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Pasi-Option Trading Guide

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    http://santoshpasi.blogspot.com 1 | Page Option Basics Trading Guide Version 1.1 Authored By Santosh Kumar Pasi SantoshPasi@yahoo.com Reviewed By Pooja Verma  www.pasitechnologies.com     http://santoshpasi.blogspot.com 2 | Page Contents Welcome  ............................................................................................................................................................ 3 1.   Market Segment  .............................................................................................................................. 4 2.   Option  .................................................................................................................................................... 5 3.   Why should we trade Option?  ................................................................................................. 6 4.   Options Terminologies  ................................................................................................................. 7 5.   Basic Options Positions  ............................................................................................................. 15 6.   Option Writer Advantages and Disadvantages  ........................................................... 16 7.   LONG position characteristics  ............................................................................................... 17 8.   SHORT position characteristics  ............................................................................................ 18 9.   Option Premium Pricing  ............................................................................................................ 19 10.   Volatility  ............................................................................................................................................. 22 A.   Historical Volatility  .................................................................................................................. 22 B.   Implied Volatility  ...................................................................................................................... 23 C.   Historical Volatility Vs Implied Volatility  ................................................................... 23 11.   Implied Volatility’s expected behavior  ............................................................................ 24 12.   Option Greeks  ................................................................................................................................. 26 13.   Jargons: Common Terminologies  ........................................................................................ 31 14.   Understanding Chart (Candlestick)  ................................................................................... 36 15.   Price patterns  ................................................................................................................................. 38 16.   Trend  .................................................................................................................................................... 39 17.   Tools: OpStrater  ............................................................................................................................ 40 18.   OpStrater: Strategy Decision Maker (VIX)  .................................................................... 40 19.   OpStrater: Strategy Decision Maker (HV-IV)  ............................................................... 41 20.   Tools: OptionsOracle India Plugin  ...................................................................................... 42 21.   Configuring OptionsOracle  ...................................................................................................... 43 22.   Using OptionsOracle  ................................................................................................................... 48 23.   Understanding Strategy Summary  ..................................................................................... 52 24.   Adding Position in “Strategy Positions”  ......................................................................... 55 25.   To square-off position in OptionsOracle  ......................................................................... 56 26.   PUT CALL Ratio  ............................................................................................................................... 57 27.   Option Pain  ....................................................................................................................................... 58 28.   Best Practices  ................................................................................................................................. 59 29.   Assessment  ...................................................................................................................................... 60 30.   Additional resources  ................................................................................................................... 62 31.   Modules  .............................................................................................................................................. 63    http://santoshpasi.blogspot.com 3 | Page Welcome Thank you for enrolling in the workshop/purchasing of Options Strategy Premium Tool. Following are components of Options Strategy Premium Tools: 1.   OpStrater 2.   OptionsOracle India Plugin (supporting currency options) 3.   Options Basics Guide (installer copies this file on desktop) 4.   One-year technical support This tool is for personal and standard use only by its authorized user and not be shared with anyone. If it is shared or attempted for reverse engineering, we will remove access without prior notice. Any amount paid for this tool will not be returned on violation of terms and conditions. This guide explains the basic concept of Option trading, Option terminologies and Option Greeks in a very simple language with examples. This is an introduction to the Options Trading Workshop. We recommend to read this book multiple times, so that when you attend our workshop, you will get most out of the workshop.    http://santoshpasi.blogspot.com 4 | Page 1.   Market Segment There are different instruments available in the market namely: •   Equities (Cash) •   Derivative Products: o   Futures o   Options Derivative securities are financial contracts that derive their value from other securities. Examples of derivative securities are: •   Futures contracts •   Options (Call, Put) contracts •   Forward contracts CAPITAL MARKETCASHFUTURES & OPTIONSFUTURES OPTIONSCALLPUT    http://santoshpasi.blogspot.com 5 | Page 2.   Option An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a security at a predetermined price on or before a predetermined date. To acquire this right, the taker pays a premium to the writer (seller) of the contract. The party taking a long position i.e. buying the option is called buyer/holder/owner of the option and the party taking a short position i.e. selling the option is called the seller/writer of the option. The option buyer has the right but no obligation with regards to buying or selling the underlying asset, while the option writer has the obligation in the contract. Therefore, the option buyer/holder/owner will exercise his option only when the situation is favorable to him/her, but, when he/she decides to exercise, option seller/writer would be legally bound to honor the contract. Option can be used as: Leverage  Options help you profit from changes in share prices without putting down the full price of the share. You get control over the shares without buying them outright. Hedging  They can also be used to protect yourself from fluctuations in the price of a share and letting you buy or sell the shares at a pre-determined price for a specified period of time. Though they have their advantages, trading in options is more complex than trading in regular shares. It calls for a good understanding of trading and investment practices as well as constant monitoring of market fluctuations to protect against losses.  
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