Re: BeginnerQ:Is Options profit calculated based on the premium r underlying's moveme
Thank you!
I am too in the early stage of Options. If you could tell me how you approach could be useful for me!
i am taking Nism exam next month. Not for just for certification, would be useful when i trade in the future.
Good Luck on your NISM exam.. The approach is just education, there is an ocean out there, but the more we know the better.
When it comes to options:
1. Options as an entity: The more we understand the better. Download as many books on options as you can exclusively on options. Give all of them a quick glance, you will find one book which your eye will catch on either due to it's simplicity or the language or some X reason will be comfortable. Start with this and assimilate as much as you can and go for other books.
At the very least you need to have a clear understanding of basics such as Calls, Puts, & Strike Prices.
Greeks will also enter the picture: Delta, Gamma, Theta etc..
I am guessing there are traders who exclusively trade using greeks only & i am sure we also have traders who discard them and still make profit. At the minimum have a rough idea too..
2. Technical analysis: Price Action, support & resistance, volume etc...
Having an understanding of the above can help us initiate an appropriate option strategy based on market conditions..
Say, we feel market is in sideways mode, we can initiate short straddle and try to capture some time decay..
3. Option Strategies: There are various combinations for various market conditions, once you start playing with calls and puts, you will come up with various combinations, more often than not, the strategy you constructed will be in existence and you will already find that a name has been assigned to it.
You can browse for them...
4. Hedging: This is the key element, we can go against the market and out of 1000 times, we can win 999 times. The downside is, that 1 time it wins against you, we have ensure that our trading account's capital is not broken..
In my opinion, it is better to have a strategy that has high risk profile, but has hedging i.e. known risk capital..
Example: Say some strategy that Rs. 5,000 risk in worse case conditions than opposed to say a very high probability trade without hedging like shorting very far OTM options and letting it to expire worthless.. Some unforsaken event and if circuits fall, your account will be wiped out clean..
Then again, this is my opinion, each one will have their own trading style and risk appetite..
Other's might chip in with their inputs..
Thanks