Where to Start in Options Trading This post is not related to SPREADs but it is my thoughts about learning that one needs to start properly in OPTIONS TRADING. It was in reply to following question – Quote: I want to learn options trading. Do we have to be well versed with the equity trading. [...]
Theoretical price is nothing but a theoretical value. Options price depends on many variable like remaining life of option, current volatility, current interest rate etc.. There are various models that use above variables and give us the ideal price for an option. While theoretical value gives us good idea about what to pay for an [...]
To trade in options, we need to have following information with us a) Underlying Security b) Option Type – CALL or PUT c) Contract Expiry d) Strike price Once you have all above information, you have unique identifier of the option contract that you can buy or sell in the market. On NSE homepage, there [...]
Here are some of the thumb rules that will help you understand Option Greek - Delta – - Delta is the measure of Change in Option Premium with respect to one Unit move of Underlying. – For ease of understanding, the value of Delta ranges between 0 to 1. As it can have the sign of +ive [...]
Following are my selection of books on the topic of money management in trading - Definitive Guide to Position Sizing…by Van K Tharp - Trade Your Way to Financial Freedom…by Van Tharp - The New Money Management: A Framework for Asset Allocation… by Ralph Vince - The Mathematics of Money Management: Risk Analysis… by Ralph Vince - [...]
Here is the list of top 10 books on options trading that I would recommend on the bookshelf of an options trader. The Bible of Options Strategies: The Definitive Guide for Practical Trading Strategies by Guy Cohen The Option Trader Handbook: Strategies and Trade Adjustments by George Jabbour Options as a Strategic Investment by [...]
This is one of the simplest bullish strategy. Strategy = Long Call Construction = Buy one CALL option Suitable Market Condition = Bullish trend (very strong to medium strong). Better to avoid this in mild bullish conditions as time decay will nullify the marginal increase in premium due to mild upmove. Suitable Volatility at entry [...]
For calculating option price, Black-Scholes model is one of the most popular one. This uses following parameters to calculate the premium (or current fair value) of option 1) Price of Underlying 2) Option strike Price 3) Days Until Expiration 4) Risk free Interest Rate 5) Dividend Yield 6) Historical Volatility Users are often confused about [...]
Suppose you have bought an option and would like to close the position. You have following 3 choices to close it 1) Exercise it 2) Square off it 3) Let it expire Exercise = Uses the end-of-day settlement process of exchange to close your position. For this, you need to instruct your broker (either thru [...]
