Options i3 - Income Invest Insure

How to insure a stock ? Have you ever observed, we all do insurance to important things in life. Be it health, life, general insurance for home, car etc. But do we insure our investments? Is it not important? Or We may sure that our investments move only "North" direction? Right. There is always a probability for "South" direction also. Any how most of us not doing Insurance to our stock. This is true. But only financially literate people buy this insurance for stocks in their portfolio. So, whenever their stocks lose value due to market fluctuations, they claim from insurance sellers. Literally, their portfolio are always insured against black swan events or general downtrend in financial markets. How to do that? What are costs involved? Very simple, buying a put option will resolve the problem. The cost is premium we have paid to buy a PUT Option. At what strike price the stock should be insured? It depends on the nature of person doing ins...

Decided to Buy a CALL Option, But which Strike? ITM, ATM, or OTM ? Which expiry i need to select? Near month, Next month or Far month?   The answer is very simple. Follow me closely. If your are a speculator & your bet is, underlying will move very fast (i.e in 1-7 days) in north direction (i.e rise), then you should select Near month/Weekly expiry & OTM Call option near to the spot price. The cost of this trade is very low, probability of winning this trade is around 30%.If you are wrong all your going to lose is your bet amount on table. Hence keep position size low. If you win, you will make fantastic returns on your bet. In terms of percentage returns, it is very huge( Of course, only if you win).   If your are a Trader & your bet is, underlying will move very fast 7 days to 1 month, in north direction (i.e rise), then you should select Near/Next month expiry & ATM Call option. The cost of this trade is low, probability of winning this trade is around 50%....

How to do an option trade? First let me discuss about CALL Option trade. We know that, whenever your view is, underlying going to raise, we buy Call Option.( This is simple bet). But, which strike you need to select? ITM, ATM or OTM? See, if your underlying is trading at $40/-. your view is, this underlying will rise very soon. you want to take advantage of high leveraged options trade. Simply Buy ATM Call Option. The reward is pretty similar to that of buying underlying but only after it crosses your bought strike of call option. But, remember this is ultimately a bet, which will forfeit your amount if you are wrong & keep this position till end of expiry.( If spot does't cross your bought call). By observing the above table. If you bought a 40 CALL at 2/-. Then, at expiry, even though underlying closes at 40, still the value of your bought call will become ZERO. So remember to win with CALL buying option, your underlying need to cross the strike atleast by the value of option...

What is moneyness of Options? Every Option has some price, The price consists of Intrinsic value & Extrinsic Value .😕 Don't worry, I will explain in plain terms. Consider the below example. Assume that, If Nifty is at 10500 & its call option, Nifty 10400 CE Jul Expiry trading at 250/- Then, dissect our Nifty 10400 CE option value 250/- in to two parts. 1. The difference between Nifty Spot( Underlying) and Call strike price 10400 is 100. This 100 /- is Intrinsic value. This is constant( Nothing but difference between your underlying & selected strike)  2. The remaining 150/- attributes to Extrinsic value. This extrinsic value of Options depends on many forces, best two of them are, A) Volatility. B) Time Value. So, Moneyness of Options is nothing but, Intrinsic value of Options. Before going to learn about Greeks. It is important to learn about  1. selecting the stock or index, where we need to do option trade. 2. Selection of Call or Put option to trade. 3. Select...

Understanding Options (Call & puts). The prices of these options are derived from their underlying securities. Hence options are also called as derivatives. Are these Options leveraged instruments? Big YES. These are leveraged instruments.  Then, is it Okey to go with high leveraged derivative instruments? Which are simply betting on movement of prices of stock or index that too expire with in specified time period. The Answer is Yes & also No. Yes- for people,  1. who understand the nature of these instruments. Means, knowing how options prices are reacting to the price movements of corresponding underlying security as time passes. 2. Keep their betting size very limited. 3. Have patience to enter a trade or exit. 4. Ready to accept, if their view is wrong & get out of their bet quickly. 5. Knows how these bets are settled at the end of expiry? If not squared off by the end of expiry. Very Big NO - for people, who don't have above qualities or don't know above i...

What are Options? O ptions are bets placed on movement of stock/index prices, which are valid for a specified period of time.   Types of Options. Luckily we have only two types. Calls & Puts. Buyer of Calls : Has right to buy the stock at strike price but not obligation to buy the shares. Buyers of Puts : Has right to Sell the stock at strike price but not obligation to Sell the shares. How Options are different to stocks? Investors/Traders dealing with Stocks have only one way of making money. i.e, if long in stocks, price needs to go up. If short in stocks, price needs to go down. Otherwise Investors/Traders loose money. Even if the stock does't move, then also they will lose money if we consider the amount on interest they would get, if money kept in bank deposits. So, theoretically making money in stocks is less than 50%.  Where as in Options, if deployed (Calls &/or Puts) defensively, the probability of winning the bet is more than 50%. This is my first blog ...