What is Options Trading – Definition, Types and Strategies

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Options trading strategies, Option trading books, trading charges. Options trading is a dynamic and versatile investment strategy in the stock market, this segment of the stock market is extremely risky and rewarding. If you want to know What is options trading? So let us tell you that, unlike traditional stocks or bonds, option contracts on the shares of any company are bought and sold.

Both small retail investors and large institutions invest in this segment of the stock market. These options provide the flexibility to speculate on price changes, hedge against potential losses, and generate income in various market conditions.

This is a good way to earn money from the stock market in a short time, but for this, you have to follow the options trading strategies. Options trading charges are quite high as compared to other segments. Many courses and options trading chart patterns pdf are available on the internet to learn option trading strategies.

Apart from this, YouTube can be a good option to learn about the stock market. One of the most interesting aspects of options trading is that you can multiply your profits and losses through leverage, which we will discuss further. Basically, in today’s article, we are going to share with you all the information related to option trading.

What is Options Trading?

Options trading is a financial derivative strategy that enables investors to buy or sell (but not a liability) an underlying asset such as a stock or ETF at a predetermined price (the strike price) by a specified date. Options trading provides flexibility through a variety of trading strategies to suit different market conditions. In options trading, investors can use options to hedge risk, generate income, and speculate on price movements.

Options are generally of two main types:- First is the Call option and the second is the Put option. In options trading, the value of the premium on your options contract decreases over time, this is called theta decay. It is very important to understand Option Greek in Options trading, by understanding them you can create good Option trading strategies. “Options trading strategies, Option trading books, trading charges”

What are the Options?

The term option usually refers to a financial instrument, a type of contract that is based on the value of underlying securities such as stocks, indexes, and exchange-traded funds (ETFs). An options contract gives options traders the right to buy and sell options, depending on the type of contract the trader has. Usually, when the market falls, traders sell call, and buy put options to make profits. Conversely, when the market moves upwards, traders sell puts and buy call options.

Every options contract has a specific expiry date and on that expiry date your option expires, and the premium value of your option contract becomes zero. You can usually buy these options from any broker app like Groww, Zerodha, Angel One, etc.

How Many Types of Options?

There are two types of options, one is a call option and the other is put option.


Call options give holders the right, but not the obligation, to buy a premium contract at the strike price on or before expiration. When the market moves upwards, call options tend to move higher. The call option premium increases more rapidly when the volatility in the market is very high. Call options usually allow investors to buy a premium of that company’s stock instead of buying the entire stock of that company. These contracts are commonly used for speculation, hedging, and risk management in the financial markets.


A call option is a financial contract granting the holder the right, but not the obligation, to purchase a specific underlying asset at a predetermined price (strike price) within a specified timeframe. The holder pays a premium to the seller (writer) for this privilege. If the asset’s market price surpasses the strike price before the option expires, the call option can be exercised profitably. Otherwise, the option can be allowed to expire.

Call options provide investors with opportunities to benefit from price appreciation in assets without owning them outright. These contracts are commonly used for speculation, hedging, and risk management in financial markets. In practice, an investor purchasing a call option believes the asset’s price will rise, and the option’s value will increase, allowing them to buy the asset at a lower predetermined price. “Options trading strategies, Option trading books, trading charges”

Also Read: What is Commodity Trading and How to Trade in Commodity Market?

Some Notable Terms of Options Trading

  • Options Trading:- The right to buy and sell option contracts for a fixed period of time is called options trading. To do options trading, the holders must have a good options trading strategy.
  • Call option: – This contract gives the right to buy the premium of any company’s share for a fixed time. Generally, when the stock market moves upwards, traders buy call options and sell put options.
  • Put options:- This contract allows to sell the shares of any company before expiry or expiry. Generally, when the market falls, traders buy put options.
  • Strike Price:- The strike price is a predetermined price agreed upon by both the buyer and seller of the option contract.
  • Premium:- Premium is usually the amount that is paid for an option contract.
  • ITM Options (In the money):- ITM options are generally those options that have intrinsic value along with time value, and these premiums are above the spot price. (conditional)
  • OTM Options (Out the Money):- OTM options are generally those options that have only time value, they do not have intrinsic value at all and they become zero on the day of expiry. OTM options trade below the spot price. (conditional)
  • Expiry: – Expiry is usually called the date on which the option contract expires and the value of the option premium becomes zero if it is in OTM.
  • ATM Options (At the money):- At the money option also has intrinsic value.
  • Index Options:- Index options are those options that trade on an index. There are many indices in India which mainly include Nifty 50, BankNifty, etc. And index options expire on a weekly basis.
  • Stock Options:- The options of companies are called stock options, these options usually expire on the last date of the month. “Options trading strategies, Option trading books, trading charges”

Option trading strategies

  • Long-call options trading strategy
  • Short call options trading strategy
  • Long put options trading strategy
  • Short put options trading strategy
  • Long straddle options trading strategy
  • Short straddle options trading strategy

Also Read: What is Intraday Trading and How to Start Intraday Trading?

Benefits of Options Trading

  • Leverage:- Through Options trading, you can make a good profit by making good Option trading strategies. For this you are provided with leverage, however, option trading charges are high. By getting leverage, you can make more profit with less money.
    For example, if you think Reliance stock will go up in the next month and its current value is 1000 then you need to buy a total of one lot i.e. 250 shares with a total value of 2,50,000. You can buy an option contract on Reliance shares without paying Rs 2,50,000. If you buy at a premium of Rs.50, you can buy 250 shares for Rs.12,500.
  • Limited Risk:-One advantage of options trading is that your losses will be limited. For example, if you buy a premium of Rs 1,000, then your maximum loss will be Rs 1,000 only.
  • Hedging:- Options provide you a hedge against potential losses.
  • Bullish, Bearish, Sideways Opportunities:– Profit potential in different market conditions.

Disadvantage of Options Trading

  1. Complexity:– Options trading can be very complicated, without confidence, learning, and concentration trading options can be very harmful. It is necessary to have good option trading strategies for option trading.
  2. Risk of Loss:– Unfavorable market movements can lead to loss of premium paid.
  3. Options trading high charges:- Trading in options can be harmful due to high charges. Brokers charge high Option trading charges for option trading.
  4. Time Sensitivity:– Options have an expiration date, requiring timely decisions.
  5. High Transaction Costs: Costs associated with trading options can be relatively high.
  6. Liquidity Concerns: Some options might have limited trading volume and liquidity.

Options trading books

  • Options as a Strategic Investment by Lawrence McMillan.
  • Option Volatility and Pricing by Sheldon Natenberg.
  • Fundamentals of Futures and Options Markets by John Hull.
  • Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits by Dan Passarelli
  • The Option Trader’s Hedge Fund by Dennis Chen and Mark Sebastian
  • Options Trading Crash Course by Frank Richmond


Options trading is an important segment of the stock market, where traders can make good profits by investing less money. Unlike traditional investments, options allow the buying and selling of contracts based on underlying assets like stocks or ETFs.

Investors, whether individuals or institutions, use options to speculate on price fluctuations, safeguard against potential losses, and generate income across diverse market conditions.

Options trading encompasses various strategies tailored to specific market outlooks. Despite its potential for rapid gains, options trading demands a strong grasp of strategies and market dynamics. Notably, options can provide leverage, enabling investors to amplify profits with a fraction of the capital required for conventional trades.

However, option trading charges are comparatively high. If you have any questions related to options trading, then do ask in the comment box and also turn on the notification for other news related to the share market. “Options trading strategies, Option trading books, trading charges”

Also Read: Top 5 Screen Sharing Apps for Android and iPhone in 2023


What is Options Trading?

Options trading involves buying and selling contracts that give traders the right, but not the obligation, to buy or sell assets at a predetermined price within a specific timeframe. It’s a speculative strategy to profit from price movements and manage risk in financial markets.

Types of Options Trading?

There are many types of option trading, you can do intraday option trading, and you can do BTST. Additionally, you have the option of trading option on Indices and Stocks.

How to make more profit in option trading?

You should always trade-in premium contracts of ITM to make more profits in options. Apart from this, you should follow good strategies to make a profit in trading.

Are options intraday risky?

Trading in options is generally less risky as you can only lose the amount of premium you have paid. To further minimize losses, you should trade in ITM options.

What is the spot and strike price?

The spot price is the current price of a stock or index, while the strike price is the price at which both the buyer and seller of the option agree to trade.

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