If you also want to earn money by option trading in the share market, but if you do option trading without learning, then you may have to face huge losses. In option trading, the whole game depends on its options. If you want to know everything about Options, then read this article till the end.
Because in today's article we are going to know complete information about Call and Put Options in option trading. In this article we will know what is Call and Put Option, how to choose Call and Put Option? You are going to know how it works and how to select the right strike price. If you want to know about all these topics then definitely read this article till the end.
What is Option Trading?
Option trading is considered to be the most popular option in trading because in this you can earn more money in less time. In option trading, you have to buy and sell shares at a fixed price on a fixed date. This option works as a contract. An option contract is valid only for a specified period of time, which usually ranges from weeks to months.
If you trade under option trading, then you do not have to pay the full amount for that share, you have to pay its premium. If you want to learn option trading in detail, then click on the link and read the article till the end. In this article we will learn only about Call and Put options.
What is Call and Put Option
A) What is Call Option?
A call option is a type of contract that gives option buyers the right to buy the underlying asset at a fixed price within a specific time period. Call options come with a security date, but it is not an obligation for the option buyer, that is, the buyer It is not necessary that one has to buy that security, he can buy it if he wants or not.
- The main price at which a call option is purchased is called Strike Price.
- Call options are bought in lots
- Call option is exercised till an end date which is called Expiry Date.
- Underlying Assets (Stock, Bonds, Commodity etc.) come under
- The expiry date of a share option is monthly i.e. on the last Thursday of every month whereas the expiry date of index is weekly on the Thursday of every week.
- A call option is bought and profit is made when the price of the underlying asset increases.
- The amount you pay to buy options is called premium.
How Does a Call Option Work?
Whenever you buy a call option on a share, it means that you are betting on the increase in the price of that share. Most investors buy options because the investor has to pay much less money than the price of the share. Can buy more quantity for less money
But if the price of that share does not increase as per your estimate, then you may suffer loss due to not buying the call option at the right time, hence it is very important for you to have knowledge of trading before trading in the option.
When Should You Buy a Call Option?
You should buy call option only when the market goes up as per your expectation. When the market moves as per your expectation then your profit is unlimited whereas your loss is only of that premium.
Why Buy Call Option?
The biggest advantage of buying a call option is that it is believed that it increases the profit in the share price. You can take advantage of the profit of the stock above the strike price till the option expires. Therefore, if you ever buy a call option, then Expect the stock to rise before expiration
Example of Call Option
For example, suppose you have bought a call option of a company XYZ whose share price is ₹ 2500. If as per your estimate the price of your premium increases before the expiry of this option, then you will make a huge profit.
But if your guess does not prove to be correct and the price of this company decreases then you may have to face loss, hence it is very important for you to know the right strategy.
B) What is Put Option?
Put option works opposite to call option. If you feel that a share or index is going to fall, in such a situation you buy put option. If the market moves as per your estimate, then you can book good profit.
But if the market moves contrary to your expectations, you may have to face loss.
How Does a Put Option Work?
Buying a put option means that you are seeing a decline in that share, hence an investor buys a put option. These options themselves do not have any value but they are derived from some other share, hence they are called derivatives.
Put option works exactly opposite to call option, so you can remember it very easily.
When to Buy a Put Option
If an investor sees penny selling in the market, then a good investor can earn a lot of money by buying a put option. Put option is bought during a fall in the market.
What is the Difference Between Call and Put Options
1. Call option is bought when price is increase in the market and if there is a decline in the market then put option is bought.
2. In call option, profit is seen when the market rises and in put option, profit is seen when the market falls.
3. The market does not go up at all, hence option buyers make less money and option sellers earn a lot of money because many times they operate the market.
4. Call option should never be bought at resistance and put option should never be bought at support.
Conclusion
If you want to earn money from the stock market in the initial days, then it is very important for you to know about Call and Put Option. By learning these, you can earn good money from the stock market. To earn money from the stock market, you have no need to buy expensive courses.
Because the market itself gives us the greatest knowledge in the market, if you give time to the market, the market also definitely gives you good returns. If you liked the article, then do share it with your friends and do not forget to give your valuable comments.
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