Options Trading Strategies FAQ's
Options Trading Strategies Frequently Asked Question(s) provide answers to commonly asked questions about Options Trading Strategies in Indian Stock Market. This Options Trading Strategies FAQ list is to help investors for their better understanding of Options Trading Strategies and to resolve their quires.
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Frequently asked question
Every trader has its own strategy to earn from the market. But there are many technical strategies available through which one can understand the trend of market.
• One should understand the nature of market whether it is bullish, bearer or neutral.
• Before investing, check the past trend of stocks.
• Evaluate yourself.
• Take experience from the market.
• Pick your strategy wisely.
When you buy an options contract, it gives you the right but not the obligation to buy or sell an underlying asset at a set price on or before date. Call option grants you the right to buy a stock and put option grants you the right to sell a stock.
Naked option trading is also known as uncovered option trading. It’s a strategy of selling an option without holding position in the underlying. It also refers to an option sold without any previously set aside shares to fulfil the option obligation at expiration.
Naked option strategy run the risk of large loss from rapid price change before expiration. Naked call and put option that are exercised to create a short and long position in the seller’s account respectively.
Paired Option contract is the new facility that allows a trader to take positions on 2 different contracts belonging to the same underlying asset at the same strike price and expiry date. This contract allows a trader to take two different positions on the same option in single order.
You will get the premium immediately upon the successful execution of your option trade.
It is an Options Trading Strategy in which a trader will buy and sell multiple option of the same type either call or put with the same underlying asset. Mainly there are three types of Option spread strategy.
• Vertical Spread Strategy.
• Horizontal Spread Strategy.
• Diagonal Spread Strategy.
Traders can use these spreads to lower their cost of investment as you pay premium for buying option and receive premium on selling option.
No, there is no really any cause for your broker to charge you for writing a put.
Relative Strength Index (RSI) is an indicator used in technical analysis to check the bullish and bearish momentum. It is generally used by technical traders and value oscillates between 0 to 100, value below 30 indicates that the option contract is oversold and value above 70 indicates that option contract is overbought.
Relative Strength Index (RSI) = 100–100/(1+RS)
Where, RS = (Average gain/n) / (Average loss/n)
n = Time frame
Bull call spread is a strategy which involves two positions of buying a call and selling a call option. Generally, it is used by traders, when they are bullish in the market. Profit and loss are limited in this strategy.