero profit in both scenarios. The last scenario is that the price has reached 2700.
What we wanted, what was our desire, for which we bought this call is actually this scenario. We directly got a profit of 200.My cost has come to 40. A very good profit has been made to the call buyer. Against this, the one who has sold the call will have to pay₹ 160.
Now you have to understand two things here. Here you can ask, till when will this profit? It expires. It expires in option contracts, which Sir told in the starting. So the time is decided. So how long should this price reach? It is not that after 10 years it will reach 2700 or after a year it will reach. How long will it reach depends on the expiry?
So when we talk about stocks in India, then we have a monthly expiry. You should know this. And if you trade in derivatives in the index, like Nifty or Bank Nifty, then you have the option of weekly and monthly expiry. So I hope you got clarity from this example. If you bought a call option of 2500, then when will your profit start?
When the price goes above 2500, because here you have a net loss. If it increases by 10, then the premium has gone from your pocket. So what do we want? We want the level at which we bought thecal option. If we bought 2500 plus premium, then we want the price. So 2540 is my break-even. It is important to understand this much.
As you understand further, you will get clarity. If you are not understanding, then you can read this blog many times. Sir, now you can move forward. I hope you understood. Anent, why will we buy a call option of 2500? Because you understand that Reliance is going to increase here. You think that in the next month, even if Reliance reaches ₹3000, I should have a right to buy Reliance at 2500.
Even if Reliance reaches 4000, for the next month, I have a right to buy Reliance at 2500.That’s why I am trying to buy this call option. The second is the put option. Suppose you already have Reliance shares.
You are worried that volatility is increasing in the market. People are talking about inflation and inflation. If my Reliance stock breaks, I will be afraid. So you need a right to sell Reliance at 2300 in the next month.
Even if the price of Reliance is 1600, 1000, 1500, whatever it is. You need a right to sell Reliance at 2300.So you have to buy the put option. Because it is a right to sell a particular stock at a particular price for a particular time horizon. Now let’s understand what will happen in different scenarios. Suppose you have bought put. Reliance price is 2450.
Your 40 costing is done. The person who sold put has already earned income. You will not do anything. If you already have a stock in 2400.You have an option to sell Reliance at 2450.Why will you sell someone at 2300? You will say that if it costs 40, then I will sell it at ₹2450.The second is the price of Reliance at 2350.
You have bought the right to sell at 2300.Now it is selling more in the market. We will sell it in the market. Costing of put buyer is 40. Income of put seller is 40. Third is 2300.Even now, whoever has sold you put, either you sell it or sell it in the market. The same thing is 40 losses, 40 incomes for seller.
Reliance has created a mess in the market. Only Vial Tutu Rao has reached 2100.You will say, put seller, I told you that you will give me the right to sell at 2300.Buy mine at 2300.He will buy it from you at 2300.You will get a profit of 200.The cost of premium will be 40. The net profit is 160.This is the example of put. One more thing to keep in mind in the option.
Always work in lots. For example, Reliance works in 250 shares. In any other stock, it can work in 100 shares. So you have to consider this in the lot. Now for simplicity and understanding, we have understood this example. you have to understand a final concept. And we will close one question that will come to your mind.
What is the type of option? In the money, at the money, out of money. You must have heard that I bought the option in the money or sold the option out of the money. Let’s understand what is in the money and what is out of the money. Both will be different. Call and put will be different. We will assume that the price is 2400.
In the money, we should have an option. Whoever has bought this option, should have a profit on the first day. The price is 2400.When will the caller get a profit on the first day? If he buys a call of 2300.You will get Reliance in 2400 in the market. You have bought a ride according to which you can buy Reliance in 2300.This is in the money for you.
Will it cost more premium? Obviously, your cost is 100 rupees. Because the price is 2400 in the market. You are buying in 2300.It will cost more than 100 rupees. But it is obvious. At the money, you are trying to buy the call or put of the same price. Out of the money.
You have to move the stock first to get a profit. Then you will get a profit. For example, 2500.You have tried to buy a call of 2500 because Reliance is going to increase. Reliance has to work hard first. It will go from 2400 to 2500.When it will go above 2500, the buyer of the call will get a profit. So it is out of the money.
It is not in the money on the first day. What is the right to sell? You are getting the right to sell. The price is 2400.You have got the right to sell in 2500.You are in profit on the first day. So it is called in the money.
At the money, the strike price and the market price are the same. It is out of the money. The price is 2400.You have got the option to sell in 2300.You are out of the money on the first day. You are in a loss of 100 rupees on the first day. It is out of the money. Anand ji has cleared it very well. I hope you have understood.
If you buy at the same price, then it is out of the money. When we are talking about the call option, if you are buying any option below the price of 2400, If you are buying in 2300, 2200, 2100, then it is in the money. If it is outside, then it is out of the money. If it is 2400, 50, 25, 2600, then it is out of the money.
But when we talk about put option, it is a little different. So what does it mean for put option? When we are talking about falling, if we are talking about falling, if we are talking about 2400, it is at 2400.So 2500 will be in the money and 2300 will be out of the money. I hope you have understood this. There may be a question here.
What we are talking about is that there will be a profit. You bought 2500 out of the money.2500 plus premium. Let’s say we gave a premium of 400.It will be beneficial if it goes above 2500.But above 2500, we are talking about the day of expiry. If you bought today and let’s say the expiry is 3 days, 4 days.
Then it will not be of expiry. Its payoff diagram will change a little. What does it mean? If Reliance goes up, then you will have a profit. And if it goes down, then you will have a loss. Now, the technical terms you are doing, Let’s clear it all. What are the technical terms that you will be required in the options?
First, you will hear a lot of words. Strike Price. What is strike price in our case? Simple, rapid, and intuitive. Or put price you are buying is the strike price. This is the strike price for you. 2300. The call or put price you want to trade is the strike price. The premium you pay is the premium.
For example, here it is 40I am presenting you complicated terms towards the end. The call rupees. Lot size is the number of shares in the particular lot. Finally, the concept is the time value of money. Suppose you have bought Reliance put of 2300.You feel safety is required. Reliance may not go below 2300.Or you have bought for a month.
15 days have passed. Reliance has 15 days left to go below 2300. Because in the previous15 days, Reliance was at the same place. Because time is less, premium is also less. Because the probability that the share will go below that price or above that price. If you have bought in the call option or worked, that will also be less. I will give this from another example.
Let’s go back to the example of Hardik Pandya. Suppose it was a 20-minute match. We had bet on it for the whole match. That Hardin Pandya will make more than 50 runs. Suppose 12 overs have passed and Hardin Pandya has not come yet. He is stuck where he is. So obviously the premium will be less.
Because the probability that he will make more than 50 runs is less. If he reaches the 19th over, it will be less. If the last ballot the 20th over is left, it will be almost 0. This is called time value of money. Because you have bought a particular option for a particular time. You understand. Suppose you have gone to a water park for a day’s ticket.
The value of the whole day’s ticket is 500 rupees. For you as a person, if you have taken out half a day, its value is decreasing. The same thing happens here. I will give one more example. Last final example. You understand that there is a pan. You have put ice on the pan. The way the ice melts, the premium of the option melts.
And this is called the time value of money. Absolutely right. I hope you have got clarity from this example. In this, let’s clear this concept that we talked about. Let’s say I have a condition that he will hit more than 50 runs. He said he will hit less than 50 runs. He said, if he hits 5 rupees, then I will pay you according to the number of runs he hits.
Now it is important to see this thing. Let’s say Hardik Pandyacame to the opening and he had a condition of 50 runs. He has already made 25 runs. So what happened now? The probability has increased that he can hit 50 runs.
This premium that we gave 5 rupees, now if someone comes to make a deal with him, that now I have to do the same. If he hits more than 50 runs, then I also want 1 rupee. Let’s say my friend Rahul came and said that I also want. Now he will say that you don’t write 5 rupees. I have already talked to him about 5 rupees.
Now he is playing. Now what Willi do? I will take 10 rupees. He wrote. So he told me earlier that give me 10 rupees. So he is saying that now I will take 10 rupees. Because now the probability has increased that he has made 25runs. He can also make 50 runs. So that’s why the rate of this premium changes. And in between, let’s say I have to go out.
I say Rahul, do one thing. He is saying 10 rupees, don’t give him. Take it from mesa I can sell my premium in between and go out. So when we are talking about options, then you don’t have to wait till the expiry.
You have to wait until he makes 50 runs. He started playing. I think he is playing well today. He hit half six on the first ball. So his rate will increase. It’s 5 rupees to 7 rupees. I say, take these 7 rupees. I am going out. So I can sell it to someone else. This is also a freedom you have.