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What is option trading | Option trading basics explained in Malayalam

Latest video in our channel share market Malayalam explains basics of option trading. It includes following topics.

What is option contract

• An option is just a contract that gives owner of the ability to buy/sell a stock at a set price and 

time. Time is important here.

• The contact has defined specifications that are the same for all stocks. 

• Like stocks these contracts are bought and sold in the market and have their own price. 


An Option is a tool for protecting your position and reducing risk. A buyer of the call option has the right and the seller has an obligation to take delivery. The option is only given to one party in the transaction ( buyer of an option). The option seller is also called the option writer. At the time of agreement the option buyer pays a certain amount to the option seller, this is called the ‘Premium’ amount. The agreement happens at a pre-specified price, often called the ‘Strike Price’.


Option contract specifications 


• Underlying stock- this is the stock that the option contract is for. or its a derivative of that stock. 

• Type option allows to either buy or sell the stock at. CE/PE or call option or put option.

• Strike price - The price the owner of the option can buy or sell that stock at

• Expiration Date - Option only exist for certain amount of time. after that it will be money settled 

or go for physical settlement.

• Price - What the option is trading for in the market. called option premium

• Lot size - Each option contract represents a specific number of underlying stocks.

Like stocks, there is a market of buyers and sellers for options also. These options have their own price. 

The value of the option contract is related to many factors. First main factor is stock price itself ( as it is derivative of that stock and that option price will move based on that stock price move up and down), 

next is time left to expiration date, implied volatility and market dynamics such as supply and demand. 

 

Why trade options


• For hedging your positions.

• Construct unique trades with favorable risk reward ratio. We can create good trades 

with balance of POP and RR. Managing risk is easy in option trading.

• Reduce cost of investment. 

• Take advantage of passage of time.


Watch option trading basics video in Malayalam 👇👇👇




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