Options trading pdf download

Options trading pdf download

Download Learn Options: Option Trading Ebook [PDF],FOLLOW US SOCIAL

Download Introduction To Options Trading Strategy [PDF] Type: PDF. Size: KB. Download as PDF Download as DOCX Download as PPTX. Download Original PDF. This Download Learn Options: Option Trading Ebook [PDF] Type: PDF Size: MB Download as PDF Download as DOCX Download as PPTX Download Original PDF This document was Download Options Trading Advanced Module. Type: PDF. Date: April Size: MB. Author: Ram Kumar. This document was uploaded by user and they confirmed that they have Download Free PDF. Download Free PDF. The results show that the hypothesis can well describe the newly developed Hong Kong index options markets. The abnormal trading One of the most popular trading means available is options trading. Option trading allows you to leverage the many different features that other markets don’t offer. This post goes through ... read more

The security could be a stock, commodity, bond, or other assets. The buyer of a call option profits when the price of the underlying security increases. With a put option, the owner has the right but not the obligation to sell an agreed asset at a predetermined price within a specific time frame. The buyer of the put option has the right to sell the asset once it hits the predetermined price. We multiply by because, in most options contracts, the option is to buy shares. A deliverable settled option is a type of option that requires the transfer of the underlying stocks or asset that the option has a contract on. For some options contracts they are cash settled.

This means the difference between the strike price and the expiry price will be paid out in cash. Some of the risks associated with options trading include;. There are numerous options for trading strategies. The popular ones include;. This strategy is popular among options traders because it generates income while reducing the risks of being long on an asset. It involves buying a stock and simultaneously writing or selling a call option on the same asset. With this strategy, the investor buys an asset and simultaneously purchases put options for the same number of shares. The holder of this put option can sell the stocks at the set price, with each contract worth shares. The long strangle strategy involves a trader buying an out-of-the-money call option and an out-of-the-money put option simultaneously, on the same underlying security, and with the same expiration date.

This involves a combination of two different contracts. This strategy involves an investor combining a bear spread strategy and a bull spread strategy. The iron condor strategy is where the trader simultaneously holds a bear call and a bull put spread. Last updated of the Module : Copyright © by NSE Academy Ltd. National Stock Exchange of India Ltd. NSE Exchange Plaza, Bandra Kurla Complex, Bandra East , Mumbai INDIA All content included in this book, such as text, graphics, logos, images, data compilation etc. are the property of NSE. This book or any part thereof should not be copied, reproduced, duplicated, sold, resold or exploited for any commercial purposes. Furthermore, the book in its entirety or any part cannot be stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

In return for granting the option, the seller collects a payment the premium from the buyer. Exchange- traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among a large number of investors. They provide settlement guarantee by the Clearing Corporation thereby reducing counterparty risk. Options can be used for hedging, taking a view on the future direction of the market, for arbitrage or for implementing strategies which can help in generating income for investors under various market conditions. In India, they have a European style settlement. Nifty options, Mini Nifty options etc. A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price. They have an American style settlement. It is also referred to as the option premium.

A call option on the index is said to be in-the-money when the current index stands at a level higher than the strike price i. If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price. An option on the index is at- the-money when the current index equals the strike price i. A call option on the index is out-of-the-money when the current index stands at a level which is less than the strike price i. If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call is Max[0, St — K ] which means the intrinsic value of a call is the greater of 0 or St — K. Similarly, the intrinsic value of a put is Max[0, K — St], i.

the greater of 0 or K — St. K is the strike price and St is the spot price. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. At expiration, an option should have no time value. OPTIONS PAYOFFS The optionality characteristic of options results in a non-linear payoff for options. In simple words, it means that the losses for the buyer of an option are limited; however, the profits are potentially unlimited. For a writer seller , the payoff is exactly the opposite. His profits are limited to the option premium; however, his losses are potentially unlimited. These non- linear payoffs are fascinating as they lend themselves to be used to generate various payoffs by using combinations of options and the underlying.

We look here at the six basic payoffs pay close attention to these pay-offs, since all the strategies in the book are derived out of these basic payoffs. Payoff profile of buyer of asset: Long asset In this basic position, an investor buys the underlying asset, ABC Ltd. Figure 1. The investor bought ABC Ltd. If the share price goes up, he profits. If the share price falls he loses. Payoff profile for seller of asset: Short asset In this basic position, an investor shorts the underlying asset, ABC Ltd. The investor sold ABC Ltd. If the share price falls, he profits. If the share price rises, he loses. Payoff profile for buyer of call options: Long call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option.

If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher the spot price more is the profit he makes. If the spot price of the underlying is less than the strike price, he lets his option expire un-exercised. His loss, in this case, is the premium he paid for buying the option. As can be seen, as the spot Nifty rises, the call option is in-the-money. If upon expiration, Nifty closes above the strike of , the buyer would exercise his option and profit to the extent of the difference between the Nifty-close and the strike price. The profits possible with this option are potentially unlimited.

However, if Nifty falls below the strike of , he lets the option expire. His losses are limited to the extent of the premium he paid for buying the option. Payoff profile for writer seller of call options: Short call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. If upon expiration, the spot price exceeds the strike price, the buyer will exercise the option on the writer. Hence as the spot price increases, the writer of the option starts making losses. Higher the spot price more is the loss he makes. If upon expiration the spot price of the underlying is less than the strike price, the buyer lets his option expire un-exercised and the writer gets to keep the premium. As the spot Nifty rises, the call option is in-the-money and the writer starts making losses. If upon expiration, Nifty closes above the strike of , the buyer would exercise his option on the writer who would suffer a loss to the extent of the difference between the Nifty-close and the strike price.

Payoff profile for buyer of put options: Long put A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. If upon expiration, the spot price is below the strike price, he makes a profit. Lower the spot price more is the profit he makes. If the spot price of the underlying is higher than the strike price, he lets his option expire un-exercised. As can be seen, as the spot Nifty falls, the put option is in-the-money. If upon expiration, Nifty closes below the strike of , the buyer would exercise his option and profit to the extent of the difference between the strike price and Nifty-close. The profits possible on this option can be as high as the strike price. However if Nifty rises above the strike of , he lets the option expire.

If upon expiration, the spot price happens to be below the strike price, the buyer will exercise the option on the writer. If upon expiration the spot price of the underlying is more than the strike price, the buyer lets his option un-exercised and the writer gets to keep the premium. As the spot Nifty falls, the put option is in-the-money and the writer starts making losses. If upon expiration, Nifty closes below the strike of , the buyer would exercise his option on the writer who would suffer a loss to the extent of the difference between the strike price and Nifty- close.

However, to protect your investment if the stock price falls, you buy a Put Option on the stock. This gives you the right to sell the stock at a certain price which is the strike price of the Put Option. The strike price can be the price at which you bought the stock ATM strike price or lower OTM strike price. In case the price of the stock rises you get the full benefit of the price rise. However, if the price of the stock falls, exercise the Put Option remember Put is a right to sell. You have capped your loss in this manner because the Put Option stops your further losses. It is a strategy with a limited loss and after subtracting the Put premium unlimited profit from the stock price rise. The payoff of this strategy looks like a long Call Option and therefore, it is also called as Synthetic Call! But the strategy is not to buy Call Option. Here you have taken an exposure to an underlying stock with the aim of holding it and reaping the benefits of price rise, dividends, bonus shares, rights issue, etc.

and at the same time insuring against an adverse price movement. In simple buying of a Call Option, there is no underlying position in the stock but is entered into only to take advantage of price movement in the underlying stock. When to use: When ownership Example is desired of stock yet investor Mr. XYZ is bullish about ABC Ltd stock. He buys ABC is concerned about near-term Ltd. To downside risk. The outlook is protect against fall in the price of ABC Ltd. his risk , conservatively bullish. he buys an ABC Ltd. XYZ pays of ABC Ltd. XYZ pays This is a strategy which limits the loss in case of fall in the market but the potential profit remains unlimited when the stock price rises. A good strategy when you buy a stock for the medium or long term, with the aim of protecting any downside risk. The pay-off resembles a Call Option buy and is therefore called as Synthetic Long Call.

COVERED CALL You own shares in a company which you feel may rise but not much in the near term or at best stay sideways. You would still like to earn an income from the shares. The covered call is a strategy in which an investor Sells a Call option on a stock he owns netting him a premium. The Call Option which is sold in usually an OTM Call. The Call would not get exercised unless the stock price increases above the strike price. Till then the investor in the stock Call seller can retain the Premium with him. This becomes his income from the stock. This strategy is usually adopted by a stock owner who is Neutral to moderately Bullish about the stock. An investor buys a stock or owns a stock which he feels is good for medium to long term but is neutral or bearish for the near term. At the same time, the investor does not mind exiting the stock at a certain price target price.

The investor can sell a Call Option at the strike price at which he would be fine exiting the stock OTM strike. By selling the Call Option the investor earns a Premium. Now the position of the investor is that of a Call Seller who owns the underlying stock. If the stock price stays at or below the strike price, the Call Buyer refer to Strategy 1 will not exercise the Call. The Premium is retained by the investor. In case the stock price goes above the strike price, the Call buyer who has the right to buy the stock at the strike price will exercise the Call option. The Call seller the investor who has to sell the stock to the Call buyer, will sell the stock at the strike price. This was the price which the Call seller the investor was any way interested in exiting the stock and now exits at that price. So besides the strike price which was the target price for selling the stock, the Call seller investor also earns the Premium which becomes an additional gain for him.

This strategy is called as a Covered Call strategy because the Call sold is backed by a stock owned by the Call Seller investor. The income increases as the stock rise, but gets capped after the stock reaches the strike price. Let us see an example to understand the Covered Call strategy. Chapter 2: Taking the Risk Chapter 3: What is an Option? Chapter 4: Why Options Rather than Stocks? Chapter 5: Why is Options trading Worth the Risk? Chapter 6: How to Get Started in Options trading Chapter 7: Learning the Lingo Chapter 8: The Role of the Underlying Stock Chapter 9: Understanding the Strike Price Chapter Options Payoff Diagram Chapter Basic Trading: Selling Covered Calls Chapter Strategy for Selling Covered Calls Chapter Outcomes of a Covered Sell Chapter Stepping Up a Tier: Buying Calls Chapter Strategies for Buying Calls Chapter Understanding Time Value Chapter Understanding Volatility Chapter Keeping an Eye on Your Calls Chapter Exercising Your Right to Buy the Stock Chapter How to Buy and Sell Puts Chapter Understanding the Greeks Chapter Strategies for New Options Traders Chapter Options Trading Tips for Beginners Chapter In Conclusion Chapter Special Thanks.

Your review Optional. Valmonte Antonio Codero Dhiravamsa Barbara Alfieri Enrique Becerra Dr. Ajay Kumar Jane Albert Italo Nosari Giuseppe Lepore Don Wenzel Vernor Vinge David Ocampo Ocampo Luciano Vicenzi MANASVI VOHRA Anna V.

For investors in every field, hedging against the unknown and the inherent risks in their core business should be the ultimate goal. In professional trading , options trading strategies are one of the most important trading methods to both create profit and minimize risks. Options are extremely versatile. Profits can not only be generated by directional trades, i. This guide explains what options are and how options work. One option is a conditional futures contract. The buyer of an option has the right, but not the obligation, to buy or sell a particular underlying asset at the expiration date or during the term at a pre-agreed price. The seller of an option has — in the case of the exercise of the option by the buyer — the obligation to deliver the underlying asset at the pre-agreed price in the case of a call option or to buy the underlying asset in the case of a put option. By buying an option, you buy the right to either buy or sell a specific underlying asset at a specific time and a pre-defined price.

Options transactions are often referred to as futures transactions. The most important feature of options is that with the purchase of the option, only the right to buy or sell is acquired, but not the obligation to execute this option. The way options work is straightforward to understand. NOTE: You can get the best free charts and broker for these strategies here. A stock option entitles the holder to purchase shares of a particular public limited company to buy or sell at a fixed value. It means that stock options are not valid indefinitely but have an expiry date. Although an option, unlike a share, does not constitute a stake in a company, it allows the purchase or sale of such a company. The difference with direct stock trading is that the price is already fixed, although the transaction date is in the future. The seller can only wait and see how the underlying asset develops.

Hence the term still holder. In return, he receives an option bonus. The buyer, on the other hand, can become active. Depending on the option, he can decide during the term or at the end of the term expiry date whether to let the option expire or exercise it. The exercise variant determines when an option can be exercised, and the business process determines whether an option entitles you to buy or sell a share. The buyer can also buy the underlying asset before the maturity date, at the strike price if it is a call option , or sell it if it is a put option. Whether this always makes sense for the option holder e. The possibility of exercising these options at any time also increases the premium to be paid because the seller wishes to be adequately compensated for this obligation.

On the pre-defined due date, the buyer owner of the option can thus exercise the associated right. In the case of a call option, he could buy the underlying asset at a fixed price; in the case of a put option, he could sell it. The seller of the option silent partnership holder must then issue or accept the corresponding underlying asset in the event of exercise. However, for this risk, the seller is compensated with the option premium. If the option is not exercised, this is his profit. In the case of stock options, a distinction can be made between call and put options. Both call and put options can be sold and sold. Managers of listed companies often receive bonuses in options from the employer and their normal salary. It means that the manager benefits when the share price of the company rises. Usually, the price of a share rises with the positive company development and with good figures.

The manager or board of directors should thus be interested in a long-term increase in value. Compared to the usual options, these options often have very long holding periods. If a manager has now managed successfully, he can exercise his options and buy shares in the company. However, this is much cheaper than the current price. Thus, in addition to the salary and direct bonuses, he makes even more profit. This is perhaps the most common use for stock options. If an investor is unsure about the performance of a stock position, he can hedge it with an option by the option behaving exactly opposite to the share price. The investor must pay the option premium for this. However, there is no longer any risk if prices collapse. When hedging the deposit, therefore, only one option per shares should be purchased.

No pure hedging effect is guaranteed. Incidentally, this strategy is called Protective Put. Particularly interesting is the leverage effect of the derivatives. Because the option premiums are significantly lower than the equivalent of shares 1 contract , more profit can be generated with little money. However, the risk is also increased. For example, with covered calls, more can be extracted from a stock portfolio than just dividends and price gains. The custodian can then collect additional option premiums. It is also possible when starting to invest. In the covered call strategy, you buy securities for a specific underlying asset and at the same time sell a short call option over the same value. You cover the open position in the option through the paper in your depot. The income on the covered call comes exclusively from the option premium.

However, you will only benefit from this return if the price value of the security at the maturity of the option is very close to the exercise value. If the price rises, you are obliged to sell more valuable security at the agreed price. If the price falls, the holder of the option will let his options right expire. However, you must bear the loss due to the lowered price. With a protective put, you cover the risk of a stock position falling. You buy a Put option on a share that you have in your portfolio. That is, the passing of time is a disadvantage for you. The paid option premium is comparable to the premium for insurance to cover a risk. The maximum loss of the position is due to the difference between the purchase price of the shares and the strike the put option and the paid option premium.

This method thus differs from the simple long put, which can also be bought without the underlying asset. If the price of the underlying drops lower than the strike price, the put can be exercised in profit. This strategy is ideal for price hedging of stock positions. With the Protective Put, two factors determine the amount of the premium. The further the put option is out of the money, the lower the option premium. The second important factor is the runtime of the option. The straddle consists of a combination of two options. One put, and one call are traded. Depending on whether the options have been sold or sold, the options trader speculates on rising or falling volatility. A short straddle strategy benefits from falling volatility. As a result, the prices of the options fall, and a buyback of the position is cheaper than the premium paid at the beginning. For a long straddle, the options trader is the owner of the option and benefits from an increase in value.

The strategy starts at a loss because two premiums had to be paid. The loss for this cannot increase any higher. For the strategy to generate profit, however, significant price movements are necessary. The direction of the movement is irrelevant. Both call short call and put options short put are sold on the same underlying asset, with the same strike and maturity date. A short straddle obliges the options trader to buy or sell a stock at a set price, provided that one of the two options contained is tendered. The option premium received is higher than on its own with a short call or short put by selling two options. The long strangle involves buying a call option long call and buying a put option long put of the same underlying asset with the same expiry date.

Remember, for the Long Straddle, different strikes are chosen. Since the options are usually out of money, the long strangle is cheaper. In return, the price increase or drop must be even stronger than with a long straddle to generate profit. The fundamental objective of this strategy is also to benefit from changes in the share price in both directions. The cost of a long strangle is comparatively high compared to other strategies. It is suitable for volatile stocks. Here, a put option with strike A short put and a call option with strike B are sold short call. The underlying asset price should be between strike A and B on the due date for maximum profit.

Both options are ideally worthless. Experts in options trading use this strategy, just like a short straddle, to benefit from falling implied volatility. In market phases with high volatility, the options may be overvalued. The goal is to close the position at a profit as soon as volatility drops. The option premium received for the sale of the call option compensates for the cost of purchasing the option.

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Download Options Trading Advanced Module. Type: PDF. Date: April Size: MB. Author: Ram Kumar. This document was uploaded by user and they confirmed that they have One of the most popular trading means available is options trading. Option trading allows you to leverage the many different features that other markets don’t offer. This post goes through Swing trading: this is a medium-term investment. In this case, trades can be left open for 10 days. Other types: social trading and trend trading. We give you, then, access to more than Download Learn Options: Option Trading Ebook [PDF] Type: PDF Size: MB Download as PDF Download as DOCX Download as PPTX Download Original PDF This document was 16/02/ · The ORIGINAL Options Trading Crash Course. EDITION Do You Want to Know How to Trade Your Way to Success on the Options Market? For a beginner, the Download Introduction To Options Trading Strategy [PDF] Type: PDF. Size: KB. Download as PDF Download as DOCX Download as PPTX. Download Original PDF. This ... read more

The Call buyer will not exercise the Call Option. For some options contracts they are cash settled. Figure Figure 4. The net price of the stock. BULL CALL SPREAD STRATEGY BUY ITM CALL AND SELL OTM CALL A bull call spread is constructed by buying an in-the-money ITM call option and selling another out-of-the-money OTM call option. However, if Nifty falls below the strike of , he lets the option expire.

in the Nifty irrespective of which direction the Neutral means that you expect movement is, upwards or downwards. Similarly, the intrinsic value of a put is Max[0, K — St], i. Audit Books, options trading pdf download. A tree model for pricing credit spread options subject to equity, and market risk. Business Strategy Books. Financial Management Books. An investor, Mr.